According to Blockbuster's pre-arranged plan, the company will cut its $1 billion debt down to $100 million or so. The proceedings include a $125 million deal that will keep Blockbuster's stores afloat for now. Most of the company's debt is to major movie studios -- the company owes Fox $21.6 million; Warner Brothers, $20 million; Sony Pictures, $13.3 million; and the list continues.
As expected, Blockbuster tried to soften the blow as much as possible by calling the process a "pre-arranged recapitalization.' As Mashable's Jolie O'Dell quipped earlier today, it's like calling an eviction a "pre-arranged relocation" when you haven't been paying the rent.
Absolutely nobody should be surprised. The once-mighty king of video has been on the decline for years, as a lovely graph from The Consumerist points out. On the other hand, the fortunes of Netflix, Redbox, Hulu and others have been on the rise.
It's the same thing that's been happening to the newspaper and publishing industries; new and more efficient business models have emerged, making previous models increasingly obsolete. Netflix's rental-by-mail model and Redbox's $1 DVD kiosks have clearly won, but so have the online video distribution models that Netflix, Hulu, YouTube and others have pioneered.
In a word, Blockbuster is the past; Netflix, Redbox and online video are the future. No amount of pre-arranged recapitalization will fix a fundamentally broken business model.