Blockbuster sounds the bankruptcy alarm, again

For the second time in one year, Blockbuster has warned that it may have to file for Chapter 11 bankruptcy protection.

I just read the part of Blockbuster’s regulatory filing that describes all the ways the rental chain’s business is in jeopardy. There’s not much in there we haven’t heard before, but going through it all makes the situation look pretty grim (to see for yourself, read pages 26 through 32 in the filing).

Basically, Blockbuster acknowledges that its ability to survive is under attack from every possible angle. The obvious culprits are mail-order DVD services such as Netflix, rental kiosks such as Redbox, cheap DVD sales from other retailers, video on demand services through cable and the Web and other uses of leisure time besides watching movies.

The one advantage Blockbuster enjoys over these competitors, at least from major studio Warner Bros., is a 28-day lead over Netflix and Redbox in getting new releases. Warner benefits from this deal due to revenue sharing, but Blockbuster still worries that this business model could collapse if other distribution methods prove more lucrative for the studios.

One threat I didn’t immediately think of were major retailers such as Best Buy and Wal-Mart, but Blockbuster says those stores can offer lower prices on DVD sales as a way to lure people into their stores and sell other products.

Blockbuster is trying to expand beyond brick-and-mortar stores, with a mail-order service, rental kiosks and digital downloads, but there are two problems that the chain acknowledges: Success with these new ventures isn’t guaranteed, and any investment of time and money pulls resources away from Blockbuster’s core business model. It’s a double-edged sword.

What does all this mean for consumers? While many of Blockbuster’s attempts to generate cash won’t directly affect its customers, it’s possible that the chain will close more stores, as it did twice last year. Blockbuster may also sell some of its assets overseas, keeping the brand name intact until the company can build a stronger online presence. The recent return of late fees probably had something to do with Blockbuster’s cash needs as well.

I’ll give Blockbuster credit for surviving a brutal 2009, but this year isn’t shaping up to be any better.