As if fights for survival, video-rental chain Blockbuster is preparing to file bankruptcy next month, according to a report in the Los Angeles Times.
Blockbuster executives met with the six largest Hollywood film studios recently to brief them about the company's plan, the Times reported. The move by Blockbuster, which closed down nearly 1,000 retail stores in the past year, appears designed to help the company get out of leases on perhaps as many as 800 underperforming stores, according to the report. The chain operates more than 3,400 stores.
Blockbuster reportedly plans to file something called a "pre-planned bankruptcy" and will continue to pay the studios and other most other major creditors. This development shouldn't surprise anyone. For years, Blockbuster has closed stores, laid off thousands, and generally been tumbling towards extinction. Driving to a video store to rent a movie is rapidly becoming as unnecessary as hiring a travel agent, developing film, or listening to music on compact discs.
A Blockbuster spokesperson was not immediately available for comment.
Mainstream consumers have opted for renting movies via rental kiosks such as Redbox, cable's video-on-demand, and especially Internet rental services--most specifically Netflix. Since 2008, the once industry-dominant Blockbuster has lost more than a $1 billion and Netflix has thrived.
The Los Gatos, Calif.-based Netflix will likely top 20 million subscribers next year and last year generated $115 million in net profit on $1.6 billion in revenue. Where once Netflix, with it's original business model of mailing little red DVD packages to customers, was a sort of a rogue element in the film distribution business, the public company has now won respect in Hollywood.
Netflix was once a source of far less revenue than Blockbuster or rival Movie Gallery, the No. 2 brick-and-mortar chain that has also filed for bankruptcy, but Netflix's CEO Reed Hastings was pesky in his ability to compete for customers. (The studios even tried to block Netflix from obtaining specific titles but the scrappy company always managed to find a backdoor way to get them.)
Now, Netflix's streaming video service is attracting the kind of audience and generating the kind of cash that's made film execs take notice.
This month, Netflix penned a five-year deal worth nearly $1 billion to stream movies from Paramount, Lionsgate, and MGM.
And digital distribution of movies and TV shows is barely in its infancy. Services such as Hulu, YouTube, and Boxee are still developing. Apple is reportedly working on some kind of new digital-video service perhaps tied to a new generation of Apple TV.
While we still have a long way to go, it doesn't look like brick-and-mortar video stores will be making the trip.
Netflix Q1 2010: 14 Million Subscribers & $493.7 Million Revenue
Netflix just announced Q1 2010 results and Netflix ended the first quarter of 2010 with 13,967,000 subscribers (98% paid), and $493.7 million in revenue. Highlights from the earnings release:
- 14 million subscribers. Q1 subscriber growth was 35% over 2009, and 14% over Q4 2009.
- $493.7 million in revenue, up 25% over 2009 and 11% over Q4.
- GAAP net income increased slightly to $32.3 million.
- Gross margin increased to 37.8% in Q1.
- Subscriber acquisition cost declined to $21.54, down from $25.23 in Q4.
- Churn was 3.8% in Q1, down slightly from Q4 2010.
- More than 55% of Netflix subscribers have streamed movies and TV shows.
- Bay Area household penetration increased to 24%, and 12% in the rest of the country.
Netflix is forecasting:
- 16.5 to 17.3 million subscribers in 2010, 14.7 to 15.0 million in Q2.
- $2.11 to $2.16 billion in revenue in 2010, $517 to $525 million in Q2.
- GAAP net income for 2010 of $132 to $144 million.
COMMENTARY: Back in mid-2008, Blockbuster's CEO considered NetFlix not much of a competitor, although there were signs that NetFlix was building momentum with their DVD movie mailing service. In 2009, they started their online movie streaming service. A year later Blockbuster is on the ropes, in near bankruptcy, having closed nearly half of its U.S. stores. I don't feel sorry for Blockbuster, when movie rentals started to go mainstream they put thousands of independent movie rental businesses out of business on their way to market dominance. I remember the annual holiday season college football Blockbuster Bowl, Blockbuster blimps flying in the skies, and their movie rental late charges. NetFlix has proven that their business model has staying power, and they are well positioned to compete in the movie streaming space, while Blockbuster may become, but a faint memory.
Courtesy of an article dated August 27, 2010 appearing in CNET
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