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Movie Gallery, Inc.
Type	Public
Founded	1985 (Birmingham, Alabama)
Headquarters	Dothan, Alabama, United States
Key people	Joe T. Malugen, CJ "Gabe" Gabriel
Industry	Retail (department and discount)
Products	VHS, DVD, and video game rentals and sales
Revenue	$2.54 billion USD (2006)
Net income	-$25.1 million USD (2006)
Owner	Sopris Capital
Employees	45,000
Subsidiaries	Movie Gallery, Hollywood Entertainment, Game Crazy, Reel.com, VHQ
Website	Movie Gallery Corporate Information

Movie Gallery based in Dothan, Alabama/Wilsonville, Oregon, is the second largest movie and game rental company in the United States, behind Blockbuster Video. It rents and sells DVDs, movie videos, and video games. It has over 2200 stores in North America, operating mainly under the Movie Gallery, "Game Crazy", and Hollywood Video brands. The company recently came out of bankruptcy and is now owned by Sopris Capital Advisors.

History

Movie Gallery

Please wikify this section. Help improve this article by adding relevant internal links. (January 2008)

Movie Gallery was formed in 1985 by Joe Malugen and Harrison Parrish in Dothan , Alabama . Through its wholly-owned subsidiary, M.G.A., the Company's founders began operating video specialty stores in southern Alabama and the Florida panhandle, and franchising the Movie Gallery store concept. By June 1987 the Company owned five stores and had a franchise operation of 45 stores. In 1988, the Company began to consolidate the franchisees into company owned stores. By 1992, The Company had a total of 37 stores and annual revenues of $6 million.

In August 1994, the Company completed an initial public offering of its stock. With the proceeds from this offering, the Company began to quickly complete acquisitions of various video chains, primarily in the southeast. In early 1995, the Company raised additional public funds and continued the acquisition and development of stores. By the middle of 1996, only 22 months after beginning its aggressive expansion strategy, Movie Gallery had grown to over 850 stores through over 100 separate acquisitions.

In 1999, Movie Gallery announced plans to build 100 new stores. The Company completed an 88-store acquisition of Blowout Entertainment in May, and ended the year with more than 950 locations in 31 states.

In 2000, Movie Gallery again set its goal at opening 100 new stores and relocating 25. This goal was met and surpassed.

The Company moved forward with its largest single-chain acquisition to date, expanding its base of stores by 30%, in late December 2001. This addition of Video Update stores to the Movie Gallery family launched the Company's international presence with 100 retail locations in Canada .

Following the completion of the Video Update acquisition, Movie Gallery continued to execute an aggressive growth strategy. Movie Gallery achieved the 2,000 store mark in 2003.

In 2005, the Company completed the largest acquisition to date with the Hollywood Entertainment merger. This combination of companies increased the store total to 4,700 with revenues in excess of $2.5 billion. In addition, Movie Gallery strengthened its presence with 61 new stores in Western Canada with the acquisition of VHQ Entertainment.

In 2007 the Company filed for Chapter 11 bankruptcy protection under the U.S. Bankruptcy Code. Through the restructuring Movie Gallery effectively addressed its financial and operational challenges and laid a strong foundation for profitability and future success. The Company now has a stronger balance sheet, cash to fund operations and a streamlined store portfolio.

The Company emerged from Chapter 11 in 2008 and appointed a new chief executive officer – C.J. Gabriel, Jr.

Tanning

Tanning can be found in about 70 Movie Gallery stores, with a particular focus in southern stores as well as the company owning Sun and Soul tanning in Alabama. The number of stores with Tanning has increased year to year, though at this time no Hollywood stores have seen tanning added. In order to open a tanning account, customers must be of age 16 or older. The types of bed can vary from location to location. At this time, no tanning operations have opened within Hollywood Video branded stores.

Retail Merchandizing Units

In 2006 Hollywood Video started placing Retail Merchandizing Units (RMUs) in malls across the country. The RMU’s are mini stores that sell new and previously viewed movies. The goal is to give the company more visibility to the public and drive business to traditional brick and mortar stores by offering coupons with each sale. The company picks high traffic malls to accomplish this.^[1] As of mid-2008, most of these locations are being sold off and/or closed.

Movie Beam (no longer owned by MGA, Inc)

MovieBeam was a set top service currently offered in larger cities in which customers could download movies to a set top box. Most movies expired within 24 hours. The company was originally founded by Disney and other investors as an alternative to online movie downloads. A special set top box had to be purchased by consumers for the service. Most major movie studios provided New Release content to the service. MovieBeam was shut down on December 15, 2007.^[1] As of June 2008 Movie Beam was sold to an outside investors group for approximately $2 million as part of the companies restructuring. All in-store kiosks for the service have been removed as well.

