Blockbuster Bankruptcy Spells Win for Digital Economy

Blockbuster on the verge of its 25 year anniversary next month, announced today it has filed for chapter 11 bankruptcy. While the chapter 11 restructuring will allow the chain to reduce it nearly $1 billion in debt, the company surprisingly announced that it has no plans to close any of its roughly 3,000 brick and mortar retail locations.

Blockbusters bankruptcy filing closes yet another chapter in its fight for rental revenue with younger upstarts Netflix and Redbox Inc, the later of which is owned by kiosk maker Coinstar.

Judging from market performance, stockholders indicate that Netflix will benefit most from the restructuring; its shares soaring 9% since bankruptcy speculation began earlier in the week.

After launching its own DVD-by-mail service to compete directly with Netflix in 2004, Blockbusters later initiated a failed takeover bid for rival Hollywood Video in 2005. The Hollywood chain was later acquired by Movie Gallery Inc which also filed for chapter 11 protection back in February.

A bright spot among today’s filings is Blockbusters announced plans to refocus itself on digital distribution and DVD-by-mail services. This seems like a no-brainer as the lower overhead models of both Redbox and Netflix have allowed them to surpass Blockbuster in quarterly net income.

The question still remains however if a restructured Blockbuster can compete after Netflix has amassed 15 million subscribers and Redbox manages 5 rental kiosks for every Blockbuster retail location. Can Blockbuster compete in a digital economy? Now that Redbox has announced its own plans for streaming movie services; it appears the real winner will be consumer choice.