Hollywood mulls life without Blockbuster

By Sue Zeidler - Analysis

LOS ANGELES (Reuters) - Blockbuster Inc's steady descent after years of dominating the U.S. video rental market is barely causing a ripple in Hollywood.

Studios have long braced for the day when other channels would distribute movies to homes, especially since Internet downloads started turning video rental stores into historical relics.

The top U.S. video chain, which has endured no less than four rounds of painful credit refinancing, has hired law firm Kirkland & Ellis LLP to help it again restructure debt and explore avenues to raise capital.

News reports and a source familiar with the situation say Blockbuster is considering a bankruptcy filing as one of many options, but the company has denied this.

Blockbuster shares plunged more than 76 percent before a trading halt on Tuesday.

On the face of it, Blockbuster's woes jeopardize an important distribution channel for major studios from Walt Disney Co and Sony Corp to Time Warner's Warner Bros.

And analysts estimate the U.S. chain may owe as much as $900 million in accounts payable to studios, vendors and other suppliers. Total debt stood at $854 million at October 5, 2008, up more than $100 million from the start of 2008.

Hollywood, anticipating such troubles, has long explored other options, analysts and industry executives say.