Hollywood Video

Hollywood Video logo.

A typical Hollywood Video store

Hollywood Video store in Laredo, Texas

Hollywood Video, operated from Wilsonville, Oregon, is a DVD and video game rental shop chain in the United States. Started in 1988 by former CEO Mark Wattles and his wife, it was the largest direct competitor of Blockbuster Video until it was purchased by Movie Gallery. It also operates Game Crazy departments within its stores (and a few free-standing locations), which are dedicated to buying, selling and trading video games and related items.

Purchase of Hollywood Video

Hollywood Video was the target of a hostile takeover attempt, initially announced at the end of December 2004 by competitor Blockbuster Video. In February 2005, Blockbuster announced an exchange offer of $14.50 per share ($11.50 cash and $3.00 in Blockbuster shares).^[2]

In order to create a stronger position against the hostile takeover, Hollywood Video agreed to a buyout on Monday, January 10, 2005 by its smaller competitor Movie Gallery. Movie Gallery paid $860 million, $13.25 per share, and the assumption of $380 million in debt. Stocks closed at $13.85 on January 10 after these news. Blockbuster then dropped its purchase plans, citing anti-trust concerns. Movie Gallery completed its purchase of Hollywood Video on April 27, 2005.

The take over, and the failed attempts to integrate the brands, resulted in Movie Gallery filing bankruptcy in 2007, though the company recently emerged from this with plans to completely integrate the brands into one company, as opposed to separate operational teams. It is believed that issues within the industry was the main reason for the co-branding failing, though operational issues in running the units separately, including cost issues, also added to this.

Movie Gallery today

Today, Movie Gallery operates about 1,700 Movie Gallery and 1,300 Hollywood Video locations in the United States. ^[3] and there are around 10 separate Game Crazy stores. Canadian operations include over 200 "Movie Gallery" branded stores, as well as approximately 60 under the VHQ brand in western Canada. The company has closed all 9 Mexico stores, removing all operations from the country. No reason for this has been given, though exchange rates and revenue issues are believed to be the cause. At this time, Movie Gallery is not closing any further stores and is looking at possibly opening more stores in the future as part of its reorganization.

Financial and Operating Information

The "Movie Gallery" and "Hollywood Video" brands target quite different markets (smaller rural vs. urban/suburban), store size (3000-4000 square feet vs. 4000-6000) and inventory (3000-15000 items vs. 25,000). Steps are currently being taken to sublease excess space in stores of both brands to help reduce store sizes. However, many stores are being closed due to extreme heavy debt and no profit for almost two years.^{[citation needed]}

The first year following the Hollywood purchase saw financial difficulties for Movie Gallery. The acquisition incurred significant debt obligations, and the company also pointed to a mature video store industry, lackluster performance of the new movie releases during the year, and various other factors. The company posted a net loss of over $500 million for 2005, mainly due to a number of one-time charges ("impairment of goodwill") relating to the valuation of the company. The stock price, which was in the $28 range in April 2005, and briefly touched over $34 later in the year, dropped precipitously in the following months, spending most of 2006 below $5. The company's financial situation also forced it to negotiate the relaxation of various terms in its debt arrangements.^[4] In response, Movie Gallery has announced initiatives to reduce store sizes, sublease some existing space within stores, and reduce or eliminate new store openings (although the previously planned 140 new stores for 2006 are unaffected).

In August and September, the company announced difficulties meeting provisions within its loan agreements and entered into Forbearance agreements with lenders to avoid loan defaults. The company likewise announced being open to possibly be sold or merging with other companies, or selling off portions of the company. As of mid-2008, many stores are being closed and shut down at a rapid rate with the company liquidating many assets.^{[citation needed]}

An article in Video Business magazine also helped pin point issues within the company, showing the growth patterns of each brand. While the Movie Gallery branded stores saw small growth of between 3-5% most quarters, Hollywood Video stores saw substantial losses of up to 15%. The reason for this difference is considered to be the increased competition from Online competitors and many of Hollywood Video's urban customers adopting this route, where as the rural markets covered by Movie Gallery stores are adopting these new rental methods at a much slower rate. Game Crazy locations continue to see upward gains of up to 26%. [videobusiness.com)

2007-07-01, the company defaulted on its first lien lenders. Another delay another default.

