Movie Gallery Inc., owner of the Hollywood Video movie rental chain, has filed for Chapter 11 protection and plans to close 805 stores — about a third of its total.
Its the second trip through bankruptcy court in just three years for Movie Gallery. The company is struggling with competition as more people choose to stream videos online from Netflix Inc. and other services or pick up $1-per-night rentals at Redbox kiosks.
The company, which is based in Wilsonville, Ore., 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 borrowings as a part of the deal.
The acquisition made Movie Gallery the No. 2 rental chain in the country behind Blockbuster Inc. but it has been forced to close more than 2,400 of its stores in the past three years, leaving about 2,600 still open, according to court filings made Tuesday.
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 in the U.S. Bankruptcy Court for the Eastern District of Virginia in Richmond, Movie Gallery 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.
Messages left with lawyers for Movie Gallery and Sopris Capital Advisors LLC, which became the company's majority owner under its previous reorganization in 2008, were not immediately returned.