"The increasingly competitive industry conditions under which we operate has negatively impacted our results of operations and cash flows and may continue to in the future. These factors raise substantial doubt about our ability to continue as a going concern," Blockbuster said in a regulatory filing late Tuesday.

"It is possible that a successful and efficient implementation of an exchange or any of the other strategies we are pursuing will require us to make a pre-packaged, pre-arranged or other type of filing for protection under Chapter 11 of the U.S. Bankruptcy Code."

• Browse Blockbuster's entertainment catalog -- browse Blockbuster's complete catalog of movies and television shows.
• Check real-time store inventory -- access up-to-the-minute inventory data to see if the movie they want to rent is currently in-stock at their local participating Blockbuster store.
• Build and manage an online rental queue -- create or manage an online queue of movies they want to rent, adding, deleting or reordering titles directly from their iPhone or iPod touch.
• Locate their nearest Blockbuster store -- find the nearest store based on a customer's current location or from another provided address.

Suddenlink Communications and Mediacom Communications Corp. will rebrand their video-on-demand services with the Blockbuster name, the companies said today in a statement. The cable operators will promote the service through kiosks in Blockbuster stores starting this month in Charleston, West Virginia, and Des Moines, Iowa.

"When it says Blockbuster, we know that people know that it means movies and that it means new releases," Kevin Lewis, Blockbuster's senior vice president of digital entertainment, said in a telephone interview. The agreement "signals a shift in cable and Blockbuster thinking of themselves as partners in this space rather than competitors," he said.

The arrangement may attract new cable customers, who can sign up for service at Blockbuster stores, Lewis said. He declined to disclose terms of the deal.

The company expects to avert $30 million a year in losses, though it said it will likely incur $60 million in lease-termination costs from the accelerated store closings it has planned.

Store closures are smart, Needham & Co. analyst Charles Wolf said. If the company as a whole is operating at break-even or slightly above, that implies a "material percentage" of stores are losing money, he said. Closing those stores should improve profitability, and although it will likely hurt sales, "the game here is to become profitable, and if they do it on a lower revenue base, so be it," he added.

The company had more than 7,100 stores in the U.S. and overseas at the end of the second quarter and has said it plans to close about 300 this year.

"We could be more aggressive as vending ramps up," Keyes, 54, said yesterday in a telephone interview, referring to store closures. "We're deploying as many as 10,000 vending machines by the middle of next year." Blockbuster, based in Dallas, plans to have 500 kiosks by the end of this month and more than 2,500 by year-end.

Blockbuster Total Access and by-mail subscribers in the Cleveland pilot test will be able to add games for the Wii, PS2, PS3 and Xbox 360 platforms to their current online rental queue for an incremental monthly fee, which will only be charged for billing cycles in which they have actually rented games.

For the set fee, subscribers can also rent as many games as they want during the month, one game out at a time. The game rentals will count toward the total number of rentals subscribers are allowed under their online subscription plan. Additionally, Total Access subscribers will get the same in-store exchange benefits with their by-mail game rentals as they do with movies.

“This pilot allows us to test a variety of implementation details and gather invaluable key learning and consumer insights before finalizing and launching a national online game rental offering,” said Bob Barr, VP and general manager of Blockbuster.com.

As expected, Blockbuster Inc.'s independent auditor included a warning in the company's annual report issued Monday saying it has "substantial doubt" surrounding the Dallas-based company's ability to continue as a going concern.

Blockbuster had said it expected the statement and secured a waiver from lenders in its just-completed negotiations for a new line of credit.

"While we believe that...we will be in a position to close on the amended credit facility on or about May 11, 2009, there can be no assurance regarding these matters," the filing said. "The risk that we may not successfully complete this refinancing...raises substantial doubt about our ability to continue as a going concern."

Kirkland & Ellis LLP was asked to evaluate restructuring options for the company, which may include a “pre-packaged” or “pre-arranged bankruptcy,” in which much of the restructuring work is completed out of court, the person said. A pre-packaged filing is more advanced than a pre-arranged bankruptcy as it includes agreements from creditors about the outcome of the company’s reorganization.

“We’ve hired them for refinancing and capital raising initiatives,” said Karen Raskopf, a Blockbuster spokeswoman. “We do not intend to file for bankruptcy.”

Blockbuster is working with Kirkland and Ellis on refinancing, Raskopf said. The company previously announced plans to fund its own operations through the end of 2009 after two of its credit facilities expire this August, she said.

An upcoming pilot program from Blockbuster Inc., a leading global provider of media entertainment, will offer consumers one-stop shopping for their online video game and movie rental needs. The pilot program, which will be launched during the second quarter, will allow select Blockbuster Total Access online customers to rent video games, as well as movies, through the mail as part of their subscription plan. With a goal of having the offering available nationally in the second half of the year, the company is launching the pilot program as the first step in its plan to make Blockbuster Total Access the only online rental service offering both movies and games.

"We already rent more video games than any other company, store-based or online, in the nation, so we know our core customer loves games as well as movies," said Bob Barr, Vice President and General Manager of blockbuster.com. "With this pilot program, we're laying the groundwork for offering Blockbuster Total Access customers easy online access to the movies and games they want, through an integrated subscription offering. Plus, according to their plan, they'll continue to be able to exchange their by-mail rentals both for free in-store movies as well as half-price in-store game rentals. A combination video game and movie online offering -- with in-store exchange privileges -- is a tremendous value and convenience offering not available through anyone other than Blockbuster."