BREAKINGVIEWS-Movie Gallery's second flop should be its last

-- The author is a Reuters Breakingviews columnist. The opinions expressed are her own --

By Agnes T. Crane

NEW YORK Feb 3 (Reuters Breakingviews) - Movie Gallery MVGR.PK is in bankruptcy protection for the second time in less than three years. Even back in 2007, it was apparent that the also-ran U.S. video rental store chain was losing a fight against entertainment and technology trends. Some companies should just be put out of their misery.

Two years ago, Sopris Capital Advisors and other creditors of the company got back a fraction of the face value of their claims and some of them ended up owning the company. The current owners shouldn't now be too surprised that Movie Gallery's downward trajectory has continued.

When the company got its start in the 1980s, video was at the cutting edge. Suddenly, customers could rent their favorite movies when they wanted, rather than waiting for them to show up on broadcast television. Now, though, that is all a distant memory. High street video stores are little more than quaint reminders of the era of giant shoulder pads and brick-sized cell phones.

Movie Gallery and much larger rival Blockbuster (NFLX.O) -- another 1980s relic -- are up against the appeal of the easy-to-mail DVD and improved Internet bandwidth. Fee-based mail and download services like Netflix (NFLX.O) and Apple's (AAPL.O) iTunes, along with websites like Hulu, give video vultures plenty to pick over without leaving their computers.

As a result, Movie Gallery's more than 2,400 existing stores -- already halved in number from the company's heyday before its last bankruptcy -- are far too plentiful for the modern world. Movie Gallery said it will liquidate 760 stores immediately, with more possibly to come.

Mass closures could give Blockbuster a short-term boost at some of its more than 7,000 stores. The market leader in bricks and mortar video stores could use the help: Its stock is trading below 50 cents a share, against the $4 or so it commanded when Movie Gallery last filed for bankruptcy and the nearly $10 share price five years ago.

The last time Movie Gallery went bust it secured new financing, restructured its debt, and lived to fight another day. Its Chapter 11 filing suggests it wants to try that again; this time, though, it may make more sense just to surrender.

CONTEXT NEWS

-- Movie Gallery, which operates Hollywood Video stores, filed for Chapter 11 bankruptcy on Feb. 2, less than two years after it emerged from the court's protection after first filing in late 2007.

-- The company may close at least 800 of its roughly 2,600 stores.

-- Netflix, the company that pioneered mail-order DVD rental and has since moved into online content streaming, boosted its subscriber numbers by 31 percent to 12.3 million in the fourth quarter of 2009.

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-- For previous columns by the author, Reuters customers can click on [CRANE/]

(Editing by Richard Beales and Martin Langfield)