Blockbuster considers bankruptcy protection

Rental chain's shares dive 29% on bankruptcy rumors

It was deja vu all over again for Blockbuster.

One year ago, stockholders watched their shares plunge 77% in a day as rumors swirled that the video chain would go bankrupt, and the stock took another dive Wednesday -- this time 29% -- as those same worries surfaced.

"We do not intend to file bankruptcy," a spokeswoman said the day of the big swoon a year ago. On Wednesday, though, investors got a look at the company's annual report, which mentions the possibility of bankruptcy multiple times.

If Blockbuster can't adequately address its debt load and figure out a way to compete better against Netflix and Redbox, it "would not be able to continue as a going concern and could potentially be forced to seek relief through a filing under U.S. Bankruptcy Code," the company said.

In its filing, Blockbuster lays out its plans of attack, sometimes listing companies as both ally and enemy. TiVo, for example, is not only a "competitive risk" but also a company with which it has struck a "strategic alliance" with via its Blockbuster On Demand initiative.

Besides doing everything the competition is doing -- Internet streaming, kiosks, mailing DVDs -- Blockbuster is shutting down stores and reducing its staff. It closed 430 company-owned stores last year and intends to shutter as many as 545 more this year.

Blockbuster isn't the only company struggling in the rapidly shrinking business of renting movies at brick-and-mortar locations. Movie Gallery, which also operates Hollywood Video and Game Crazy, last month filed for bankruptcy protection for the second time in three years and said it would close 760 stores.

So any way you slice it, millions of consumers could be forced to travel farther to rent a movie the old-fashioned way or to embrace higher-tech new delivery options.

Blockbuster has 6,500 stores worldwide, reported a $435 million loss for the fourth quarter and has about $964 million in debt. It needs to pay off $112.5 million in principal on that debt this year.

As the broader markets reached an 18-month high Wednesday, Blockbuster shares sunk 12 cents to 28 cents, leaving the company with a minuscule market capitalization of $55 million.

Part of Blockbuster's plan to climb out of its hole is restructuring its contracts with movie studios. It also is introducing video games into its by-mail offering that competes with Netflix and plans to take on Redbox by deploying 10,000 DVD-rental kiosks by year's end.