Behind The Curve, Blockbuster Files For Bankruptcy In U.S.

Massive debt and failure to keep up with changing business models in the video and video game rental business has officially placed once-massive Blockbuster in Chapter 11 bankruptcy in the U.S. In July, the New York Stock Exchange delisted the company as it faced nearly $1 billion in debt. The company will now attempt to recapitalize what it owes, in a program designed to reduce its existing debt to $100 million or less. Thus far, it's borrowed some $125 million from lenders so that it can meet the obligations necessary to continue running its business while it tries to restructure. Much of Blockbuster's troubles can be credited to arriving late, or not at all, to these same channels. Blockbuster was challenged when Netflix rapidly emerged to corner the by-mail and digital space. Netflix is now seeing growth on major game consoles with the streaming "Watch Instantly" digital service -- a space Blockbuster has yet to enter effectively. The company's also seen competition from kiosks such as RedBox. Game consoles play no small role in Netflix's digital movie audience. Since Xbox 360, PlayStation 3 and Wii each added support for the service, growth has outpaced analyst expectations; Wedbush's Michael Pachter expects game consoles to add 3 million new subscribers for Netflix in 2010 alone. Blockbuster was late to address the gaming space, too, adding a rent-by-mail service for video games just last month -- eight years after GameFly had begun offering the same service. But even Blockbuster's video game rent-by-mail plans were thwarted, as earlier this month the company confirmed it had to put the service on hold as it ramped up the operation, missing the major release Halo Reach. The company's 3000 U.S. stores will remain operational, and as its foreign operations are a separate business entity, operations outside the States will be unaffected. "After a careful and thorough analysis, we determined that the process announced today provides the optimal path for recapitalizing our balance sheet and positioning Blockbuster for the future as we continue to transform our business model to meet the evolving preferences of our customer," said Jim Keyes, the company's CEO. Keyes highlighted "multiple delivery channels" outside of traditional stores -- these include kiosks, by mail and digital -- as key to a successful turnaround for the company. [UPDATE: Added details of Blockbuster's delayed games by mail service.]