Blockbuster has nearly run out of money again. It wants its bondholders to put up more capital as it wrestles to exit Chapter 11. If some of the bondholders balk, Blockbuster will almost certainly be sold off in parts. The question is, what parts?
The Wall Street Journalreports that "after poor holiday sales and new estimates for a costlier turnaround, the company is asking bondholders for an additional $200 million to $250 million to be used after the chain exits court protection." If holiday sales were poor, there is no reason to believe 2011 revenue will be any better.
The talks between Blockbuster and its creditors, who effectively own the company after an earlier restructuring, are in their early stages, but the video rental chain needs the capital. That gives all the leverage to the bondholders, who are led by investor Carl Icahn and hedge fund Monarch Alternative Capital LP, according to the Journal.
Blockbuster could close more of its over 5,000 stores, but it would seem that if those stores have been performing poorly they would have been closed already. It's hard to imagine why Blockbuster would shutter locations that are currently profitable.
So what exactly does Blockbuster have left to sell to potential buyers? The company's business model is broken. Nearly 30,000 Redbox kiosks run by Coinstar (CSTR) offer alternatives to customers. The kiosks cost very little to run. Coinstar recently said that sales at its locations have slowed, which means that the marketing of DVDs through any type of physical outlet may no longer be of interest to consumers. It has often been said that the Netflix's (NFLX) system of DVDs through the mail and via video-streaming has disintermediated the aged Blockbuster model. That leaves Blockbuster with nearly nothing of value.
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