Rich from LifeDistilled let me know that Blockbuster might be running out of cash. I did a bit of digging, and there are several stories that back up the possibility of a cash flow problem at Blockbuster:
As previously stated by Fitch, ongoing credit concerns include competing technologies, particularly video-on-demand (VOD), pay-per-view (PPV), and Internet-based delivery services, which will increasingly result in easier access to home video rentals for the end-user. The increase in competition for DVD sales from large retailers is also a credit concern.
Due to this increasing competition, Blockbuster has undertaken various new initiatives that include in-store and Internet-based subscription services for DVDs, video game subscriptions and the elimination of late fees. These actions are expected to result in cash flow weakness in the near term as late fees were anticipated to contribute $250-$350 million of operating income in 2005. This loss in operating income makes Blockbuster more dependent on retail sales growth, which continues to face strong competitive pressures. Fitch will continue to monitor the effect these new initiatives have on Blockbuster's margins and the long-term growth potential in other areas such as retail and video games as well as the impact of the purchase of Hollywood Entertainment by Movie Gallery Inc. on Blockbuster's competitive position within the industry.
S&P cut the company's corporate credit rating to "BB-minus," the third-highest junk rating, from "BB." Ratings downgrades usually increase a company's borrowing costs.
S&P said Blockbuster's outlook is negative, indicating that the company's debt ratings are likely to be cut again in the next two years.
Sorry about all of the Blockbuster coverage this week, but they are Netflix's biggest competitor.