Blockbuster filed a Chapter 11 petition in NY City bankruptcy court on September 23rd, listing assets of $1.02 billion vs. debt of $1.46 billion.  The filing “provides the optimal path for recapitalizing our balance sheet and positioning Blockbuster for the future, as we continue to transform our business model to meet the evolving preferences of our customers,” CEO Jim Keyes said in a statement.  Blockbuster has arranged for sufficient “debtor-in-possession” financing to allow it to continue to operate its 3,300 U.S. stores, although analysts expect hundreds of additional closures soon, the “Huffington Post” reported.

Lessons Learned:  Competitor NetFlix’s stock hit an all-time high of $163.72/share the day Blockbuster declared bankruptcy, in testament to the power of ideas over assets.   When home ownership of DVD players hit a critical mass in the late 90’s, Reed Hastings sensed the time was right to launch NetFlix.   Without a bricks and mortar retail system to build and maintain, Netflix was able to carry many more titles than Blockbuster (e.g., 14,500 in 2002), and then created a proprietary recommendation system to encourage its subscribers to explore and choose from this “long tail” of DVD options.

By comparison, for much of its history, Blockbuster has seen increasing the number of its retail locations as the key to its growth,  either by building new stores or acquiring competitors.  This is just the strategy as one might expect from a company that was run in its early years by two former  executives of Waste Management, a trash management roll-up: John Melk and Wayne Huizenga.  And in the first ten years of Blockbuster’s life it worked beautifully: the pair made a fortune selling Blockbuster to Viacom for $8 billion in 1994.  But in the decade coming to a close in 2010,  it became apparent that NetFlix had built a better mousetrap, and Blockbuster shed unprofitable stores, adopted a “no late fees” policy, and tried to shore up its own website, but too late, from both a competitive and a financial standpoint. Acquisition of assets was so much a part of Blockbuster’s corporate DNA, that even as late in the game as February 2008, the company considered trying to acquire the struggling electronic-goods retailer Circuit City.