Blockbuster Needs More Than a Miracle

Blockbuster (OTC BB: BLOBQ.PK) was supposed to claw its way out of bankruptcy by way of a wide-ranging financial restructuring plan. The return of the video Jedi will have to wait; Blockbuster is going around to its creditors, hat in hand, asking for more cash or at least some deadline extensions.

Whether Blockbuster finds mercy from its bondholders, led by billionaire activist investor Carl Icahn, you should know that the current crop of shares will ultimately be worthless. The Chapter 11 bankruptcy protection plan will turn ownership over to those debt owners, leaving shareholders with nothing. If the company ever makes it back onto the public markets, it would be under freshly minted shares with no connection whatsoever to what you might own today. Sell now or forever hold your peace.

Still, Blockbuster's presence -- or lack thereof -- will always make a difference to the video rental market, so the company's future is worth contemplating.

The creditors are demanding a new CEO and another enormous round of store closings. Keep this up, and Blockbuster will eventually lose the bricks-and-mortar presence that makes it unique today. What's left is a declining digital-streaming service and a network of rental kiosks manned by seemingly unwilling partner NCR (NYSE: NCR  ) .

That ghostly shell of a former entertainment giant seems powerless to pose any threat to subscription-rentals leader Netflix (Nasdaq: NFLX  ) or any of the pay-per-view options on the table. Amazon.com (Nasdaq: AMZN  ) and Apple (Nasdaq: AAPL  ) are more hazardous to the health of Netflix than Blockbuster ever will be, and even cable giants Comcast (Nasdaq: CMCSA  ) and Time Warner Cable (NYSE: TWC  ) could be dangerous if they decide to get serious about on-demand broadcasting.

Complicating the matter further is the fact that the CEO search faces nearly unprecedented hurdles -- you'd need a miracle worker to turn this sinking ship around, but it'd be tantamount to career suicide for most turnaround gurus to even try. Current CEO Jim Keyes is no slouch himself, having turned 7-Eleven back from the brink of extinction once, yet he's been unable to stem the bleeding at Blockbuster.

If Blockbuster comes up with the cash it needs to complete the Chapter 11 proceedings, it's only postponing the inevitable death of the company. Like Movie Gallery before it, Blockbuster will join Hollywood's elephant graveyard as a pile of blue-and-yellow bones. The future belongs to Netflix and its digital rivals.

Add Netflix to your Foolish watchlist if you truly care what happens to the movie industry in the digital millennium.

Fool contributor Anders Bylund owns shares of Netflix but holds no other position in any of the companies discussed here. Apple, Amazon.com, and Netflix are Motley Fool Stock Advisor picks. The Fool has written puts on Apple. The Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


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  • Report this Comment On January 20, 2011, at 1:36 AM, adam009 wrote:

    You wrote this articles "This Stock Is Going to Zero, and You Know It"on Sep 23rd,2010.I have been waiting since then to see this Stock to go Zero, zilch, nada, nothing!

    And did not buy.I see many investor made good money..

    Hope, u are post right this time..

  • Report this Comment On September 29, 2011, at 12:58 AM, Pandorabelle wrote:

    NFLX is an inflated lie. Hastings has unscrupulously run it into the ground with one hand lining his own pockets and the other sticking it to the subscribers the whole time.

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