Cameron Izadi

Personal Financial and Informational Blog

Blockbuster Goes Bust

According to this article on TheStreet.com, blockbuster has been unable to pay junior noteholders because it missed a payout to senior bondholders in July. The movie-rental giant announced that it now has until September 30th to repay the $42 million it owes to those senior bondholders.

An article in the Los Angeles Times discusses the possibility of a pre-planned bankruptcy that could last about five months, allowing Blockbuster to escape some of the leases at it’s underperforming locations. See the article for more information.

All this at a time when Netflix (NASDAQ:NFLX) is doing so well? Since Netflix became popular as the first online movie rental services, it has been seen as a very convenient and affordable alternative to the traditional movie rental store. Think about the step-by-step process of renting movies from a store:

  1. Drive down to the movie rental store
  2. Pick out a movie (out of the store’s selection)
  3. Pay a high price for a five-day rental (or even less if the movie is popular)
  4. Get the family together within the rental period and watch the movie in a hurry
  5. Be sure to return it on time to avoid late fees

Now let’s consider the Netflix step-by-step process:

  1. Log on to the Netflix website
  2. Choose which movies you would like to rent
  3. Pick it up with the rest of your mail when it arrives
  4. Watch it whenever you want, however many times you want, and mail it back whenever you want other movies!

The process allows the viewer much more freedom and saves a lot of effort and the hassle of driving to and from the video rental store (especially if you live 20 minutes away like I do). It’s easy to see how Netflix caught on so fast, leaving very little business for Blockbuster and similar stores. I actually visited a Blockbuster recently, and it seemed more like a museum than anything else. There were two people in the store: myself, and one employee. When I took the movie I wished to watch to the counter, I was informed that it would cost $5 to rent. I thought to myself, a Netflix account costs $8.99 per month, and I can rent as many movies as I want (the $8.99 plan lets you rent 1 movie at a time).

I haven’t even touched on Netflix’s instant online streaming, and the enormous overhead costs associated with operating the thousands of brick-and-mortar locations Blockbuster does. However, I think I’ve made my point quite clearly. Honestly, I am not surprised at this.

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