Multiple news sources, including Bloomberg, are reporting that Blockbuster is looking into filing bankruptcy.

Blockbuster is issuing denials. Either way, it’s one more sign that the future doesn’t look good for brick-and-mortar rental stores.

Someone named Edward Woo of Wedbush Morgan Securities said to Reuters that a bankruptcy probably wouldn’t mean the end of Blockbuster.

“I don’t think it’s going to result in a liquidation like Circuit City, but if you’re doing business with them, it’s not a great thing,” he said.

CNN notes in the denial story that Blockbuster’s in-store rental business is hurting bad.

Now, losing money or even going bankrupt in a bad economy isn’t particularly difficult, and by itself might not signal a sea change in how consumers watch movies.

To me, what’s telling isn’t the cash flow, it’s what Blockbuster has been doing to compete with Netflix.

[Blockbuster] plans to offer 90,000 DVD titles by mail, according to the company’s Web site … On Jan. 14, the company announced a partnership with Novato- California-based Sonic Solutions Inc., a digital video publishing company, to combine libraries and give customers immediate access to movies. It also recently released a media player the size of a cable box that downloads movies for viewing on television.

If those sound familiar, it’s probably because those are all things that Netflix did first.

It seems like Blockbuster thinks the future is in direct digital distribution, with direct mail distribution as a stepping stone. They’re probably hoping that their name brand will give them the clout to emerge victorious. Who knows? Maybe they will, maybe they won’t. But for now, Netflix doesn’t have the albatross of a flagging retail operation dragging them down.

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