MovieBeam now playing in Movie Gallery locations

Retailer enters VOD fray with buy

Calling it the "first phase of our long-term strategic plan to provide digital content to consumers," Movie Gallery said Wednesday that it has purchased MovieBeam Inc., the VOD creation of the Walt Disney Co.

Terms of the deal were not revealed, but Movie Gallery said total incremental expenses because of the acquisition will be less than $10 million this year.

Movie Gallery had been seen as a laggard in terms having a strategy beyond physical stores, not competing with Blockbuster or Netflix in the online DVD-by-mail business and, before its MovieBeam acquisition, having no VOD capabilities.

Investors cheered the news Wednesday, bidding up shares of Movie Gallery 5.1% to $4.78.

MovieBeam was incubated at Disney for four years and spun off as a separate company last year, armed with a $48.5 million cash investment from Disney, Cisco Systems and Intel Corp. along with Norwest Venture Partners and Mayfield Fund.

MovieBeam provides set-top boxes to customers in 31 metropolitan areas for about $200 or less, sometimes free, and users choose from a list of 100 movies, with about 10 titles changing each week. Movies cost $1.99-$4.99 to watch, depending on the title and whether it plays in HD or standard definition.

The service boasts an ever-changing selection of movies from most major studios. Some movies are available on MovieBeam at the same time they are released on DVD, while others come as many as 45 days later.

In purchasing MovieBeam, Movie Gallery becomes a competitor with, which recently launched its Unbox service that delivers movies via broadband to computer screens. On Wednesday, though, its relationship with TiVo kicked in so that now users of broadband-enabled TiVo boxes may watch Unbox movies on their TV screens.

Movie Gallery chairman and CEO Joe Malugen said the MovieBeam service will be sold in its Movie Gallery and Hollywood Video stores soon, and that its infrastructure will be used to develop alternative digital delivery capabilities.