Movie Gallery rivals' stock up after report

Mon May 3, 2010 8:28pm EDT

* Shares in Netflix, Coinstar and Blockbuster rise

* Movie Gallery to close remaining U.S. stores-report

LOS ANGELES May 3 (Reuters) - Shares in Netflix Inc (NFLX.O), Blockbuster Inc BBI.N and Redbox owner Coinstar Inc CSTR.O climbed on Monday after a Wall Street Journal report that Movie Gallery will close all its U.S. stores.

The liquidation of Movie Gallery Inc MVGRQ.PK, which also operates the Hollywood Video chain, means the marquee will be taken down for a company that once thrived by serving rural customers. Its exit from the industry may leave 300 million annual rentals up for grabs, analysts estimated.

Movie Gallery and long-time competitor Blockbuster have suffered from the flight of customers to mail-service Netflix and the $1 per-day rentals from Redbox's bright red kiosks.

The Wall Street Journal, citing unnamed sources, was first to report that Movie Gallery planned to close its remaining U.S. stores.

Before this latest development, the company had already started on plans to close more than half of its 2,415 stores, and over the next couple months the rest will close, the newspaper's website said.

Movie Gallery could not be reached for comment.

Michael Pachter, an analyst with Wedbush Morgan Securities, said that with Movie Gallery liquidating, about 300 million annual movie rental transactions are up for grabs.

"The old Hollywood Video stores overlap very nicely with Blockbuster, so Blockbuster should compete for probably 75 million of those," Pachter said.

He added that video-on-demand and pay-per-view providers also will gain some of Movie Gallery's old customers, as will the rental industry's two high-flyers, Redbox and Netflix.

"It sure opens up the opportunity to put a Redbox in front of every closed Movie Gallery," Pachter said.

Movie Gallery filed for bankruptcy for the second time in three years in February, after sales fell and losses mounted. At the time, the company had roughly 19,100 employees.

"What did the typewriter manufacturer do wrong when IBM put them out of business with the PC?" Pachter said.

Shares in Coinstar, which rose Friday following surprisingly strong quarterly results for its Redbox unit, climbed 7.4 percent on Monday to $47.64

Blockbuster, a brick-and-mortar movie rental chain that itself has said it could file for bankruptcy, also saw shares increase 7.4 percent to close at 40 cents.

And Netflix shares ended up 3.1 percent to $101.99. (Reporting by Alex Dobuzinskis: Editing by Carol Bishopric)

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