Last Friday, Blockbuster Inc. released its second-quarter financial results, and there was plenty of doom and gloom to spread around.

Pete Putman
Insight Media Analyst

According to the Dallas, Texas-based company’s press release, total revenues for the second quarter of 2010 were $788 million, compared to total revenues of $982 million for the same period one year ago. The net loss for the quarter was $69 million, or $0.32 per share, compared to a net loss of $37 million, or $0.21 per share, in the second quarter of 2009.

That’s quite a decline, and the company attributed it to "…the closure of company-operated stores, the decline in same-store sales, and liquidity issues including costs associated with recapitalization initiatives and lease termination costs." Note that the first two items listed go hand-in-hand — sales and rentals of DVDs and Blu-ray discs are not strong enough to keep most of the company’s brick-and-mortar operations going.

A quick check of the company’s stock price on the Pink Sheets showed it at $0.135, down 25% in Friday’s trading. That’s 13.5 cents per share — a penny stock! Contrast that number with arch-enemy and ‘rebel leader’ Netflix, which closed Friday at $132.36 per share — a share price almost 1,000 times more than Blockbuster.

In a nutshell, Blockbuster is broke big time. Independent analysis of the company’s business model has suggested that a pre-packaged bankruptcy may be the best way out of this mess. Blockbuster has had to re-negotiate the terms of its debt at last twice (that’s called ‘asking for forbearance’) and its creditors are owed a sizeable sum of cash. The newest forbearance agreement gives the company until September 30 to come up with a solution…or presumably throw in the towel.

But the Rebel Alliance hasn’t won quite yet. Blockbuster CEO Jim Keyes announced several strategic initiatives to try and pull the company’s chestnuts out of the fire (or at least fend off a few more of these pesky X-wing bombing runs).

Some of these initiatives aren’t likely to have much of a positive impact, such as a new partnership with Comcast (www.dvdsbymail.com) that lets the latter’s subscribers get Blockbuster-by-Mail DVD service at a reduced price, starting with the first 14 days for free.

Realistically, how many free DVDs can anyone watch in 14 days? And how many Comcast customers already have Netflix accounts? And use Comcast video on demand, or Netflix streaming? I’ll bet there’s quite a few of them among Netflix’ 15 million-plus subscribers.

Blockbuster will also be "selectively advertising the availability of new releases 28 days before our largest rental competitors." OK, that’s akin to making some vacuous proclamation before the Imperial Senate with lots of ruffles and flourishes, but if that keeps a few storm troopers deployed and distracts creditors, then go for it.

The next two items on Keyes’ punch list were what caught my attention. Blockbuster plans to "grow Blockbuster Express to approximately 6,000 automated retail machines, deployed by NCR." BB Express is the Empire’s answer to Redbox, another pesky part of the Rebel Alliance that has been chipping away at Blockbuster’s core DVD rental business for two years and is now posing an even bigger threat - renting Blu-ray movies for (gasp!) $1.50 a night.

Rolling out their own rental kiosks with an experienced general (NCR) in charge of planning the battle strategy is one of the few smart moves Blockbuster has made lately, and could give Redbox/Coinstar a real run for their money. It won’t keep Blockbuster’s brick-and-mortar stores from shutting down, but at least there’s a ‘plan B.’

The last item on Keyes’ list of initiatives was the most intriguing. It reads, "…expanding ‘Blockbuster On Demand’ through Verizon Wireless’ Droid X by Motorola, and through select Philips and Toshiba Blu-ray players."

Lee’s see - offer your own video streaming service on Blu-ray players and mobile phones. Why, it looks like at least one person down in Dallas is coming up with some good ideas! Philips could be a strong sales partner, as their CE brands focus on value and are more mainstream products in discount stores like Target and Wal-Mart. And the Android OS now commands nearly 30% of the mobile phone marketplace.

As for Toshiba, they showed up late to the Blu-ray marketplace after handling the funeral services for HD-DVD, so they need all the help they can get to sell BD players. Having an on-board movie streaming service as part of the bundle will be attractive to potential buyers, as long as the BD players are priced competitively. (Hey, how about adding Blockbuster on Demand to Toshiba NeTVs?)

We all know how the Star Wars saga ends, so it’s going to be difficult for Blockbuster to re-write the script and avoid that big explosion at the end of Episode 6. But if the company can salvage its by-mail and streaming operations from the wreckage, Blockbuster could actually have a future.

To paraphrase Yoda, "There is no ‘rent’ or ‘buy’. There is only streaming." (Apologies to George Lucas!)