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Who Will Benefit From Movie Gallery Closures?

4 Oct, 2007 By: Erik Gruenwedel

News that financially challenged Movie Gallery Inc. will shutter more than 500 stores was largely met with indifference by independent video retailers.

Conventional wisdom suggests the closure of a Gallery or Hollywood Video outlet would divert additional rental traffic and business to neighboring independent stores. But many independents aren't holding their breath in anticipation of a groundswell business.

“It could be a good thing, but it depends on the area of the store,” said the manager of Video Station in Alameda, Calif. The single proprietor said she had heard of Gallery's downsizing, but thus far the local store shows no signs of shuttering.

“We have to see what happens, but it is all just talk right now,” she said.

That sentiment was shared at Videoland in Tustin, Calif., which operates two stores within a few miles of Hollywood Video and Blockbuster. The store manager said she hoped the closures will increase business.

Ed Woo, analyst with Wedbush Morgan Securities in Los Angeles, reiterated a previous projection that Gallery will file for bankruptcy this year, resulting in the closure of at least 1,000 stores. He said Gallery's extensions on outstanding interest payments to lenders expired Sept. 30, which technically allowed creditors to seize control of the company.

Carrie Dieterich, VP of marketing and industry relations with the Entertainment Merchants Association, doesn't see the Gallery closures resulting in a resurgence for independent video stores.

“I would assume anytime you are in an area where some of the competition goes away, it is probably a good thing,” she said. “Overall, it depends where [the retailer] gets their customer and where those Movie Gallery customers go.”

Ian Leshin, DVD buyer for Newbury Comics, a 27-store music and DVD chain in New England, said the closures underscore the fickle nature of movie rentals.

“It is more indicative of a problem that's been around as opposed to some herald of a new issue of the independent rental business,” Leshin said. “I never like to see a store close when they're not our direct competitor. I think it is just part of this trend of moving away from rental.”

He said Gallery typically priced sellthrough titles higher than Newbury, which he said also carried, a deeper selection of various titles.

“But I don't think displaced customers from there will automatically gravitate to us,” Leshin said.

Todd Zaganiacz, president of the National Entertainment Buying Group, which consists of about 300 independent video retailers, expects membership to rise.

“Anytime any store closes, neighboring stores typically see a bump in business,” Zaganiacz said.

He said Netflix and Blockbuster Total Access will be the primary beneficiaries, especially in underserved areas more than a 20-minute drive from a chain. The closures, he said, will put another nail in the perception of the rental industry.

“Losing a major chain will only drop what percentage of rental business is done, opening the door for 800-pound gorillas like Wal-Mart and Best Buy to bully studios with more clout and aggressive deals that erode rental on all levels,” he said.

Christine Kim, owner of Get Reel Video in Brooklyn, N.Y., insulated her business against Hollywood Video and Blockbuster by favoring arthouse fare and niche DVD titles. Her strategy, she said, has resulted in earnings growth thus far. Indeed, Kim welcomed the prospect of increased traffic should the local Hollywood Video close its doors.

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