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Netflix is handily defeating Blockbuster by providing a better service for less expense. Blockbuster tried to compete by releasing its own streaming service, but it was plagued with shoddy service and high costs. We'll see if Blockbuster can emerge from Chapter 11.
QuoteThe 25-year-old company filed for bankruptcy yesterday in New York after losing sales to Netflix Inc.’s Web and mail-order movie service and Coinstar Inc.’s Redbox DVD rental kiosks. Revenue dropped 20 percent to $4.06 billion last year, when Dallas-based Blockbuster reported a $558.2 million net loss.
As of Aug. 29, Blockbuster had about 5,600 stores worldwide, including 3,300 in the U.S., according to court papers. Michael Pachter, an analyst at Wedbush Morgan Securities in Los Angeles, said the company may have to cut U.S. locations to about 2,000 to increase annual sales per store to at least $1 million. In 2002, that figure stood at $1.1 million, he said.
“No one can predict what the market will look like for them going forward as Netflix and Redbox continue to take market share, so they are shooting in the dark,” Pachter said. The company will also face pressure to cut stores from “a new class of shareholder wanting to see cash increasing in a hurry,” he said.
In the past two years, Blockbuster has closed 1,061 U.S. company-operated stores, according to a court document. All its U.S. operations, including stores, DVD vending kiosks, mail and digital, will continue to operate normally, the company said.