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Rental Biz Pins Hopes on Dynamic Duo

28 May, 2008 By: Stephanie Prange

It's not very often the industry experiences the kind of upheaval we've seen recently in the top two brick-and-mortar rental chains. In the past year, we've seen new CEOs appointed at both No. 1 chain Blockbuster Inc. and (just last week) Movie Gallery. Both CEOs have a solid foundation in brick-and mortar retail, one at 7 Eleven, another at Albertsons.

Blockbuster CEO Jim Keyes, in place for less than a year, came from 7 Eleven and has been able to turn around the chain, according to recent financials. The company reported first-quarter (ended April 6) profit of $45.4 million, compared to a loss of $49 million during the same period last year.

Keyes came into the business at a rather auspicious point. Movie Gallery had just declared bankruptcy and was closing stores. Also, the time seemed to have come for the kind of all-access entertainment emporium he proposed, which ironically was similar to what former Blockbuster CEO Bill Fields tried to do in the 1990s. Keyes is looking into offering downloads to portable devices in the stores as well as expanding games. Retailer Hastings recent success with a broad slate of entertainment (see story page 8) seems to support his vision.

At No. 2 Movie Gallery, C.J. Gabriel Jr. (Gabe), formerly EVP at Albertsons, faces a somewhat bigger challenge as the chain exits bankruptcy. Gallery has been in more than just financial trouble; it has had trouble changing with the times. 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 acquisition of MovieBeam (which it recently put up for sale) 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.

Hard times have brought new blood to the executive suites of the two top brick-and-mortar rental chains. Their jobs require more vision than many top posts, and likely will offer less compensation than many. The onslaught of digital delivery, online rental/streaming pioneer Netflix and cable are difficult to navigate. Tough economic times present even more challenges.

Perhaps the dynamic new duo can pull off a comeback.

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