Blockbuster fizzles in US, but renters overseas haven't switched to Netflix – yet

Video rental giant Blockbuster says its international shops are conducting “business as usual,” despite the company filing for bankruptcy today in the United States.

Blockbuster's business hasn't taken the same kind of hit abroad, where rent-by-mail operations such as Netflix have not gained a strong foothold in the movie rental market, according to business analysts.

“The global branches are not under attack by Redbox and Netflix,” says Michael Pachter, an analyst at Wedbush Securities. “Here, they’re loosing share every day. Internationally, it’s not as deep.”

He credits this to higher postage fees abroad and stricter rental laws in many other countries. Perhaps as a sign of what’s to come, however, Netflix on Wednesday launched in Canada.

“All of Blockbuster’s international operations are conducting business as usual, except that funding will no longer be provided to support the Blockbuster subsidiary in Argentina, which has been sustaining operating losses,” says a Blockbuster spokesperson.

In a statement announcing the Chapter 11 filing, the Dallas-based company said operations in Argentina “have experienced continued shortfalls in operating cash flow.” It did not elaborate, and the spokesperson did not go into details.

Blockbuster currently operates 3,300 US stores, plus more than 2,600 stores in 21 countries outside the US, according to the company website.

Domestic and international franchisees aren’t part of the Chapter 11 reorganization, although Blockbuster's directly owned international shops are. Bloomberg reports that court papers show Blockbuster Video Italy Inc, Blockbuster International Spain Inc., Blockbuster Canada Inc. and nine other units also sought protection under the bankruptcy filing.

The company’s arms in Canada and the United Kingdom both said Thursday that operations are normal.

Canada’s CBC News reported that Blockbuster’s Canadian operations were financially stable and would not be affected by the US bankruptcy filing.

Blockbuster Canada has 440 stores across the country and about 5,000 employees. "We have the assets and cash flow to execute our business plan," Barry Guest, Blockbuster Canada's vice-president and general manager, was quoted saying.

In the United Kingdom, where the movie renter has 600 shops, the bankruptcy may affect the company’s ability to invest in new DVDs, according to The Guardian. The London-based newspaper quotes Martin Higgins, head of Blockbuster in the UK, telling Retail Week that the British business has “contingency plans in place to ensure we don't have difficulties paying people."

Blockbuster shuttered many of its international shops in past years, as debt rose to today's $1.5 billion. In 2009, it closed 718 company-operated and franchised stores worldwide.

The company may soon face more competition in Canada, as Netflix is making its first push abroad by launching an online video-streaming service in Canada for movies and television shows.

The affordability and convenience of Netflix and Redbox don’t leave a lot of room for a store-based rental company like Blockbuster, says Mr. Pachter of Wedbush Securities. He expects Blockbuster to slowly shutter most of its international shops, though he adds that the company could well likely continue in a much smaller form.

“I think there’s a healthy number of people who prefer Blockbuster,” he says. “There might be a steady state that makes sense that allows Blockbuster to thrive. It’s sort of like there will always be print. Some of us like to read the paper.”