The Block Is Busted: Video Rental Giant Files For Bankruptcy

The miracle Blockbuster executives were hoping for has failed to arrive; the company filed for Chapter 11 today. Blockbuster has filed for Chapter 11 and intends to continue to operate its 3,000 US locations while the bankruptcy proceedings are under way. It's hard to imagine how the company can meaningfully survive—executives have promised to reduce debt levels from approximately $1 billion today to just $100 million. Presumably much of the unprofitable fat has already been cut; Blockbuster has closed 1500 stores in order to cut costs.

"Blockbuster is under the gun now to generate as much cash as possible," said Michael Pachter, an analyst with Wedbush Morgan Securities. "When they were run by shareholders, the company was making investments and trying to grow. Now that they've been seized by creditors... Blockbuster will have to manage the business as lean as possible."

In theory, the Blockbuster brand still contains value and the retail locations themselves are probably sitting on some prime land, but the very nature of this discussion highlights how much the market has changed. Even ten years ago, the idea that a home entertainment monster like Blockbuster would find itself in bankruptcy was ridiculous. Now, the question is how effectively BB can compete with companies like Netflix and Redbox, assuming it'll ever be able to compete again at all.