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Who Pays $290 Million for Bankrupt Blockbuster Video?

With Netflix, Redbox, Hulu, and Amazon in the video business, who would pay $290 million for Blockbuster video and its failed business model? That is what one bidder is offering in Blockbuster’s Chapter 11 bankruptcy case.

A bidder called “Cobalt Video Holdco” has offered an initial bid of $290 million to purchase Blockbuster out of bankruptcy. Rival bidders will have to come in with higher numbers if they want to acquire the failed video chain. [Source: Wilking, Rick. “Blockbuster gets $290 million ‘stalking horse bid,'” Reuters, 2/21/11. Downloaded from: http://www.reuters.com/article/2011/02/21/us-blockbuster-idUSTRE71K5SO20110221]

But why would anyone want to acquire Blockbuster for over $290 million – or even for a lower amount? Just this week, Hulu announced that it’s $7.99 per month streaming video service will now feature films from the Criterion collection. For a few bucks, viewers will be able to watch many of the greatest movies ever made. [Source: “Classic Films To Debut On Hulu Plus,” imdb.com, 2/16/11. Downloaded from: http://www.imdb.com/news/ni7792397/.]. And Netflix’s subscriber base grew by 63% last year. [Source: Martin Peers. Wall Street Journal. (Eastern edition). “Netflix Epic Turns to ‘Short’ Story.” New York, N.Y.: Feb 16, 2011. pg. C.14].

Why would someone want to take on these new service providers, not to mention Redbox and Amazon, by operating Blockbuster’s archaic chain of brick-and-mortar stores (for $290 million!)? As it turns out, there are a few potential reasons:

First, the acquiring company would not have to operate Blockbuster. It might be able to liquidate some or all of the company’s assets in a profitable way. Unfortunately, Blockbuster does not seem to have a lot of valuable assets. Its locations are generally good, though, and could be valuable to another chain store.

Second, the acquiring company could turn Blockbuster around with a new strategy. For example, an acquirer could retain Blockbuster’s kiosk business and compete head-to-head with Redbox, using Blockbuster’s name recognition, but dispose of its other assets in a profitable way. Another option would be to make Blockbuster a pure retail store, selling dvd’s, video equipment, and associated merchandise

Third, one of today’s video superstars (e.g., Redbox) could acquire Blockbuster to benefit from its movie inventory and relationships with studios (to the extent such relationships still exist). An existing giant might even see an advantage to having brick-and-mortar locations. For example, what if Amazon.com bought Blockbuster and operated its store locations as Amazon.com stores, providing free overnight pick-up for any customer order, as well as drop shipping for Amazon sellers? That probably will not happen, but it would be interesting.

The bottom line is that acquiring Blockbuster could make strategic sense for someone, and of course the price tag would be high – higher than $290 million. A comparison can be made among the bankruptcy attorney san diego available at the firms. The charges of the lawyers should be under the funds of the person to cover the financial loss. 

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