Blockbuster To Sell Off Assets, Valued At $290 Million

Video and game rental company Blockbuster is selling off its assets. Technically, it's being bought by a limited liability company comprised of funds managed by its investors. The new firm, Cobalt Video Holdco, consists of LPs and LLCs that are noteholders of the company, and they will assume responsibility for selling off all of Blockbuster's assets. As part of the process, Blockbuster will also ask the bankruptcy courts to conduct an auction in order to ensure the best offer for its assets under Court supervision. The agreement with Cobalt effectively "sets the floor or minimum acceptable bid", in the company's words, for possible offers, at $290 million, or the amount Cobalt paid. Blockbuster's failure to keep pace with the evolving business models in the video and game rental businesses created massive debt and an eventual bankruptcy filing for the company in September 2010. When it was delisted from the New York Stock Exchange in July, it faced about $1 billion in debt. Troubles opened up for the company, which operated once-omnipresent big-box video rental store locations, when the shift to digital media rapidly transformed the way consumers purchased and borrowed video and game entertainment. With its by-mail and eventual multiplatform streaming services, Netflix became an immediate threat to the company's marketshare, and numerous other outlets -- like other web video hubs or rental kiosks inside malls and grocery stores -- gobbled up more of Blockbuster's consumer base. Game consoles have played no small role in the growth of the digital movie audience. In addition to native video markets on consoles, Xbox 360, PlayStation 3 and Wii each added support for Netflix, and growth of that service on game consoles has outpaced analyst expectations; Wedbush's Michael Pachter projected that game consoles added 3 million new subscribers for Netflix in 2010 alone. Blockbuster was late to address the gaming space, too, adding a rent-by-mail service for video games just the month before its bankruptcy -- eight years after GameFly had begun offering the same service. "By initiating a sale process at this time, we intend to accelerate our Chapter 11 proceedings and move the Company forward," says Blockbuster chairman and CEO Jim Keyes. "An auction will allow the Company to invite competing bids from both strategic and financial investors. This will also allow for the consolidation of ownership of the Company to those with a clear and focused vision for Blockbuster’s future." According to Keyes, Blockbuster maintains a 125,000-title library, the distribution platform efforts it founded and still has equity in the brand loyalty of its customers. "Because of its ability to deliver physical content (through DVDs) and digital content (through streaming), Blockbuster can offer customers the unique ability to access any movie, any time," says Keyes.