Blockbuster “prepares to file for bankruptcy”. Netflix, Lovefilm and Redbox wield the knife

Home video rental giant Blockbuster is reportedly preparing to file for bankruptcy next month as it struggles to cope with competition from Netflix, Lovefilm and Redbox, companies who have revolutionised the rental industry with their postal and on-demand services.

Sources close to the matter to the LA Times that Blockbuster executives and senior debt holders held meetings with six major Hollywood movie studios to discuss the option of a “pre-planned” bankruptcy in September, which would allow the company to drop its most under performing stores and look to push its efforts to gain a larger share in the growing digital distribution market.

Netflix and Redbox, digital and postal rental companies in the US, and Lovefilm, a postal rental business in the UK, have been enjoying huge success as customers increasingly look to choose their rentals online and either have them shipped to them or delivered instantly via an internet stream.

Netflix already streams it’s digital catalog to Xbox Live, PS3, Nintendo Wii users, as well as offering a dedicated app for both iPhone and iPad owners (with an Android port currently in development). Blockbuster has offerings in these fields but has continued to preservere with its bricks and mortar stores, perhaps too much as it now has an estimated $1 billion from its costly leases and dwindling sales.

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It’s not all doom and gloom for Blockbuster though, the majority of movie studios have backed Blockbuster, signing deals that will give the company films 28 days before its competitors ensuring its remaining 5,800 worldwide stores will keep a steady flow of new releases.

If it can exit bankruptcy, Blockbuster will also speed up its roll out of DVD kiosks, aiming directly for Redbox, offering rentals for $1 a night, reducing overheads and allowing customers to pick up movies quickly and cheaply.

Whilst Blockbusters efforts to shift its strategy from its stores to more convenient rental methods, we feel its just a matter of “too little, too late”. Netflix, Redbox and Lovefilm have made such significant progress in the online and kiosk rental market, it might only be a matter of time until your local Blockbuster finally shuts its doors.