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A customer peruses movie titles at a Blockbuster outlet (Kevin Van Paassen/Kevin Van Paassen/The Globe and)
A customer peruses movie titles at a Blockbuster outlet (Kevin Van Paassen/Kevin Van Paassen/The Globe and)

Blockbuster Canada pushed into receivership Add to ...

Blockbuster Canada has been pushed into receivership by the Hollywood giants that provided it with new releases, after the studios called in $67-million (U.S.) in debt racked up by its U.S. parent company.

The surprise move comes weeks after its U.S. parent company was sold to satellite television provider Dish Network for $228-million, following a Chapter 11 bankruptcy filing in the United States that the company blamed on the changing viewership habits of its customers.

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Executives at the Canadian subsidiary insisted throughout the U.S. restructuring that business remained brisk, despite the recent entry of streaming-video provider Netflix and the proliferation of video-on-demand services by the country's cable and satellite providers.

But as the U.S. firm struggled to avoid bankruptcy in early 2010, it offered its Canadian subsidiary as collateral to the movie studios to ensure a steady supply of new releases. With the U.S. bankruptcy restructuring resolved, the studios are looking to recoup what they can by selling the Canadian operations.

They asked an Ontario court to place the company into receivership on Tuesday, and the motion was granted Wednesday. The studios would not comment.

The company is now on the block - its 400-plus stores will be kept open by receiver Grant Thornton Ltd. as it pursues a sale. Employees have been told they will now be paid weekly instead of bi-weekly, have been issued their vacation pay and told not to sell gift certificates for the foreseeable future.

"The company's stores are open for business," the receiver said in a statement. "The receiver expects to initiate a process in the near term to identify parties interested in purchasing Blockbuster Canada's enterprise and assets."

There's reason to believe there will be interest in the Canadian company. Brahm Eiley of Convergence Consulting Group Ltd. estimated the company was profitable, and generated about $400-million (Canadian) in revenue in 2010 - including rentals and the sale of movies and items such as popcorn and candy.

"Everyone will go on about how this is all because of Netflix but nothing could be further from the truth," Mr. Eiley said. "Blockbuster is the dominant rental player in Canada, and although it was reducing its number of stores, it was still clocking in some very solid revenue. Competition in Canada is nothing compared to the U.S."

Video stores only accounted for 43 per cent of all rental revenue in the U.S. at the end of 2010, he said, compared to 94 per cent in Canada. While alternatives such as video kiosks, online services and mail order offerings have increased in Canada, he said it could be a decade before Canadians catch up with their U.S. counterparts.

Even as the deal closed for the U.S. company last month, it was generating a loss of about $67-million (U.S.). Its new owner plans to close about half of the remaining 2,400 stores. At its peak, it owned more than 9,000 stores in the U.S. alone and had a market capitalization near $5-billion.

Its largest Canadian competitors - Videotron and Rogers - have been reducing the number of their locations in response to decreasing store visits and aren't considered likely to buy the chain.

That could bring an interesting range of alternative buyers to the market. One possibility could be Wind Mobile. The Egyptian-funded cellphone company has set up mini-stores within Blockbusters in a bid for a retail presence, and chairman Anthony Lacavera has expressed interest in developing storefronts.

He said Wind Mobile started looking at contingency plans for its retail strategy when the U.S. Blockbuster ran into trouble, but wouldn't elaborate on his plans, other than to say that the deal with Blockbuster was eventually going to be problematic for Wind as it opened its own locations.

"We started thinking about backup plans months ago," he said. "They were far more healthy than the U.S. company, so we are cautiously optimistic they will keep going. But we're monitoring it closely."

 

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