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Blockbuster Scrambles for Cash and Stalls for Time, But Neither Will Save It

Blockbuster (BBI) is putting off its annual meeting for a month, until June 24, in hopes of having good news to announce by then on its pressing refinancing needs. But a last-minute money score wouldn't really be good news for this beleaguered chain, which has been teetering on the edge of bankruptcy for a month now and faces an uncertain future as movies migrate from physical media to online digital delivery.

A cash infusion at this point would be the financial equivalent of rearranging deck chairs on the Titanic. Ultimately, operating a chain of large video stores is a business model that's not working. Even a reverse-merger plan to try to prop up its stock price and stay on the NYSE, planned for a meeting vote, would likely only be a temporary fix.

Blockbuster knows that, signaling another step in its new direction this week with an announcement that it's landed a 400-location DVD-rental kiosk deal with Wisconsin-based convenience-store chain Kwik Trip. But sadly, Blockbuster has moved too slowly to transform its business model. At this point, outflanked by Netflix (NFLX) on the rent-by-mail front, the company would have to bust a radical move -- say, announcing it will close all its 5,000 big video-rental stores at a swoop -- to get lean enough to compete. That's unlikely to be possible outside of the bankruptcy reorganization process, which would allow the company to walk away from the expensive store leases that are dragging it down.

The company is gradually leveraging away its remaining assets, recently mortgaging more than 400 Canadian stores in exchange for a better deal with two movie studios. That makes it increasingly difficult to reorganize Blockbuster's finances.

Likely the annual-meeting stall won't change much in the end. Even if Blockbuster lands a quick cash infusion, it'll only forestall the inevitable for a short time. That would give Blockbuster time to line up more kiosk deals and strengthen its online and by-mail offerings, but the real-estate problems remain. Blockbuster has closed a few hundred stores here and there, but not enough of them and not fast enough. This is a company saddled with an anchor of overhead cost that needs to be cut loose before it drags the company to the bottom of the sea.

The stall tactic had the odd effect of raising shareholders' hopes that the company can stay out of bankruptcy, even though the inability to pull off an annual meeting as scheduled is never a good sign. Though it might not be great for shareholders for Blockbuster to go through a bankruptcy-reorganization, it might be the company's only chance for survival.

Photo via Flickr user acameronhuff

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