Reports of Blockbuster's death are (somewhat) exaggerated
Granted, the skepticism about the Dallas-based firm has some justification. It lost $374.1 million last year as the economy tumbled. Blockbuster has also made some bone-headed decisions, including a disastrous move to end late fees a few years ago that cost the company dearly. As of January, Blockbuster had 4,585 stores -- many of which seem gargantuan. That number seems way too high, particularly for a business that's migrating to the internet.
Last month, the company amended its $250 million credit facility, which had been reduced from $350 million. That deal has yet to close. The company generated a paltry $51 million in cash from operations. That's what prompted the statement from PricewaterhouseCoopers LLP about Blockbuster's ability to continue as a "going concern."
"The risk that we may not successfully complete this refinancing and obtain the related amendment of certain financial covenants included therein, and/or the risk that we may not have adequate liquidity to fund our operations as a result of not meeting our projected financial results, even if the refinancing is completed within the time and upon the terms contemplated, raise substantial doubt about our ability to continue as a going concern," according to the 10-K.
Even if it closes on the deal, the loan agreement would require that most of Blockbuster's cash flow from operations be used for debt service payments.
But like Cher, Rourke and Madonna, Blockbuster is a survivor. The company will endure -- even if in a much smaller incarnation -- because renting DVDs makes too much sense economically. I mean, how many times does anyone want to watch the '70s drama "Emergency" in reruns?