Bidders assembled on Monday for a bankruptcy auction of movie rental chain Blockbuster Inc that will decide the company's next owner and the amount of money available to pay off claims.

Once the world's largest video chain, Blockbuster had a market capitalization of more than $5 billion at its peak in 2002 but came under pressure from mail-order and digital competitors such as Netflix Inc.

Blockbuster has not said how many bidders it attracted, but halls outside the auction room in Manhattan bankruptcy court were packed with attorneys and investment bankers refining their bids. Attorneys said there were multiple bidders but declined to name them as the proceedings are private.

In a room set aside for reporters, a video of the auction room was shown without sound.

Blockbuster spokesman Michael Freitag said the process could take two days.

The next owner could preserve Dallas-based Blockbuster as an ongoing business but would also have the option of liquidating the company or closing it down. Proceeds of the sale will become part of the bankruptcy estate.

The company decided to put itself up for sale in February after a reorganization plan fell apart.

Monday's auction will be followed by a hearing before federal bankruptcy Judge Burton Lifland on April 7 to approve the new owner, who will take the company out of bankruptcy.

Satellite television company Dish Network Corp and billionaire investor Carl Icahn qualified for the auction by submitting bids last week, the Wall Street Journal reported on Friday, citing people familiar with the matter.

A Dish spokesman declined to comment. Icahn did not return calls seeking a comment, but a room at the courthouse was reserved for the Icahn group.

DIGITAL MOVIES MAY BE ATTRACTIVE

A $290 million stalking horse bid submitted in February by hedge funds led by Monarch Alternative Capital LP had set the floor for the bidding. Other suitors last week submitted bids of less than $296 million to qualify for the auction, the Journal said.

The Monarch group includes Owl Creek Asset Management, Stonehill Capital Management and Varde Partners.

SK Telecom, South Korea's top mobile carrier, is also interested in investing in Blockbuster, an official of the company told Reuters last week.

Blockbuster has about 2,400 stores, but only about 1,700 are part of the auction, with the rest slated for closing.

Blockbuster's assets also include movie kiosks and a by-mail video business. It also has digital delivery agreements with Hollywood studios including Sony Pictures, Twentieth Century Fox, Warner Home and Universal Studios.

Blockbuster's online content might be an attraction for Dish Chief Executive Charlie Ergen, who could use it to build an online product for delivering movies, said Marci Ryvicker, a Wells Fargo analyst.

It is probably a good way to acquire a massive amount of content, Ryvicker said.

Icahn, a large holder of Blockbuster senior debt, has long been interested in the company. He and a group of hedge funds provided Blockbuster with a $125 million loan to operate during bankruptcy.

The case is in re: Blockbuster Inc, U.S. bankruptcy Court, Southern District of New York, No 10-14997.

(Reporting by Dena Aubin; additional reporting by Jon Stempel; Editing by Maureen Bavdek and John Wallace)