Blockbuster Expected to File for Bankruptcy

By Julie Tam
|  Wednesday, Sep 22, 2010  |  Updated 8:00 PM CDT
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Julie Tam, NBCDFW.com

Blockbuster is struggling to survive in the current climate.

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Dallas-based Blockbuster Inc. is expected to file for Chapter 11 bankruptcy within days, according to media reports.

Citing unnamed sources, the Wall Street Journal reported that Blockbuster is working with creditors to develop a restructuring plan that would free it of debt, allow it to keep some stores open and focus more on digital distribution.

The company already plans to put nearly 1,000 stores on the chopping block, and more closures are likely, the Journal reported.

The newspaper also reported that billionaire investor Carl Icahn owns one-third of Blockbuster's debt and would return to the company's board once it exits Chapter 11.

The Journal reported the filing is likely to come Friday or sometime next week. However, Bloomberg reported that the company is expected to file Thursday morning before the stock market opens.

"We were a little slow to change, but we're here to fix that," CEO Jim Keyes said late last year.

But experts say Blockbuster needs a quick fix to survive. The struggling movie-rental company has $900 million in debt.

"Without bankruptcy, they will not continue to exist," said Stan Block, a professor of finance at Texas Christian University. "Today, their stock is no longer trading, but it was trading at six cents a share. They've got 5,000 stores in which they have leases, and they can't meet the lease payments."

A Chapter 11 bankruptcy will give Blockbuster extra time to fix its problems. Block said the company will be able to renegotiate its debts.

Netflix Inc., which delivers movies by mail, and Redbox Automated Retail LLC, which offers $1 DVD rentals at standalone kiosks, have challenged the once-dominant Blockbuster.

"They're not as good as Netflix is in serving consumers online," said Elten Briggs, an assistant professor of marketing at the University of Texas at Arlington. "They're not as cheap or convenient as Redbox is in serving consumers face-to-face."

Blockbuster and Icahn did not return Associated Press calls for comment Wednesday.

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