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Movie Gallery files second bankruptcy in two years

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Movie Gallery Inc., the second-largest company in the movie-rental business behind Blockbuster Inc., survived less than two years outside bankruptcy protection.

The Wilsonville, Oregon-based company filed a Chapter 11 petition again on Tuesday in Richmond, Va., where the prior reorganization concluded following a confirmed recovery plan in May 2007.

Movie Gallery is immediately closing 760 locations, leaving 1,906 in operation, but did not specify the locations of the closures. The chain operates 14 stores in central Indiana, according to its Web site. The company warned in a statement that it “anticipates” closing additional stores.

Revenue in 2009 declined by almost $550 million, to $1.4 billion. The operating loss in the fourth quarter of 2009 was $129 million. In the last quarter of 2008, the operating loss was $84.8 million.

Movie Gallery blamed the filing in part on competition from companies like Blockbuster, Netflix Inc. and Redbox Automated Retail LLC.

The largest unsecured creditors are affiliates of Warner Communications Inc., Sony Corp., Twentieth Century Fox Home Entertainment, Universal Studios Inc. and Viacom Inc., which are owed $9.5 million to $6.9 million each.

Movie Gallery is asking the bankruptcy court for authority to retain Gordon Brothers Retail Partners LLC as agent to help in closing 805 stores. If gross proceeds from the sale are less than $105 million, Gordon Brothers will pay Movie Gallery $100,000.

If gross proceeds are more than $110 million, the agent will receive a 2.5-percent commission for sales above $110 million.

The prior reorganization required only seven months in bankruptcy court. The previous plan, negotiated before the Chapter 11 filing, was financed in part by a $100 million secured loan.

The prior plan reduced liabilities $400 million by exchanging debt for stock. Other financing for the reorganization came from a $50 million equity rights offering.

Movie Gallery operates under the names Movie Gallery, Hollywood Video and Game Crazy. It had 3,490 stores before the prior bankruptcy. The all-time peak was 4,800 stores. The previous petition listed assets of $892 million against debt totaling $1.4 billion.

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  • Let's toss some statistics about
    >

    Is this for brick & mortar businesses (only)?

    Netflix knocked BlockBuster on its back end. BB couldn't even come up with an original business plan. So they duplicated Netflix's, and just charged $1 less. Then BB decided to make it do what it was originally supposed to do: address spontaneous requests; i.e., on demand, making it such that you could rent DVDs, via mail or stores.

    Now Netflix has taken another step: download to certain types of equipment. e.g. Do you have a PS/3? You can download to it.

    The biggest challenge to Netflix will be the TV service providers (DirecTV, cable, u-Verse, etc.)

    One of the current issues with cable (Comcast) is you can only rent something for forty-eight hours. They do (and will) emphasize, "play it as much as you want". Something Netflix already does - and more.

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