How Bankruptcy Offers Blockbuster A Brighter Future

Blockbuster, Inc. which has been in Chapter 11 bankruptcy since September is successfully leveraging the advantages of bankruptcy by investing in its post-bankruptcy future. The company will spend as much as $20 million over the next six weeks to buy advertising spots on national network and cable television.

Beginning with Monday’s Dancing With the Stars finale on ABC, Blockbuster will broadcast ads that tout its exclusive deals with some Hollywood studios to rent new-release DVD movies for 28 days before its competitors.

With the tagline “Less Waiting. More Watching,” the ads show people in everyday situations being told they must wait 28 days.

This advertising campaign will be the first national ad campaign for Blockbuster since 1997. But it was through the cooperation of the creditors in the Blockbuster bankruptcy that made it possible for the company to invest the money into the ad campaign.  Because all of the senior creditors in this bankruptcy case are invested in the post-bankruptcy survival of Blockbuster it was a prudent decision to allow the company to use the money in this matter.

The Blockbuster bankruptcy, like the most corporate Chapter 11 bankruptcy cases offer senior creditors a stake in the post-bankruptcy company giving them an incentive to make moves that will increase the likelihood of the company surviving bankruptcy.  Without the bankruptcy process these creditors would not allow the company to invest $20 million in advertising, they may have demanded that the money be spent to repay them instead. But if Blockbuster is successful in turning its business around, the rewards that both the debtor-company and creditors will reap after bankruptcy will be extraordinary.