Blockbuster’s Future: Can It Survive?

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Don’t roll the credits for Blockbuster (Stock Ticker: BBI) just yet.

Despite filing for bankruptcy protection last week, the Netflix (Stock Quote: NFLX) and Redbox (Stock Quote: CSTR) nemesis has vowed to continue fighting the good fight.

According to Patty Sullivan, Blockbuster's senior director of corporate communications, the recapitalization of the company will have no bearing on its day-to-day operations, and customers debating whether to cancel their memberships should not. "There’s no need to, it’s business as usual," Sullivan says. "Customers can still get their movies in the store. This is just a legal proceeding to reduce our debt and it has no effect on our stores."

While this sounds promising, things certainly won’t be business as usual for Blockbuster, at least for its customers. Now that control of the company rests firmly in the hands of creditors and debt collectors, they’ll be looking for ways to squeeze money from the video rental giant. And as TheStreet previously reported, “The fastest way to do this would be to cherry-pick and close stores, Wedbush analyst Michael Pachter says. Pachter estimates Blockbuster could be as small as 1,000 stores when all is said and done, from its current portfolio of 3,000 locations and a peak of over 5,000 stores.”

Creditors will be even less inclined to keep the remaining stores open, presentable and clean. “[Blockbuster] will maintain its stores, they won’t go to zero,” Pachter recently explained to MainStreet. “But creditors will question why you need to clean so much. They’ll say, ‘why don’t you paint the walls every three months?’ It’s going to look dingy.”

The customer experience will likely suffer in other ways, Pachter said. The selection of movies and games will start to look a whole lot leaner, and creditors will be reluctant to sink more money into growing the business. “The selection will be a bit thinner in the next year or two,” Pachter said.

Another large change will be in the way Blockbuster uses stand-alone kiosks. Pachter said customers will soon start spotting more DVD kiosks, but they won’t be in prime locations. Pachter says NCR, a new company licensed to use Blockbuster’s moniker on its kiosks, doesn’t have the pull or wherewithal to purchase real estate on par with Redbox.

These issues aside, Blockbuster will still keep its place in the retail world, at least for now. Despite our growing reliance on Internet streaming, on-demand viewing, DVRs and the like, Americans are still hard-pressed to find a retailer that can match what Pachter calls Blockbuster’s “virtually limitless selection and immediate gratification.” Sure, Netflix offers many, if not more, of the same DVDs, but the subscription service makes customers wait for their flicks to arrive in the mail. This takes time, and consumers grow restless. Additionally, Netflix doesn’t offer the instant access to many new releases that Blockbuster does.

Finally, Americans don’t live in a virtual world. Not everything we do and use will transition as well online, and as long Americans need something fast, a retailer will happily provide it. “It won’t be like 'The Jetsons,'” jokes Pachter, “What if you need to buy a gallon of milk?”

Will Netflix and Redbox usher Blockbuster out? Let us know in the comments section.

Blockbuster isn’t the only company suffering a public relations nightmare. Read up on Netflix’s latest faux pas here.

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