Blockbuster on the edge of bankruptcy in the US, but Australian operations safe

United States movie rental chain Blockbuster has told investors it is on the brink of bankruptcy due to severe cashflow problem, but the owner of the brand in Australia says he is unaware of the latest developments.

Paul Uniacke, who owns and operates the Franchise Entertainment Group, which includes the Blockbuster, Video Ezy and EzyDVD chains, says the Australian Blockbuster chain is separate from the US company and says there is no threat to the local business.

Shares in Blockbuster in the US have fallen about 30% after the filing was submitted, which states the company is suffering from “significant liquidity constraints”. The business is facing fierce competition from mail-order DVD company Netflix, and a variety of DVD vending machine companies.

“The increasingly competitive industry conditions under which we operate has negatively impacted our results of operations and cashflows and may continue to in the future. These factors raise substantial doubt about our ability to continue as a going concern,” Blockbuster said.

The company has been forced to close hundreds of stores, and is attempting to update its business to introduce vending machines and a DVD-by-mail offering. It also owes about $975 million in senior secured notes and senior subordinated notes.

While Uniacke says he was not aware of the filing, he maintains local stores are still providing solid business and the company is well positioned to take on rivals.

“I haven’t read anything on the current regulatory filing because they don’t keep us in the loop regarding that. But we stand alone from them. And if anything were to happen to us anyway, no matter what happens the stores we have will still exist.”

“So really there is no real issue for us. I am aware of the financial issues they’ve been having, but if anything happens to them there will be no reason for us to shut down as well.”

Uniacke also said the Australian Blockbuster business remains better protected against online offerings, such as Quickflix, backed by entrepreneur Simon Backer, and BigPond DVD Rentals, saying the bricks-and-mortar stores offer better returns.

“Blockbuster was up 3.5% last year, EzyDVD was also up. Quickflix hasn’t come close to making a profit in any quarter they’ve existed in within the last six or seven years, I just don’t see the future of where Quickflix exists – it’s continuing to lose money.”

“When you have Quickflix as well saying they will eventually move into downloads, I really just don’t see that as a sustainable model and I think you can get better value in bricks and mortar stores at this point that going to downloads. Netflix in the US has eleven million subscribers, but I have single stores that have more members or turnover than Quickflix make every year. We will introduce downloading as well but with different models, and eventually.”

In the US, Blockbuster said its key sales measure dropped by 16% in the fourth quarter of the year, losing $435 million compared to a $360 million loss during the corresponding period in 2008.