Is it Time to Roll the Closing Credits for Blockbuster?

In Hollywood, the opposite of a blockbuster is a flop. This week, it’s starting to look like Blockbuster, the video-rental chain that once dominated the industry, might have to change its name. A more accurate one might be Mega-Flop. That, at least, is the consensus after Blockbuster warned that it would report yet another dismal quarter Wednesday evening.

Analysts aren’t using language quite so dramatic, saying things like “we must question how long the company can continue as a going concern given its rapidly deteriorating performance.” Which is what Wedbush Morgan’s Michael Pachter said about the company this morning.

A “going concern,” of course, is Wall Street parlance for a company that can stay in business. And that’s what it’s come to for Blockbuster: After years of battling Netflix and other startups like Redbox, when it made several unsuccessful attempts to dig its way out of financial losses, Blockbuster may be faced with bankruptcy or even liquidation.

Hopes for a Blockbuster turnaround were already dim Wednesday when the company said that its rentals during December were far enough below expectations that its 2009 loss will be even larger than it had warned earlier — as large as $193 million. Efforts to shore up revenue with a new ad campaign and a larger DVD inventory failed to stimulate customers into more rentals, CEO Jim Keyes said in a statement.

On Thursday, Blockbuster’s stock plunged 33 percent to 49 cents a share — you can now sell several shares of Blockbuster and still not have enough cash to rent a DVD from one of its stores — and analysts churned out bearish note after bearish note. One of them said Blockbuster executives are running low on options to turn around the business. Another called its brick-and-mortar operations “a dinosaur.” Standard and Poor’s lowered its outlook to negative –- often a red flag — saying it expects its credit situation to get worse. Wedbush’s Pachter summed up Blockbuster’s plight well:

“Over the longer term, it appears that customers are happy with the choice of convenience offered by Netflix and low price offered by Redbox, leaving Blockbuster with the waning customer base that desires broad selection (not offered by Redbox) and immediate gratification (not offered by Netflix) at full price.”

Back when the first Harry Potter movie came out, Blockbuster was the giant in video rentals. The company even had the chance to buy Netflix for $50 million in 2000 (Netflix’ $2.8 billion market cap today is 56 times that bid). It didn’t because –- ironically enough -– executives were concerned that Netflix was losing too much money.

Instead, the video chain decided it would price Netflix out of business, developing and endlessly tweaking a DVD-by-mail business that never quite put a dent in Netflix’s growth but did bleed Blockbuster of capital and profits. Now investors are half-expecting the curtain to descend and the company to play its final credits.

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