2007-09-04, In the continuing saga of Movie Gallery delaying its day of reckoning as it runs up against various deadlines for rectifying its financial crisis, the company issued good news and bad news. The good news is Movie Gallery was able to make another forbearance agreement with a creditor. The bad news: It is in default on another credit facility.

The latest forbearance agreement, made Aug. 31, is with Sopris Capital Advisors, the holder of the majority of Movie Gallery’s 11% senior notes due in 2012. Sopris has agreed to forbear taking action on Movie Gallery’s default until Sept. 30, unless certain conditions occur before then, such as a bankruptcy-related default. Movie Gallery earlier had extended its forbearance agreement with some first lien lenders until Sept. 30 as well. Movie Gallery also announced it notified the agent for its second lien credit facility that it is in default on that loan. The company said it is “in discussions with its second lien lenders regarding the current situation. Movie Gallery was required to notify its first lien lenders of this latest default.^[5]

On September 26, 2007, Movie Gallery announced that they will be closing 520 stores, equaling 12% of their stores, in an effort to stave off debt, conserve cash, and appease debt holders.^[6] On 2007-10-10, details of an anticipated bankruptcy filing were reported with shareholders receiving only 5% of what was left of the company.^[7]

On October 16 2007, the company declared Chapter 11 bankruptcy for its US operations (Canadian operations were not affected). The purpose of this filing was to begin a major restructuring of the company. Current plans for this includes the company auctioning off the leases of 502 of the previously announced 520 store closures for an expected $70 million and the closure of up to 1000 Hollywood Video locations. First Day motions that have been approved for the filing includes the company being allowed to continue day to day operations, including associate/partner benefits and pay, all store customer loyalty programs such as Gift Cards, Discount Rental Cards, and MVP program; and a $150 million debtor in possession (DIP) financing facility. Sopris Capital Advisors LLC, a private investment, will be the partner working with Movie Gallery during the restructuring, in exchange for reducing debt by $400 million. [1]. Movie Gallery now only has about 1,200 Movie Gallery stores left, not including the nearly 1500 Hollywood Video stores.

In May, 2008 the company emerged from bankruptcy and quickly announced several major chances to its management team, including the step down of founder/CEO Joe Malugen, as well as other top executives. CJ Gabriel was announced as the new CEO of the company. Recent announcements from the company indicate that the brands will be merging with a single management team under the head of "The Power of One", instead of each brand being run as a separate entity. The exact nature of this and what it will entail has yet to be announced fully by the company, though announcements are expected by the end of 2008, possibly sometime before the 4th quarter.

MOVIE GALLERY ANNOUNCES CHANGES TO BOARD OF DIRECTORS AND MANAGEMENT TEAM DOTHAN, Ala., August 1, 2008 – Movie Gallery, Inc. (“Movie Gallery”) today announced that on July 28, 2008, Joe T. Malugen resigned as a member of the Company’s Board of Directors. The Company also announced the departure of S. Page Todd, Executive Vice President, Secretary, General Counsel and Chief Compliance Officer, effective July 30, 2008. C.J. “Gabe” Gabriel, President and Chief Executive Officer of Movie Gallery, stated, “We appreciate all that Joe and Page have done for this company. As a founder, Joe played an instrumental role in creating Movie Gallery. Similarly, Page has been a key member of the senior management team for the last 14 years. On behalf of the Board and all of our talented partners and associates, I thank Joe and Page for their service and wish them well in their future endeavors.”

Game Crazy / Game Zone

Main article: GameCrazy

To compete in a growing video game market, Hollywood Entertainment launched a store-within-a-store concept called Game Crazy which features the ability to buy, sell, and trade video games, systems, and accessories inside of Hollywood Video stores, while Movie Gallery launched a similar initiative called Game Zone. Game Crazy/Zone offers gamers the ability to try any game before they choose to purchase or rent. Most of these locations offer all newer platform games, both in brand new and used conditions, as well as some stores offering older systems and games for sale, ranging from the NES to the more recent Dreamcast.

Game Crazy was originally only operated out of Hollywood Video locations, but has since expanded into several standalone stores. Likewise, Movie Gallery has recently changed its Game Zone model to focus more on smaller, in store areas that focus on game sales, as opposed to an entirely separate store within a store concept.

References

External links

• Movie Gallery Homepage
• Hollywood Video Homepage
• Game Crazy Homepage
• MovieBeam homepage
• VHQ Homepage
• Reel.com Homepage

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