These days, there's no shortage of stocks that make you wonder, "How low can this stock go?" That's a good question, because it seems like no matter how far some stocks fall, they end up falling even further. With that in mind, this week let's take a look at a company that was once a staple on the American consumer's entertainment landscape: Blockbuster (NYSE:BBI).

A choice selection … of competitors
I guess I'm dating myself when I say I remember when a weekend trip to the video store -- most likely Blockbuster -- was the thing to do. (Yes, I remember renting movies on videotape, too.) I don't miss that weird ritual of slowly sidestepping along the new release wall with a ton of other people trying to snap up the last copy of some hit movie.

Times have changed in the movie rental business, now that Netflix (NASDAQ:NFLX) has made Blockbuster's bricks-and-mortar model look like a downright dinosaur.

In addition, you can now can rent movies digitally through Apple's (NASDAQ:AAPL) iTunes or Amazon.com's (NASDAQ:AMZN) Unbox. (Or you can use Amazon Unbox for TiVo (NASDAQ:TIVO).) You can go to one of those Redbox kiosks in many grocery stores and rent a flick. I've even noticed that my local 7-Eleven seems to offer those lovely, legendary one-use, self-destructing DVDs, joining convenience with an utter lack of commitment to any service (or even DVD return, or concern about needless waste, for that matter). Apparently Staples (NASDAQ:SPLS) is offering them, too.

Regardless of what you think about any of those alternatives, there are a ton of options, and more to come in the digital arena. And that's why Blockbuster's in trouble, and will continue to be in trouble, as far as I'm concerned.

A history of complacence
This tough competitive landscape set Blockbuster up for what I thought was one of the most bizarre business news headlines ever: its proposed merger with Circuit City (NYSE:CC). (You probably already know that the company dropped that idea.)

Blockbuster has former 7-Eleven executive Jim Keyes at the helm now, and I'll admit that he seems like a savvy addition. He has generated some interesting new strategies for the company, including digital delivery and peddling movie-friendly extras in stores.

All the same, Blockbuster has a history of shooting itself in the foot, and I suspect many people still feel burned by the company's former behavior. Netflix's recent shipping snafus may have given it a bit of a black eye, but clearly, it has learned Blockbuster's lessons well. Netflix automatically offered 15% credits to customers, stating in a humble and apologetic email how it strives to delight them (and turning sour grapes into fine wine).

Compare that with the way Blockbuster made onerous late fees part of its business model, before Netflix came on the scene and shook things up. After effectively milking its customers for years, angering many along the way, it'll take a long time for Blockbuster to regain customer loyalty.

Debt albatross
I have long marked Blockbuster as an "underperform" in Motley Fool CAPS. I recently wondered whether I needed to end the pick, which was winning; after all, shares were only trading in the $3 range. How much lower can it go?, I thought.

Then news broke that Moody's was cutting Blockbuster's "probability of default" rating to Caa1 from B3, saying it "remains highly leveraged and is faced with the burden of refinancing in a challenging credit environment." To me, that indicated that things could indeed get worse.

After all, investors who snap up shares of Blockbuster, even at these beaten-down prices, are also investing in a company that has only reported an annual profit once since 2004, and has a major debt burden, with a total debt-to-equity ratio of 1.25 and a debt-to-capital ratio of 0.56. That's above and beyond normal competitive challenges, so no thanks.

Scary stuff
Granted, Blockbuster is expected to report an actual annual profit this year and in 2009, but given the lackluster economy and the major competitive challenges, I'm not sure I buy the idea that things are turning around for Blockbuster anytime soon.

Therefore, even though Blockbuster's trading at just a couple bucks per share, I still say "Look out below!" And my Foolish colleague Rick Munarriz coined another apt phrase for this retailer way back in 2004, playing off its old marketing mantra: "Make it a Blockbuster fright." Even now, I still find the company just as frightening.

Staples, Netflix, Amazon.com, and Apple are Motley Fool Stock Advisor recommendations. Try any of our Foolish newsletters today, free for 30 days.

Alyce Lomax does not own shares of any of the companies mentioned. The Fool has a disclosure policy.