Blockbuster faces second administration

December 2013 | DEALFRONT | BANKRUPTCY & RESTRUCTURING

Financier Worldwide Magazine

Gordon Brothers Europe, the private equity owners of Blockbuster UK, confirmed in late October that the DVD and games rental chain had filed for administration for the second time in 10 months.

Blockbuster’s owners noted that despite the efforts of the company’s staff it has failed to turn the flagging business around. Blockbuster’s British unit originally entered into administration in January 2013, as the chain fell victim to increased competition from supermarkets and the shift towards people watching and streaming content over the internet. Indeed, the company struggled to adapt to a shift in the rental paradigm. Blockbuster was unable to respond to, or compete with, online rivals such as Netflix Inc and Amazon Inc’s Lovefilm streaming services. The harsh economic backdrop also hampered Blockbuster’s business enormously.

According to Gordon Brothers Europe, the decision to re-enter administration in October will give “the company a chance of future survival through a reduced and different business model in the hope that a buyer will be found”. Gordon Brothers Europe had purchased Blockbuster for an undisclosed sum in March, following a raft of administration filings on the British High Street. Blockbuster, Jessops Europe Limited, The Comet Group and HMV Group plc all collapsed into administration in quick succession in late 2012 and early 2013, citing difficult trading conditions.

On 29 October Gordon Brothers stated that it was filing a notice of intention to appoint an administrator to the retailer. At the time of its initial collapse Blockbuster had 528 stores in the UK employing 4190 staff. However, today the group trades from a much more streamlined 264 stores and employs just 2000 members of staff. Gordon Brothers made the difficult decision to drastically halve Blockbuster’s store portfolio and staff numbers in order to prioritise prime locations and new releases. Many of the former Blockbuster stores were subsequently turned into inner city convenience stores and supermarket giant WM Morrisons acquired 48 of the locations.

As part of the new administration filing, the private equity group has already confirmed that 32 jobs will be cut at Blockbuster Entertainment’s Uxbridge headquarters. Yet despite the group’s ongoing problems, its network of stores will continue to trade while a buyer is sought. However, some of the group’s stores may need to close if a buyer for the brand cannot be found.

Speaking of the filing in a statement Frank Morton, chief executive of Gordon Brothers Europe, said “since the acquisition we have worked extremely hard to reignite the Blockbuster brand, make our investment work and put the business on a viable footing. Despite our best efforts, we regret that we are now forced to make some redundancies and would like to thank any affected employees for their support during the last six months.”

As a part of Blockbuster’s attempts to restructure its business, the group did attempt to develop a new digital platform, however it was unable to broker a licensing deal with Blockbuster UK’s parent company in the US, Blockbuster LLC. Gordon Brothers also noted that it had attempted to turn around the chain by carrying out restructuring, investing in new marketing and negotiating more favourable deals with landlords. Unfortunately the firm noted that its attempts to turn the Blockbuster business around had coincided with “a period of poor trading performance across both rental and retail sales” and therefore the group was forced to file a notice of intention to appoint an administrator.

Blockbuster was previously owned by US pay-TV provider Dish Network. At the time of its initial filing for administration the UK division had no secured creditor but owed its US parent company £23m including unpaid royalty fees. Although the company owed its creditors £139m at the time of the filing, Gordon Brothers Europe was able to keep the company afloat, albeit in a significantly reduced capacity.

Richard Summerfield