Hollywood Video parent Movie Gallery files for Chapter 11 bankruptcy

It's a DVD-on-demand world; we just live in it. With customers increasingly turning to the likes of Netflix (NASDAQ: NFLX) and Blockbuster (NYSE: BBI) to get their film choices delivered directly to their homes, it's no wonder that traditional brick-and-mortar movie-rental chains are suffering.

Today, Hollywood Video parent Movie Gallery (NASDAQ: MOVI) -- the nation's second-largest video-rental chain, lagging behind only BBI -- said it would seek bankruptcy protection from its creditors. The retailer plans to reduce debt by $400 million. On its Chapter 11 petition filed Tuesday morning with the U.S. Bankruptcy Court in Richmond, Va., MOVI listed assets of $892 million and $1.4 billion in debt, citing increasing losses and building competitive pressures. The handwriting was on the wall in late September, when company CEO Joe Malugen said Movie Gallery would close 520 unprofitable stores to focus on 4,000 stronger locations.

Industry analyst Stacey Widlitz told Bloomberg: "I don't think bankruptcy will save [MOVI]. They have no edge versus the competition ... I think store closings will only accelerate." Another analyst with Wedbush Morgan securities noted that MOVI was "very slow to cut costs ... and that's what killed them."

Already in penny-stock territory, MOVI has dropped more than 17% today to hit a new annual low of 19 cents per share.

Beth Gaston Moon is an analyst at Schaeffer's Investment Research.