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Why Blockbuster’s close to bankruptcy

Marketplace Staff Mar 17, 2010
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Why Blockbuster’s close to bankruptcy

Marketplace Staff Mar 17, 2010
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TEXT OF INTERVIEW

Bill Radke: The once-mighty video-rental chain Blockbuster said yesterday it may need to file for bankruptcy protection. Blockbuster said its auditors have raised doubts about its ability to stay in business. Joining us to talk about this is the U.S. retail correspondent at The Financial Times, Jonathan Birchall, with us live from New York City. Hello.

Jonathan Birchall: Hello.

Radke: Jonathan, Blockbuster has known for years it faced a challenge from the Internet and Netflix and kiosks. Why could they not adapt?

Birchall: Well they’ve had a lot going on over the last 10 years. Netflix has grown enormously. In the last quarter it gained a million subscribers at a time when Blockbuster lost 16 percent of its sales. It’s had the kiosks from Redbox come up on the inside. And at the same time, it’s been encumbered with a huge lump of debt that it was left with when it was spun off from Viacom in 2004. That, plus the confusion about which direction we’re actually going in, has left them exposed to those competitors.

Radke: Hmm, and how is Blockbuster trying to save itself now?

Birchall: Essentially it’s doing a couple of things. It’s trying to sell off its European operations. It’s trying to cut its debt load by trying to persuade bondholders to exchange their bonds for sales. And it’s also trying to get betters terms from the Hollywood studios, or at least to maintain the supply of DVDs from the Hollywood studios, to the point that it’s even putting up its Canadian operations — it’s discussing putting them up — as collateral against the delivery of DVD supplies. But that’s a pretty desperate situation to be in.

Radke: Yeah, so is the physical video rental store dead, Jonathan?

Birchall: Well, the CEO of Blockbuster, Jim Keyes, he’s built his career at 7-Eleven and he’s basically a stores guy. And since he’s arrived, he’s always argued that there’s a future in the physical stores. He’s tried to use the stores to sell peripherals and game machines and other technology, etc. So he believes in the stores and believes that they have a future. Personally, I have to wonder about it. When you look at what happened to music stores, when you look at the trouble that book sellers are having, do you really need to go to the video store when you can download it or get it by mail?

Radke: The Financial Times’ Jonathan Birchall. Thank you.

Birchall: You’re welcome.

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