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How the mighty have fallen.

Blockbuster, once the dominant name in brick-and-mortar store DVD rentals and sales, just missed a bond repayment to junior debtholders and still owes over $40 million to senior debtholders, according to an article at TheStreet.com.

The company, whose stock is  now trading at about 13 cents a share, is also in talks with major Hollywood studios to get approval on a so-called prepackaged bankruptcy. Support of the studios is crucial to ensure a pipeline of movies on DVD if the company is to continue operations.

Blockbuster’s plan is to enter Chapter 11 bankruptcy through a speedy court process and buy some time to reorganize, not to mention obtain relief from many of its debts. Among those are leases on anywhere from 500 to 800 retail stores that are underperforming.

The company is also in the midst of an ad campaign touting its 28-day head start on new releases as a way to differentiate it from competition like Amazon, Netflix, and Redbox.

Problem is, Blockbuster has barely enough cash to mount such a campaign, according to Advertising Age. So it’s not certain how much exposure the ads will get in major markets – nor will they be enough to turn the tide, which now favors everything from $1-per-night checkout counter DVD rentals to streaming and digital downloads.

The perspective from here is that the old Blockbuster model is dead and buried. DVD kiosks work because they offer convenience and an unbeatable low price, plus they do not require personnel to stand behind a counter and ring up purchases and rentals. For Blockbuster to assert otherwise is just whistling past the graveyard…particularly after both Wal-Mart and Best Buy said last year that they do not see DVDs and Blu-ray discs as being significant sales drivers going forward.

In 2009, Best Buy launched CinemaNow, an in-store digital download service for movies and TV programs. And Wal-Mart recently purchased Vudu as a way to get into the digital streaming/download business.

Now, the new $99 Apple TV could emerge as a competitor to DVD rentals and sales, even though it doesn’t support the 1080p playback required for Blu-ray quality. But that apparently isn’t an issue for millions of Netflix subscribers who are quite happy watching standard-definition versions of movies on their HDTV sets.

Can Blockbuster survive at all? Probably as a streaming service, with a little ‘DVD-by-mail’ mixed in. NCR’s Blockbuster Express checkout rental kiosks are being deployed in 6,000 locations and should (in theory) do as well as Redbox, if pricing is competitive.

Either way, the outcome can’t be happy for Hollywood, who is seeing their DVD money-printing machine slowly grinding down. Without Blockbuster retail locations, there will be little incentive to maintain the 28-day exclusivity window on new movie releases (something Disney does not participate in, by the way).

Posted by Pete Putman, September 3, 2010 1:25 PM

About Pete Putman

Peter Putman is the president of ROAM Consulting L.L.C. His company provides training, marketing communications, and product testing/development services to manufacturers, dealers, and end-users of displays, display interfaces, and related products.

Pete edits and publishes HDTVexpert.com, a Web blog focused on digital TV, HDTV, and display technologies. He is also a columnist for Pro AV magazine, the leading trade publication for commercial AV systems integrators.