Netflix ushers Blockbuster out of picture

With Chapter 11 bankruptcy protection looming for the once all-powerful Blockbuster, is the writing on the wall for the DVD rental industry?

Remember when you tried to return that overdue VHS video to Blockbuster and they slapped you with a late fee? There was no negotiation and no excuses - everybody had to pay. You might think, then, that the home video behemoth's hard-line approach to paying on time would extend all the way to the company's accounting department. Think again. Once the scourge of independent video rental stores the world over, Blockbuster has amassed a hefty late fee of its own in recent years. The retailer has racked-up a debt of $1 billion (Dh3.7bn) due to declining public DVD sales and a failure to compete with the rise of movie streaming websites and disc-in-the-mail services, such as Netflix.

It's closest high-street rival in the US, Hollywood Video, closed its doors earlier this year and, according to the Los Angeles Times, Blockbuster is preparing to file for Chapter 11 bankruptcy protection in mid-September, despite efforts to expand into online services. But the yellow-and-blue stores, the first of which opened in 1985, may not be shuttering their doors quite yet. Chapter 11 would allow the management to remain in control of Blockbuster while it restructures the business with the agreement of creditors, essentially a last-ditch effort to turn things around. The company has already closed 507 underperforming outlets in the US this year and more closures are expected - 3,500 US stores now remain.

Many of the 2,600 international Blockbuster stores, from South America, to Europe and the Far East, are financially independent and could remain open even if the company goes into liquidation. Executives from the Dallas-based firm met with representatives from the six major Hollywood studios last week to ask them to continue supplying its stores with the latest releases so it can remain competitive. As the world's largest movie rental company, Blockbuster continues to be a huge revenue source for studios. The company would not comment directly on the reports.

"We can't all act surprised at the same time. For years now, Blockbuster has been dwindling in importance. The store was once the face of movie renting, and now it's the face of what used to be," wrote Ray Willington on the tech website "Ever since Netflix stormed onto the scene with a more convenient method of renting DVDs, Blockbuster has been declining. Stores have started to shut down, and even Blockbuster's attempts to mimic Netflix never really worked out. And once Netflix launched their Watch Instantly streaming service, the final nails began to sink into Blockbuster," he continued.

On the same day that news broke about Blockbuster's potential bankruptcy plans, Netflix began offering its video streaming services on Apple's iPhone. By downloading the Netflix app, users can now choose from thousands of films and TV shows to watch on the move, over a 3G connection. In 2008, the company began streaming content to homes of Watch Instantly subscribers, through a set-top box. Netflix launched its DVD rental subscription service in 1999, charging customers a monthly flat-rate fee. Subscribers receive and return DVDs and Blu-Ray discs in pre-paid postal packages and are not charged late fees if they decide to keep the disc for a long period of time. In 2009 it offered over 100,000 different titles.

Blockbuster launched a similar service in 2004, sparking a price war with the online seller. Netflix sued Blockbuster for infringement of patent, so Blockbuster counter-sued, alleging the patent was designed to maintain an illegal monopoly. Another of Blockbuster's US competitors, Redbox, uses a different approach. Rather than mailing DVDs, customers pick-up and return discs at self-service kiosks in metropolitan areas.

If Blockbuster's days truly are numbered, who knows what the knock-on effects for America could be? The death of the rental monolith is likely to result in fewer 17 year olds in gainful employment, a national surplus of extra large tubs of caramel popcorn - and then there's the potential environmental cost. Somewhere there's a landfill being prepared for 50 million copies of Finding Nemo.

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