«Blockbuster L.L.C.» - Great Essay Sample

«Blockbuster L.L.C.»

The present research seeks to analyze Blockbuster LLC based on the general history of the company and its financial performance in a particular period. Focus is put on the analysis of the financial performance of the company during difficult times of its operation. First of all, it is important to mention that the company received the highest revenues from 1984 to 2014. Initially, it was founded as a provider of home movies and video games. It sold those products via own video rental shops. Lately the company expanded services to providing video-on-demand, DVD by mail and other products. Blockbuster had more than 9000 stores and 60000 employees. At the peak of its performance in the 1990s, the company reached a tremendous size and success. It was one of the largest and the most successful companies in the entertainment industry in the United States of America.

With video and record stores, as well as the movie rental chain, becoming profitless, Blockbuster changed into a Hollywood-sized business. “With the library of more than 125,000 movies and video games, Blockbuster has struggled to transform its store-based distribution system into a multi-channel content delivery model” (“Blockbuster L.L.C. Company Profile”).

The first store of the company was opened in 1985 in Texas. The 1980s were a period of the establishment and strengthening of Blockbuster’s positions on the market. Its business idea was widely accepted by customers, who were provided with an opportunity to take a favorite movie to home and watch it there. Therefore, the establishment of Blockbuster L.L.C. was correlated to the development of the overall cinema and entertainment industry. In turn, the latter demonstrated a significant pace of growth, and the company benefited from that trend successfully.

As it has been already mentioned, the 1990s were a period of the biggest success of the company. Blockbuster became a multibillion firm even with international branches in the United Kingdom. That period was also associated with a range of acquisitions that were made by the company. Blockbuster acquired Viacom, Block Party, Xtra-vision in Ireland, and others.

Such great expansion and development of the company resulted in the growth of prices for its shares on stock markets. They have become attractive for investors, and the company managed to collect more financial resources. However, positive dynamics of its success ended at the beginning of the 2000s. Generally, the company did not manage to stand up the competition with such fast-growing firms as Netflix and Redbox. It was forced to declare bankruptcy in 2010. Satellite provider Dish Network bought the remaining stores of the company in 2011. Nowadays, the firm’s brand exists in the form of the ‘Blockbuster on Demand’ service and the ‘Blockbuster@Home’ television package.

The reasons for the company’s failure were weaknesses in two areas, namely, an ineffective distribution channel and a failure to win an innovative war with the main competitors. The first one in the form of retail stores became profitless. A great share of those stores was rent. The company was forced to pay significant rent fees under conditions of growing prices for real estate. Of course, it affected financial results of its performance. In addition, buying and renting movies in video stores became an unpopular trend. Customers were reluctant to order such service. They preferred downloading movies from the Internet. Moreover, Blockbuster’s competitors managed to incorporate innovations into their services. For instance, Netflix proposed its clients’ monthly fees for renting a video. Therefore, a customer was not forced to pay each time, when he rented some movie. In addition, TV broadcasting services created the greatest share of revenues. Blockbuster did not offer such services and lost customers. In the end, all those factors led to the bankruptcy of the company and further acquisition of the existing assets. However, Tamny notes the following:

Considering the myriad Blockbuster stores that dot the retail landscape, the firm’s bankruptcy in no way means they will disappear. Instead, with Blockbuster’s creditors quite eager to retrieve money lent to the firm as quickly as possible, its retail stores will either be sold at a good price or leased to new tenants.

Despite the fact of its bankruptcy, the company’s assets still exist in the form of BB Liquidating Inc.

The final task of the research is to analyze financial results of the company’s performance for the most difficult period of its existence. The main financial indicators got from financial statements for that period are provided in the table below.

Table 1

Balance Sheets for the Period from 2008 to 2011 (“BB Liquidating Inc”)

  2008 2009 2010 2011
Revenue 5254.8 5033.2 4030.9 3221.2
Net Income -73.8 -374.1 -558.2 -268
Current Assets 1319.2 1258.6 1060 852.1
Total Assets 2733.6 2154.5 1538.3 1183.5
Current Liabilities 1288.5 1253.4 934.8 562.3
Total Debt 757.8 817.8 963.6 0.7
Total Equity 655.7 -87.3 -52.3 -27.2

As it can be seen from the table, the company was demonstrating negative dynamics of financial indicators for the analyzed period. Therefore, declaring bankruptcy was a justified decision. The company did not have resources to save itself. Using these financial indicators, the main financial ratios that characterize the company’s performance can be calculated. The degree of liquidity, financial stability and profitability can be defined based on the ratios provided in the following table.

Table 2

Blockbuster’s Ratio Analysis

  2008 2009 2010 2011
Current Ratio 1.02 1 1.13 1.52
ROA -2.7% -17.36% -36.28% -22.64%
Debt Ratio 0.28 0.38 0.63 0.06

As it can be seen from the table above, the financial performance of Blockbuster in the last years of its existence was not satisfactory. The company demonstrated negative profitability without generating profits for investors and other stakeholders. The reasons for falling profits have been already mentioned above. It was one of the factors leading to the bankruptcy of the company, since its main goal was to generate profits. Without reaching this objective, the firm became uninteresting for creditors and investors.

Despite the fact of low profitability, the company was characterized with an appropriate level of liquidity. In fact, the degree of the latter was even growing. It was a good sign for creditors. The company had enough current assets to pay off the debts. Considering the latter, it is important to mention that the share of debts was low in a balance sheet. The company paid off the whole debt and proved its image of a responsible borrower. On the other hand, it can be assumed that Blockbuster should have used debts in financing of its performance. Blockbuster required money to expand its retail store network, develop an online platform or propose TV broadcasting services to customers. However, own resources of the company were not enough. Thus, it can be said that its managers made mistakes, deciding on capital distribution.

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Income statements and balance sheets of the company were appropriate. The main reason for its bankruptcy was falling revenues from a business. In turn, a growing degree of competition led to a decrease in profits of Blockbuster. It is quite difficult to say why the company did not use debt financing. It did not consider it as a good option at the very beginning, when cash flows were satisfying. It was too late to ask when the company went bankrupt.

In conclusion, Blockbuster did not manage to improve its distribution channels and implement innovations in order to stand up that competitive game. That is why, the decision to sell its existing assets was absolutely right, as the company managed to pay off the debts and retain positive reputation among investors and creditors. Blockbuster’s owners will probably launch a new business, which will be more successful.

 

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