Final credits rolling for Movie Gallery as bankruptcy court OKs plan to close all stores

Final credits rolling for Movie Gallery

RICHMOND, Va. — Final credits are rolling for the nation’s second-largest movie rental chain as consumers increasingly get movies through the mail, vending machines and high-speed Internet connections.

A federal bankruptcy judge in Richmond on Wednesday approved Movie Gallery Inc.’s plan to close its 1,050 remaining stores and liquidate its assets.

The company operates stores under the Hollywood Video, Movie Gallery and Game Crazy names.

Stores are expected to close by the end of August and “going out of business” sales are expected to generate more than $62 million for the company’s estate.

Movie Gallery, based in Wilsonville, Ore., filed for Chapter 11 bankruptcy in February, buckling under the competitive pressure from movies-by-mail service Netflix Inc., DVD kiosk company Redbox and delivery of movies and TV shows over the Internet.

The bankruptcy filing does not include Movie Gallery’s Canadian operations.

It was the second trip through bankruptcy court in just three years for Movie Gallery.

The company first landed in bankruptcy court in October 2007, unable to sustain the debt it took on in its $850 million acquisition of rival Hollywood Entertainment Corp. in 2005. Movie Gallery agreed to assume about $350 million of Hollywood Entertainment’s debt as a part of the deal.

The acquisition made Movie Gallery the second-largest rental chain in the country behind Blockbuster Inc. but it has been forced to close many of its stores in the past three years, according to court filings. It already had closed, or is in the process of closing, about 1,400 stores as part of its restructuring efforts.

Despite moving to shut down unprofitable locations, the company said it continued to see “significant” losses in 2009. Annual revenue fell $546.3 million, or 28 percent, to $1.4 billion.

In a court filing, Chief Restructuring Officer Steve Moore said the company was facing “looming defaults” on its loan agreements. The company listed debts of between $500 million and $1 billion, compared with assets of between $10 million and $50 million.