Rental giant Blockbuster files for bankruptcy, finally caves to Netflix and Redbox

Movie- and video game-rental giant Blockbuster finally filed for bankruptcy today after swimming in $1.46 billion of debt and failing to adapt to a new order of movie delivery dominated by Redbox and Netflix.

Blockbuster hopes to trim its debt to about $100 million. A group of bondholders that control about 80 percent of Blockbuster’s secured debt agreed to provide $125 million in funding to keep the company running as usual while it’s in bankruptcy. The group signed off on the bankruptcy plan in exchange for a controlling interest in the restructured Blockbuster.

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Blockbuster has made moves to provide online streaming, mail-order movie rentals and in-store kiosks like its competitors, but it has faced the constant problem of swimming in an enormous amount of debt — partially a result of some of its brick-and-mortar real estate woes. It had already closed 507 under-performing stores and renegotiated leases with 673 of its 3,425 stores in an effort to help bolster its cash levels.

Despite efforts to drive into the areas that made Blockbuster’s main competitors — Redbox and Netflix — so powerful, Blockbuster has hemorrhaged a lot of money in recent years. The company lost $558 million in 2009 and $374 million on 2008 alone, according to its most recent 10-K filing with the Securities and Exchange Commission.

The news that Netflix and Redbox owner Coinstar finally took down Blockbuster was good for shareholders, as shares of Netflix jumped about 3 percent to $161.50 and Coinstar shares rose 4.4 percent to $41.25.