OPINION: Blockbuster weathering storms
By Paul Sweeting -- Video Business, 3/27/2009 12:08:00 PM
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First came word that the retailer had hired a law firm to help it restructure its debt to try to boost its liquidity position.
Then it was forced to fend off rumors of an imminent bankruptcy filing.
That was followed by a one-day, 75% plunge in its share price into penny-stock territory.
By mid-month, however, things had turned a bit milder. The company reported a 38% jump in fourth-quarter operating profit compared to the same period in 2007, on a 4.4% gain in same-store sales due largely to an increase in sales of consumer electronics devices.
More critical, it also worked out a deal with its principal lenders to extend the due date on $250 million in debt until September 2010, easing its immediate cash crisis.
By the end of the month, Blockbuster was able to announce some genuinely good news, reaching a deal with TiVo to make its Blockbuster OnDemand download service available to TiVo users. Blockbuster will also begin selling TiVo DVRs in its stores and online.
So, sunny skies ahead? Not entirely.
Netflix is still beating Blockbuster's brains out in the subscription and DVD-by-mail space.
Blockbuster also still has a heavily leveraged capital structure, which it can’t delay dealing with forever. It’s also still carrying substantial goodwill on its balance sheet, a legacy (as is much of its debt) of the long-ago spin-off from Viacom.
In its fourth-quarter earnings report, in fact, it took a $435 million charge for goodwill impairment, wiping out its operating profit and resulting in a GAAP net loss of $360 million.
As CEO Jim Keyes warned in Blockbuster’s Q4 earnings call, the retailer’s plan to transform itself into a multi-platform entertainment provider is dependent on its ability to strike beneficial strategic partnerships, but it lacks the ability to fund the process itself, either from internal resources or by accessing additional capital.
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