Movie Gallery (Nasdaq: MOVI) may have been glowing from its recent acquisition of Hollywood Entertainment, but the honeymoon might be over already. Today, Movie Gallery released a weak sales outlook, which is taking a significant toll on its share price.
In case you were hunting around for the press release with this less-than-stellar news, Movie Gallery inserted this "business update" in a press announcement that headlined the appointment of a new chief financial officer.
Within the release, Movie Gallery cites the current, well-publicized box office slump. Indeed, most of us have heard that the box office is slow this year. Statistics from Exhibitor Relations say that so far this year, ticket sales are $4.5 billion, almost 6% lower than this time last year. The media has gone on about the protracted box office slump, despite high-profile films like Star Wars: Revenge of the Sith and Batman Begins.
While the situation in movie theaters is an interesting issue -- which includes the very recent news that two movie theater chains will merge -- let's get back to Movie Gallery, and its passing blame for its outlook on a tepid slate of movies in theaters and in home release. It's implying that if nobody wanted to see them in the theaters, then the same will probably go for DVD rentals.
That argument doesn't really wash with me, though. Folks might not have felt like paying $10 a ticket to see films that have proven to be rather disappointing at the box office, like Cinderella Man or Kingdomof Heaven, but it stands to reason -- as has always been the case -- that many people will probably rent them, or even buy them, on DVD. In addition, despite the slow box office, the DVD market has continued to be a hot one.
Over the long term, the continued battle being waged between Netflix (Nasdaq: NFLX) and Blockbuster (NYSE: BBI) seems far more disturbing for a company like Movie Gallery than the idea that people aren't compelled to flock to movie theaters at the moment. Further, the Internet-based DVD-by-mail business model championed by Netflix and adopted by Blockbuster is even more insulated against any new-release backlash because the use of recommendations from friends helps keep people up to their ears in entertainment far beyond the latest releases.
Movie Gallery also said it will close 51 Game Crazy stores, and rename its 23 Game Zone stores with the Game Crazy brand, which it said is "more established."
Movie Gallery's shares have dropped more than 10% today, and I can hardly blame investors for taking a bleak view. It seems to me there's a lot of drama on the way, and we'll see if Movie Gallery can pull off a Hollywood ending.
For more on the video rental wars, see the following Foolish coverage:
Netflix
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Alyce Lomax does not own shares of any of the companies mentioned, although she is a happy Netflix subscriber, where recommendations from friends have kept her movie-watching schedule quite busy.
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