Holy popcorn! Blockbuster to close up to 960 locations

File this in the horror section: struggling movie rental giant Blockbuster (BBI) said Tuesday it will close up to 960 stores by the end of 2010. If Blockbuster does hit that target, it will represent a 22 percent decline in the company's store count. Competitors Netflix (NFLX) and RedBox have flourished in recent months, but Blockbuster's massive fleet of cash-burning stores and its substantial debt load have made it impossible for the company to keep up.

Blockbuster had been pitching consumers -- and Wall Street -- on the idea that it could offer a unique value proposition by combining online and mail order DVD viewing with the convenience of renting movies in-store too. The problem? That benefit just isn't attractive enough to consumers to justify the cost of operating a chain of stores that are growing less relevant everyday. The decision to quicken the pace of store closings is an admission that this strategy isn't working.
The argument in favor of the news is, as Jon Ogg points out at 247WallSt.com, that most of Blockbuster's EBITDA (earnings before interest, taxes, depreciation and amortization) comes from a few stores, and that it can be more profitable as a smaller company. But that's true of any chain: the stores closed are always the weakest. The question is whether Blockbuster has any competitive advantage over Netflix and Redbox after it's closed a bunch of its stores.

All other things being equal, Blockbuster has one major disadvantage: a lousy balance sheet. And with nothing except "me too" ideas like rental by mail and DVD kiosks, it's hard to see Blockbuster existing as a meaningful part of the industry for too much longer.

Tough Times for Blockbuster
Struggling video rental chain Blockbuster could close nearly 1,000 stores by the end of 2010. Click through the gallery to see which retailers have been forced to close their doors during the recession. Then take a look at those that are actually using this time to expand.
Eric J. Shelton, AP
Eric J. Shelton, AP
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