Place your bets on when Blockbuster Video will go out of business

BlockbusterHollywood Video is having a fire sale of used videos at the 805 stores it plans to close after its parent company, Movie Gallery, filed for bankruptcy a few weeks ago.

This is great news for consumers looking for deals on big name DVDs at more than half off, but not good news for Blockbuster Inc., the remaining bricks-and-mortar DVD store that remains alive but leaves me expecting to write its obituary this year.

The signs are out there that Blockbuster is in trouble, possibly creating a chance for movie fans to have another buying opportunity for DVDs, although fewer stores to buy or rent them in.

Then where would you go on a Saturday night to ask a clerk for a movie recommendation? Will a rental kiosk know your movie tastes?

Moody's Investors Service reports that "Movie Gallery's bankruptcy filing has negative credit implications for Blockbuster as it shows that the shift away from bricks-and-mortar video rentals in accelerating, one of the long-term concerns factored into Blockbuster's Caa1 credit rating." Such a rating translates into substantial risks.

It has enough liquidity to survive the next 12 months, but I wouldn't bet on it.

Blockbuster on Wednesday reported a $435 million loss at its video rental stores in the fourth quarter of 2009, accelerating its plans to close as many as 545 of its U.S. stores this year. It's adding 7,000 rental kiosks this year, so there should still be plenty of blue Blockbuster boxes to rent from, just not any clerks to ask for movie recommendations.

Blockbuster has hired lawyers and an investment bank to explore ways to cut its $1 billion in debt and avoid filing for bankruptcy, and is also said to be in talks to acquire Movie Gallery.

Of course, Blockbuster's imminent demise has been reported for years, including by WalletPop. Even back when Wayne Huizenga owned Blockbuster, it always seemed to be facing trouble and overcoming it, so a comeback in the face of Netflix, Redbox and others is a possibility.

In 2009, an SEC filing for Blockbuster stated that the company may not be able to continue without the threat of being liquidated. Here we are a year later and the company's still in business.

As for the closing of many Hollywood Video stores, I called one near my house and found out that new releases won't be sold at a discount yet, but are planned before the store closes in April. That gives me two months to find DVDs on sale at Hollywood Video and two months until I'll have one less option to rent from.

Aaron Crowe is a freelance journalist in the San Francisco Bay Area.
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