NEW YORK — Blockbuster Inc., once the dominant movie-rental company in the U.S., filed for Chapter 11 bankruptcy protection Thursday, reeling from mounting losses, rising debt and competitors that have better catered to Americans’ changed media habits.
For now, Blockbuster will continue to operate its 3,300 U.S. stores, although analysts expect hundreds of them to close under new owners, led by billionaire investor Carl Icahn. The Dallas-based company has about 25,500 employees, including 7,500 full-time workers.
The prepackaged bankruptcy case, in the works since the spring, marks the end of an era that Blockbuster and its gold-and-blue torn- ticket logo helped establish. Americans used to troop to video stores on weekends for the latest movies. Now, they’re skipping Blockbuster and watching movies from DVD- by-mail services such as Netflix, cable and satellite video on demand and Redbox vending machines.
The shift in tastes was apparent Thursday in Denver, where some shoppers acknowledged going to Blockbuster only as a last option.
“It’s cheaper to go with the Redbox,” said Caleb Hay of Denver. “It’s more convenient.”
He estimated he visits Blockbusters one out of four times during his regular rental search, when he needs to find a movie not available at Redbox.
Kari Greenfield of Denver expressed disappointment that Blockbuster is struggling, because the chain carried older movies not easily found at Redbox.
The bankruptcy, filed in New York, will wipe out Blockbuster’s badly battered stock, which was delisted from the New York Stock Exchange two months ago because it was nearly worthless.
Icahn and his group own 80 percent of top-priority Blockbuster debt, with a face value of $675 million. Under the proposed reorganization plan, they will get new stock and control of Blockbuster’s board in return for forgiving the debt.
This marks the second time that Icahn has tried to turn around Blockbuster. He pushed Blockbuster to build up its DVD-by-mail service after acquiring a 10 percent stake in the company in 2005, only to see the chain get into deeper trouble.
Blockbuster’s other new owners consist mostly of little-known funds that try to capitalize on the demise of companies by buying their debts for pennies on the dollar.
All told, Blockbuster plans to reduce its debt from nearly $1 billion to about $100 million through the bankruptcy filing. The company has received commitments for $125 million in “debtor-in-possession” financing to repay customers, suppliers and employees during the reorganization. It is seeking immediate access to $45 million to ensure it can pay movie studios to keep its stores stocked with DVDs.
Denver Post staff writer Rita Wold contributed to this report.
