Circuit City Stores, Inc. (NYSE: CC) may have a party interested in finally turning it around. Ultimate Electronics owner Mark Wattles has added to his holdings in the troubled consumer electronics retailer to the tune of 11 million shares. He's been acquiring the shares since late last year and now owns 6.5% of the retailer. Since Best Buy, Inc. (NYSE: BBY) desperately needs a solid competitor, perhaps Wattles is the right person to give it one.

Wattles, who built Hollywood Video into a powerful force in the video rental market and an entertainment industry veteran, could be interested in Circuit City since the retailer is primed for an acquisition soon. After announcing disastrous December sales and a plethora of bad news, Circuit City is on the ropes and its CEO may be shown the door soon.

Wattles, who serves as Ultimate Electronics's CEO after taking control in a 2005 bankruptcy auction, has publicly indicated that he wants to expand Ultimate's store count. How better than to take a national chain with plenty of locations and acquire it at a fire sale price? Right now, Circuit City shares are sitting at $4.83, down from its 52-week high of over $22. Is Circuit City being primed for a buyout? If not, it may go further down the tubes soon until it completely re-invents itself.

Less than two weeks ago, shares of Movie Gallery Inc. (NASDAQ: MOVI) surged more than 17% on news that the company was closing 13% of its stores. On Monday, the stock is set to tank on reports that the company is on the verge of filing for bankruptcy protection in a prepackaged deal that would exchange its debt obligations for equity.

According to The Wall Street Journal (subscription required), "The Dothan, Ala., company will file for bankruptcy this month and hopes to emerge from Chapter 11 in early 2008, according to people with direct knowledge of Movie Gallery's plans. They spoke on condition that they not be identified."

The company is burdened with a massive debt load, much of it the result of its ill-conceived $1 billion acquisition of Hollywood Video in 2005. Interestingly, Movie Gallery outbid Blockbuster Inc. (NYSE: BBI) for that prize: File that one under Pyrrhic victory.

Brick-and-mortar movie rental outlets have struggled with competition from services like Netflix Inc. (NASDAQ: NFLX) and Blockbuster's Total Access program.

Movie Gallery (NASDAQ: MOVI), the parent company of Hollywood Video, is considering closing many of its 4,600 stores, putting the company up for sale, or both, after the second-largest brick-and-mortar video store rental chain, behind Blockbuster Inc (NYSE: BBI), failed to meet the requirements set by its lenders.

USA Today said the 2,000+ Hollywood Video stores in urban areas, which are in direct competition with Blockbuster, look most vulnerable. By contrast, the Movie Gallery stores are "in smaller markets without much competition," Sterne Agee analyst Arvind Bhatia told the newspaper. JP Morgan believes Blockbuster could benefit from any store closings.

Unfortunately, it's not only Movie Gallery facing these problems. Industry-wide video store rentals fell 13.1% in Q1 compared to the same quarter in 2006, according to Blockbuster. With new movies being released on DVD this quarter, including 300 and Blades of Glory, the business could see a boost in revenues soon.

But it's Movie Gallery that has to fight with the growing online business from Netflix (NASDAQ: NFLX) and Blockbuster. The company asked its lenders to relax some debt conditions and hired Lazard Freres as a financial advisor. While analysts are skeptical about Movie Gallery finding a buyer, the company's real estate may be attractive to some private-equity groups and could warrant a look.

What if you were able to walk into Wal-Mart soon and copy some of your own footage or even TV shows onto a custom DVD or even an electronic device like a Sony PSP or Apple iPod with video? To fight slowing DVD sales and to give valuable shelf space to items with higher turnover, Hollywood Video appears to be in talks with Wal-Mart to place these "content kiosks" in some Wal-Mart stores.

The details are a little fuzzy, but it appears that Wal-Mart, by far the largest seller of DVDs with annual sales of $3.2 billion, could really be helping the DVD industry grow sales faster  by forcing it to take a step into the future. 

It never ceases to amaze me that some industries think they can sustain rapid growth for decades with little effort or innovation to show for it. Sure, DVD players and equipment have become much better in the last decade. But if DVD sales are not growing, shouldn't there be a better way to reach customers?

I think this content kiosk idea sounds intriguing -- where the content will come from is unknown: Will it be bought, rented or both? