Movie Gallery Files Chapter 11
Movie Gallery, Inc., parent company of the Movie Gallery, Hollywood Video and Game Crazy media entertainment chains, has
voluntarily filed [pdf] for Chapter 11 bankruptcy reorganization in the U.S. Bankruptcy Court for the
Eastern District of Virginia, Richmond Division. The restructuring will include the immediate liquidation and closure of approximately 760 stores in the U.S.
After these initial store closings, Movie Gallery will operate 1,906 stores in the U.S., including 1,111 Movie Gallery, 545 Hollywood Video and 250 Game Crazy locations. The company anticipates closing additional stores during the Chapter 11 process.
In a
press release, Movie Gallery cited the "economic and competitive realities facing its business" as prompting the Chapter 11 filing. In 2009, Movie Gallery, which previously emerged from Chapter 11 bankruptcy in 2007, closed
about 450 Hollywood Video stores and 200 Game Crazy stores due to difficulties paying rent.
Movie Gallery plans to continue operating during the Chapter 11 process and intends to emerge from bankruptcy with a sustainable business model and a smaller, more profitable store base. The company’s Canadian operations are not included in this bankruptcy filing.
Blockbuster Could be Next
Although it has avoided filing for bankruptcy so far, a distinct possibility exists that leading media entertainment Blockbuster Inc. may declare bankruptcy this year. Blockbuster anticipates a
significant net loss for fiscal year 2009 (ended January 3, 2010). Blockbuster issued updated guidance on its anticipated fiscal 2009 EBITDA and net loss results, based on lower-than-expected holiday sales results.
Non-store Retailers Pose Major Threat
While brick-and-mortar chains such as Movie Gallery and Blockbuster struggle, non-store DVD rental activity grows. Online consumer entertainment retailer Netflix added
almost 3 million net new subscribers during fiscal year 2009 (ending December 31, 2009), with more than 1 million of them joining in the fourth quarter.
Netflix posted solid quarterly and annual revenue growth. During Q4, Netflix reported revenue of $444.5 million, a 24% improvement from $359.6 million in Q4 2008. Revenue for fiscal 2009 was $1.67 billion, up 22% from $1.365 billion for fiscal 2008.
Meanwhile, retailers including
Wal-Mart and
Circle K are rolling out DVD rental kiosks. Reports also indicate Best Buy
will join the direct movie download marketplace.
Brick-and-Mortar Game Biz Looks More Promising
Although Movie Gallery is closing stores specializing in video games products this year, as well, the brick-and-mortar video game marketplace still looks healthy. Leading video game retailer GameStop, which reported
significant increases in net earnings and total sales during Q4 and fiscal year 2008, reportedly
does not expect digital download to be a major threat to its store business until 2014 at the earliest. GameStop is forecasting strong financial performance for the current fiscal year.
In addition, GamerDoc, a privately-held franchiser of video game retail stores that launched in 2007, plans to add at least
10 new stores to the seven-store footprint it currently operates.
