What Do Blockbuster's Troubles Mean For Netflix?

Blockbuster needs cash, so what does that mean for Netflix? Rental chain Blockbuster denies reports that it's planning to file for Chapter 11 bankruptcy protection, but it is refinancing its debt and looking for another bank facility. The company's stock plummeted Tuesday to as low as 22 cents on a report that it was investigating a bankruptcy filing, rebounding Weds on its denial to a whopping 44 cents the last time I checked. No doubt, the 7,500-store chain is struggling with competition with Netflix and the huge variety of new ways consumers can get entertainment at home, including digital distribution.

While Blockbuster's stock is down some 90 percent over the past year, Netflix's stock is up about 18 percent. All the news of Blockbuster's financial woes have sent 10 million member Netflix higher. The DVD-by-mail and over-the-internet service stands in real contrast to Blockbuster. Netflix has been growing fast and most importantly, evolving with the Internet era, figuring out how to offer streaming of its films directly to your television, TiVo, XBox 360 or Blu-Ray player.

Netflix is well-positioned to continue to grow through the recession — it's unlimited rental model for a certain number of DVDs per month is great value and great convenience. ANd Netflix has huge growth potential for streaming movies and games over the Internet thanks to expanding broadband.

But some analysts are saying not to overestimate the benefit of Blockbuster's financial challenges. Janney Montgomery Scott's Media analyst Tony Wible warns that a BlockBuster bankruptcy may not actually benefit Netflix because the two company's customers are quite different as the majority of Blockbuster's revenue comes from its stores. So it's unclear if Netflix would win marketshare if Blockbuster were to go under. And certainly there's the chance that Blockbuster could restructure its debt to emerge stronger.

Regardless of what happens with Blockbuster, Netflix still represents the future of the home video market. Earlier this week a number of media CEOs at the Deutsche Bank media summit commented on the secular decline of DVD sales. It's that decline that makes revenues from the likes of Netflix's digital distribution all the more important.

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