On Tuesday, Movie Gallery, the second leading brick and mortar video rental chain in the U. S., filed for Chapter 11 bankruptcy (reorganization) protection, hoping to turn around an operation having problems competing with online movie rentals from both Netflix and Blockbuster. Late in the day the company received court approval to access $140 million dollars of financing in order continue paying employees and vendors.
"The company intends to work with its constituencies to exit bankruptcy as expeditiously as possible, while executing on its reorganization plans," said Movie Gallery.
Besides online DVD rental, Movie Gallery must also compete with Blockbuster in the world of traditional brick and mortar rental operations. Two years ago both companies were competing to buy the Hollywood Video chain, a competition which Movie Gallery eventually won. Blockbuster's biggest problem at that time was a poor showing before the FCC when they attempted to prove there were no monopoly concerns in play. Two years later, as Blockbuster loses money competing with Netflix and Movie Gallery is closing stores and filing for bankruptcy, that issue seems a little less salient.
Depending on how much success Movie Gallery has at righting their ship, the legal questions may give way to practical concerns. Looking at whether brick and mortar stores are in the same market as online rentals could be replaced by questioning whether they can even compete in the market.
With the growth of the DVD rental kiosk industry, as well as alternate delivery methods like internet downloads and Streaming, it may be time for large chains to either find a new business model or fall aside as other companies do. Blockbuster has already shown that given the ability to survive substantial losses, it's possible to make a dent in the Netflix customer base, but whether Movie Gallery will position themselves for a similar move, or in fact whether such a plan would ultimately lead to profit, has yet to be seen.
Source: PC Magazine
Besides online DVD rental, Movie Gallery must also compete with Blockbuster in the world of traditional brick and mortar rental operations. Two years ago both companies were competing to buy the Hollywood Video chain, a competition which Movie Gallery eventually won. Blockbuster's biggest problem at that time was a poor showing before the FCC when they attempted to prove there were no monopoly concerns in play. Two years later, as Blockbuster loses money competing with Netflix and Movie Gallery is closing stores and filing for bankruptcy, that issue seems a little less salient.
Depending on how much success Movie Gallery has at righting their ship, the legal questions may give way to practical concerns. Looking at whether brick and mortar stores are in the same market as online rentals could be replaced by questioning whether they can even compete in the market.
With the growth of the DVD rental kiosk industry, as well as alternate delivery methods like internet downloads and Streaming, it may be time for large chains to either find a new business model or fall aside as other companies do. Blockbuster has already shown that given the ability to survive substantial losses, it's possible to make a dent in the Netflix customer base, but whether Movie Gallery will position themselves for a similar move, or in fact whether such a plan would ultimately lead to profit, has yet to be seen.
Source: PC Magazine
