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Blockbuster's Woes Worsen as Twentieth Century Fox Home Entertainment Says Blockbuster Isn't Paying its Obligations and Asks for Adequate Protection

|Includes:Blockbuster Inc. (BBI), BBI.B, BLOAQ, BLOKA, FOX
In the latest of a series of bankruptcy court filings by vendors and lessors asserting that Blockbuster is failing to pay administrative claims (i.e., claims that have arisen after Blockbuster's bankruptcy filing), Twentieth Century Fox Home Entertainment LLC filed a motion on Friday asking Judge Burton Lifland to order Blockbuster to provide adequate protection for its interests in the DVDs that it leases to Blockbuster for rental and/or sale in its stores.  According to the motion, Fox and Blockbuster entered into a Revenue Sharing Agreement in 2005 pursuant to which Fox leases DVDs to Blockbuster in exchange for a share of the revenue that Blockbuster generates by renting and/or selling those titles.  Not surprisingly, the value of Fox's DVDs decline rapidly because those DVDs are rented less and less frequently (each rental is called a "turn") the further they get from the release date (or "street date"). 

According to Fox's motion, Fox's leased DVDs will generate "more than $7 million over the next several months," and there are $24 million in payments that are "due or coming due" from Blockbuster to Fox.  However, Fox states that it was notified by Blockbuster late last month that those payments would not be made, despite being administrative claims.  The motion reports that Blockbuster was "purportedly instructed by its DIP lenders" to refuse to make the payments to Fox, despite Blockbuster having made "certain payments" to Fox since filing for bankruptcy protection.  Finally as it relates to the communications between Fox and Blockbuster, court filings state that Blockbuster has represented to Fox that "it intends to stay 'payment neutral' on future obligations," a representation that Fox claims is "illusory, at best, because Blockbuster is constrained in its freedom to use cash collateral." 

Therefore, Fox is asking the court to order Blockbuster to adequately protect Fox's interests in its DVDs pursuant to section 363(e) of the Bankruptcy Code.  Specifically, Fox is seeking:
  • a requirement for Blockbuster to "sequester revenue generated by Blockbuster’s rental and authorized sales of Fox’s leased DVDs during the lease period for each Fox title";
  • the turnover of all amounts owed to Fox pursuant to the Revenue Sharing Agreement;
  • alternatively, "a superpriority lien on those same revenues to be paid ahead of all other creditors upon the reorganization, sale or liquidation of Blockbuster’s assets";
  • or, if the court refuses all of the above relief, "an order precluding Blockbuster from continuing to use Fox’s property and requiring that Blockbuster return the property so that Fox can seek to monetize the titles through distribution to other vendors"
 
Other key recent court filings include (click on the title of any document for more information or to purchase):
For access to all major pleadings filed in this case, please visit http://www.chapter11cases.com/Blockbuster-Inc_c_287.html#axzz1EZrjjydq


Read more: Bankruptcy News & Analysis: Blockbuster's Woes Worsen as Twentieth Century Fox Home Entertainment Says Blockbuster Isn't Paying its Obligations and Asks for Adequate Protection http://blog.ch11cases.com/2011/02/blockbusters-woes-worsen-as-twentieth.html#ixzz1EaAOf4bV