Game time at Movie Gallery

Shifting focus after dismal quarter

Movie rentals haven't been going well at the No. 2 rental company, so Movie Gallery will shift more of its energies to video games.

The company said Friday -- after delivering a dismal earnings report that sunk its stock -- that it will build on the success of its Game Crazy unit by putting video game products in 500 additional Movie Gallery and Hollywood Video stores.

Companywide, Movie Gallery said it lost $14.9 million in the first quarter on revenue that dropped 7% to $647.7 million. The loss was a reversal of a $40.3 million profit last year.

But while Hollywood- and Movie Gallery-branded stores saw same-store revenue fall 7% and 4%, respectively, Game Crazy same-store revenue surged 26.4%.

"We've seen strong demand for video games," Movie Gallery chairman and CEO Joe Malugen said.

The financial results also suffered from a debt extinguishment charge and expenses related to Movie Gallery's expanded distribution initiatives.

In regard to the latter, the company recently bought MovieBeam, a VOD company created by the Walt Disney Co., and it might eventually roll out a DVD-by-mail subscription service to compete with Blockbuster's Total Access and Netflix.

Movie Gallery shares plunged 9% after the company's Friday earnings announcement to $3.23, well off their 52-week-high $8.35 but better than their $1.85 low.

Blockbuster this month also reported rather weak movie-rental revenue, causing its shares to drop as well.

During the first quarter, Malugen said, the movie rental business "was impacted by weaker titles released to video, increasing competitive pricing pressure, unfavorable weather and the earlier shift to daylight savings time."