Blockbuster Begins To Auction Assets Not Worth Buying

The auction of Blockbuster’s assets began today with what the company termed a “stalking horse” bid. It was set at what might be a considered a low price–$290 million. The amount may actually be very high

The bid was made by current holders of Blockbuster assets and bonds. Cobalt Video Holdco, LLC, a limited liability company formed by funds managed by Monarch Alternative Capital LP, Owl Creek Asset Management LP, Stonehill Capital Management LLC and Värde Partners, Inc., made the offer.

The company said the bid is part of an auction meant to set the floor or minimum acceptable bid. Blockbuster hopes to draw attention for its library of 125,000 films, millions of customers, and its ability to deliver content via physical DVD or internet streaming.

The fact is that Blockbuster serves a rapidly shrinking market segment for DVDs and its model has been nearly ruined by the less expensive kiosk system created by Redbox, a division of Coinstar. The kiosks are physical locations but do not require store workers. Blockbuster’s streaming video services is small and competes with cable VOD, Netflix (NASDAQ: NFLX), and well-funded online premium content companies such as Hulu.

It is telling that a firm with $5 billion in sales and thousands of store locations coild only find a bidder willing to pay $290 million for its assets.

Douglas A. McIntyre

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