blockbuster video about to file for bankruptcy

Posted on September 24, 2010

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blockbuster going bust will be one of those milestones for the rapid growth of digital media. studios and labels, who have for so long held onto the successful models of the past will be forced to accelerate their licensing changes.

i think the changes will be felt in the following ways:

1. the idea of regional releases for one will need to be reviewed, this could impact a lot of distribution and legal agreements as well and would be very dififcult to do quickly

2. the limiting of content distribution points would need to be reviewed- why should your content not be available on thousands of affilates if you can collect your revenues effectively? the old model of paying an upfront fee should really be done away with

3. growth of video distribution networks. youtube could really be the biggest competitor to netflix. it has the basic infrastructure and has been dabbling in pay to view. they also have the ad devlivery capabilities to monetise the content. the CDN business is going to explode 🙂

4. movie budget changes – you wouldnt think it, but cheaper distribution = lower cost. lower cost = more people able to dsitribute = more content. more content = lower budget per film on average. sure, there will always be the big releases but expect more art movies and long tail.

there are more impacts beyond this as you play with the value chain like growing demand for video search and advertising spend shifts but thats for another day.

from paid content

Blockbuster (NYSE: BBI), which had warned for months that it might have to declare bankruptcy, is expected to file for Chapter 11 later this week or next, the WSJ says. The paper says that Blockbuster will likely close 500 to 800 stores. That’s in addition to of the 960 stores Blockbuster announced it would close a year ago as part of what it called a “transformation” of its business. As of July 4, it had 3,425 stores in the U.S., down from 4,356 a year ago.

The store closings will likely hasten the transition to alternate video rental models, and, indeed, Netflix (NSDQ: NFLX) stock is up 5.8 percent today to $155.74. Blockbuster, by contrast, is down 23.75 percent to $0.06 a share.

The rental landscape has already been transformed by number two player Movie Gallery’s decision earlier this year to shut down all of its 2,666 locations after it too filed for bankruptcy.

Blockbuster apparently still believes there’s a market for a much-smaller bricks-and-mortar chain, although the WSJ says the restructured company will also emphasize “digital distribution.” The company has an on-demand streaming service that it said it would expand last year, although it has had nowhere near Netflix’s success.

The WSJ says the bankruptcy filing will leave the company without any debt. It will also give investor Carl Icahn, who sold a substantial percentage of his stock holdings in the company earlier this year but still owns a third of the company’s senior debt, a bigger role, including a board seat.

We’ve reached out to Blockbuster for comment and will update when we hear back.

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