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Blockbuster: Keeping Hope (for Its Bullish Investors) Alive

Blockbuster pushes back its debt payment, despite investors' conviction that it would be able to pay up.



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has the wondrous ability to keep shareholders latched on even when all the signs point to pending disappointment.

The flailing movie rental chain was unable to make its scheduled $42 million debt payment on Friday, even though shareholders were convinced Blockbuster would pay up.

According to a weeklonng poll of readers of


, 60.6% of respondents said they believed that Blockbuster would repay some of its $1 billion in debt on Friday, while 39.4% were of the opinion that the company would be unable to fork over the cash.

Well, it looks like those 39.4% of voters were correct (although they will live to vote on this question another day). Indeed, Blockbuster was able to defer the payment until Sept. 30, announcing that it is still in discussions with creditors regarding recapitalization opportunities.

"We appreciate the continued cooperation of our senior secured noteholders and the other parties involved in our ongoing recapitalization efforts," CEO Jim Keyes said in a statement. "While making progress, this extension allows additional time to complete these complex, multiparty negotiations."

This is the second extension Blockbuster has received this summer. Last month, creditors moved the payment up one month.

Blockbuster also posted its second-quarter earnings after a delay last night, widening its loss. The company had originally hoped by postponing its debt payment last month it would be able to show creditors business trends are improving, but this doesn't seem to be the case.

During the quarter, the company lost $69 million, or 32 cents a share, compared with a loss of $37 million, or 21 cents, in the year-ago period. This was significantly larger than the loss of 24 cents analysts expected.

Blockbuster's revenue tanked 20% to $788 million from $982 million, also missing forecasts of $840.1 million.

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The company attributed to worse-than-expected results on the shuttering of stores over the past year, fewer store customers, and a nearly 30% drop in average subscribers to its by-mail service.

Management continues to expect same-store sales to decline in the high-single-digits for the remainder of the year.

Blockbuster previously canceled its call with analysts, which typically takes place after the earnings release, citing "the sensitive nature" of ongoing recapitalization efforts.

Blockbuster, in its defense, isn't going down without a fight. Over the past month the company has rolled out several new initiatives, in an effort to prove that it can keep up with its rivals.

This week the company added video games to its Blockbuster by Mail service, and also teamed up with


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to launch, a site that allows Comcast subscribers to sign up for its mail service at a discounted rate.

Blockbuster is also offering its Canada members a $9.99 per month plan that will allow them to rent unlimited movies (one at a time).

Meanwhile, Blockbuster's 28-day head start over rivals


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on access to movies from Fox, Universal and Warner Brothers should give it a slight edge. The liquidation of

Movie Gallery

, its predominant brick-and-mortar rival, is also expected to provide a boost going forward.

Still, as Blockbuster warned in the fine print of its Securities and Exchange filing, a Chapter 11 bankruptcy filing -- and even a Chapter 7 liquidation filing -- remain real possibilities if the company can't come to some sort of agreement with creditors.

-- Reported by Jeanine Poggi in New York.

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