Movie Gallery’s second flop should be its last

February 3, 2010

By Agnes Crane

Movie Gallery  is in bankruptcy protection for the second time in less than three years. Even back in 2007, it was apparent that the also-ran U.S. video rental store chain was losing a fight against entertainment and technology trends. Some companies should just be put out of their misery.

Two years ago, Sopris Capital Advisors and other creditors of the company got back a fraction of the face value of their claims and some of them ended up owning the company. The current owners shouldn’t now be too surprised that Movie Gallery’s downward trajectory has continued.

When the company got its start in the 1980s, video was at the cutting edge. Suddenly, customers could rent their favorite movies when they wanted, rather than waiting for them to show up on broadcast television. Now, though, that is all a distant memory. High street video stores are little more than quaint reminders of the era of giant shoulder pads and brick-sized cell phones.

Movie Gallery and much larger rival Blockbuster — another 1980s relic — are up against the appeal of the easy-to-mail DVD and improved Internet bandwidth. Fee-based mail and download services like Netflix  and Apple’s  iTunes, along with websites like Hulu, give video vultures plenty to pick over without leaving their computers.

As a result, Movie Gallery’s more than 2,400 existing stores — already halved in number from the company’s heyday before its last bankruptcy — are far too plentiful for the modern world. Movie Gallery said it will liquidate 760 stores immediately, with more possibly to come.

Mass closures could give Blockbuster a short-term boost at some of its more than 7,000 stores. The market leader in bricks and mortar video stores could use the help: Its stock is trading below 50 cents a share, against the $4 or so it commanded when Movie Gallery last filed for bankruptcy and the nearly $10 share price five years ago.

The last time Movie Gallery went bust it secured new financing, restructured its debt, and lived to fight another day. Its Chapter 11 filing suggests it wants to try that again; this time, though, it may make more sense just to surrender.

Comments

The video killed the radio star.

Posted by Ghandiolfini | Report as abusive
 

I used to work in a video store, and it was making money hand over fist. Nearly every movie purchased paid for itself the week it came out. In 2008 and 2009 they were beating last year’s numbers by at least 10% every month.

I don’t know how much Movie Gallery charges, how much it pays its employees, or how it makes other business decisions, but the video rental industry is still going strong.

Posted by drewbie | Report as abusive
 

Alternatively, they could take all their really bad movies, add a load of popcorn and get some rent-a-critic to revalue the total bundle as Oscar© material, resell bits of it to Icelandic and Greek video stores meanwhile leveraging ten or fifteen times the nominal aggregate amount to short their own and other stocks for when they get (superficially) found out. Everybody else’s loss would be their gain.

At which point, they could do a hostile takeover of Viacom.

Posted by HBC | Report as abusive
 

…I forgot, I would love a live Radio Reuters in the multimedia section, where the columnists take turns to read news every hour, to also put a voice to a face, and play music non-stop for the other 55 minutes. Requests can be e-mailed or blogged. Everything is so serious and intense, maybe we can have some lighter moments, ‘Oddly Enough’ makes me feel odd in the morn.

Imagine the amount of extra ‘hits’ on the various landing pages.

No Titanic, Avatar or Gone with the Wind songs please.

‘Got Cash’ of Brooklyn Funk Essentials might be my first request, be ready for lots of ‘beeps’.

Posted by Ghandiolfini | Report as abusive
 

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