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Blockbuster follows HMV into administration against increased digital competition

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Blockbuster has become the latest entertainment retailer to go into administration. Administrators from Deloitte, appointed by the film and game rental and sales business today, said the business had been squeezed as competition grew in the digital download market.

“In recent years Blockbuster has faced increased competition from internet-based providers along with the shift to digital streaming of movies and games,” said Lee Manning, joint administrator and partner in Deloitte’s restructuring services practice.

He said the core of the business, which employs 4,190 people and has 528 stores, was still profitable and that its rental and retail business would continue to trade as normal while a buyer was sought.

“We are working closely with suppliers and employees to ensure the business has the best possible platform to secure a sale, preserve jobs and generate as much value as possible for all creditors,” said Manning.

The news comes just a day after music and games retailer HMV [RHMV] went into administration, putting 4,500 jobs at risk. HMV has been in recent years criticised for being slow to adapt as music sales and later downloads moved online. Unlike HMV, Blockbuster was early to offering online rentals. Customers could rent DVDs online from as early as 2002, the same year as rival LOVEFiLM launched, though under a different name. But while LOVEFiLM, now part of Amazon, and more recent arrival NetFlix, both offer immediate online viewing through a variety of internet-connected devices, Blockbuster’s focus has been on renting and selling DVDs through stores and online, both of which necessitate a delay between decision and viewing.

Jon Copestake, retail analyst at The Economist Intelligence Unit, argues, however, that Blockbuster’s failure follows an emerging pattern.

“A theme is beginning to emerge on the high street as sellers of obsolete products using outmoded channels and inflexible business model see their creditors waiting until after Christmas to call in debts,” he said. “The administration of Jessops last week has opened a floodgate of administrations on the UK high street and Blockbuster is just the latest ‘zombie’ company to bite the dust.

“The biggest surprise for Blockbuster is how long the video rental chain has managed to survive, especially since the US parent company filed for administration in 2010. The failures of these once-mighty retail institutions have a common theme. Jessops, Blockbuster and HMV have all been undermined by online channels and primarily sell products coming to the end of their lifecycle. It seems that creditors have been waiting for the key Christmas trading period to end before cutting their losses and seeing what they can salvage.”

A recent study suggests that dozens more retailers are threatened with following Blockbuster, HMV and last week’s casualty Jessops, into administration. Begbies Traynor said on Christmas Eve that almost 140 ‘zombie’ retailers were facing “critical” financial issues.

Julie Palmer, partner at Begbies Traynor, said so-called showrooming had hit bricks and mortar retailers hard. “While book sales usually peak in the run up to Christmas, the move by consumers to use traditional book retailers simply for window shopping before purchasing online at discount prices has seriously impacted this sector, which has already suffered considerably from the growing popularity of e-book readers.

“This practice known as ‘showrooming’, where shoppers visit high street stores to try a product before using a smartphone or tablet to find the best price online is just one of the ways that cost-conscious consumers have embraced the new culture of austerity this Christmas.”

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