Personal Financial and Informational Blog
Blockbuster Goes Bust
September 6, 2010Posted by on
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:
- Drive down to the movie rental store
- Pick out a movie (out of the store’s selection)
- Pay a high price for a five-day rental (or even less if the movie is popular)
- Get the family together within the rental period and watch the movie in a hurry
- Be sure to return it on time to avoid late fees
Now let’s consider the Netflix step-by-step process:
- Log on to the Netflix website
- Choose which movies you would like to rent
- Pick it up with the rest of your mail when it arrives
- 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.