Movie Gallery Drifts on a Sea of Change8 Jul, 2007 By: Stephanie Prange
Movie Gallery, the No. 2 rentailer in the country, is in more than just financial trouble. The chain seems to have trouble changing with the times, as well.
Last week, Gallery announced it wouldn't meet the financial requirements of its lenders and may have to entertain a sale. Store closures are probably in the cards.
How did Gallery get to this point?
In addition to biting off more than it could chew with the acquisition of Hollywood Entertainment Corp. in 2005, Gallery clung to the old in-store rental model. The chain made tentative moves into video-on-demand with the MovieBeam acquisition and into kiosk rentals. But management seemed too preoccupied with whether or not the next quarter's slate of titles would pull them out of a slump to look ahead. They were thinking short-term, under pressure from a giant debt load.
Renting out store space was a good idea to boost the bottom line, but it wasn't a long-term solution to a waning core in-store rental business.
Kiosks might have been a great business for Gallery had it moved fast to combat Redbox, TNR and others that took the initiative and now are far ahead in that arena. I'm afraid it may be too late for them to catch up there.
Getting into VOD through the cheap MovieBeam acquisition may have looked like a good deal at the time, but it was tantamount to sticking your toe in the water while others were learning to swim. The chain may have been wise to sidestep the online rental market, in which Netflix and Blockbuster Inc. are in a bruising price war, but standing still while the competition innovates is not a winning strategy.
Making small bets in a fast-changing business may prove Gallery's downfall. Management will have to make some hard choices now to stay afloat. Just last year, we saw the venerable Tower Records and Video liquidated by its buyer. Let's hope Gallery at least sticks around.
Whatever happens to Gallery, the big winner likely will be Blockbuster, which is sure to benefit from having fewer brick-and-mortar stores in the game. New Blockbuster CEO James W. Keyes is getting a great office-warming gift.