Blockbuster files for bankruptcy

Studios' home entertainment units owed millions of dollars

Blockbuster will spend much of the remainder of its 25th anniversary year in bankruptcy court, though it will be business as usual as far as customers are concerned. Plus, the film studios that are owed money probably won’t feel much financial pain from Thursday’s filing.

The studios’ home entertainment units are listed among Blockbuster’s biggest creditors, with Fox at the top of the list, owed $21 million.

According to Blockbuster’s Chapter 11 bankruptcy filing, the company has $1 billion in assets and debts totaling $1.5 billion.

Several studios, including Fox, made arrangements months ago to protect themselves from Blockbuster’s financial woes by taking liens on Blockbuster Canada’s assets, which aren’t affected by the bankruptcy. And Blockbuster received court permission Thursday to pay pre-petition claims from movie studios. [Related: Business as usual at Blockbuster Canada.]

Others owed money by Blockbuster include Warner Home Video ($19 million), Sony Pictures Home Entertainment ($13 million), Disney ($9 million), Universal Studios Home Entertainment ($8 million), Lionsgate ($8 million) and Summit Entertainment ($3 million).

“We’re not concerned,” said one studio insider.

Said another: “It’s still a viable business. Some people still want to browse at a rental store. We’re not living or dying by them, but it’s income.”

Americans rented $6.5 billion worth of DVDs in 2009, down 24% compared with 2001, the rental industry’s best year.

In the bankruptcy recapitalization announced Thursday, a group of bondholders led by former Blockbuster friend and foe Carl Icahn will take control of the company by trading debt for equity. Most of the debt is wiped clean, with one notable exception being $125 million of debtor-in-possession financing that the Icahn group provided.

Existing shareholders are basically wiped out, though shares still traded Thursday at an all-time low of 4 cents, down 22% on the day. At the other end of the spectrum was Netflix, Blockbuster’s chief nemesis, which saw its shares rise 2% to $160.47, another new high that values the company at $8.4 billion.

Blockbuster’s by-mail, digital and kiosk operations will operate as they have been, as will its bricks-and-mortar business. But Blockbuster, which already has shuttered 1,000 U.S. stores this year, is expected to close hundreds more. Some analysts predict the current count of 3,000 eventually will be halved, with thousands of the company’s 25,000 employees losing their jobs.

“After a careful and thorough analysis, we determined that the process announced today provides the optimal path for recapitalizing our balance sheet and positioning Blockbuster for the future as we continue to transform our business model to meet the evolving preferences of our customers,” said chairman and CEO Jim Keyes.
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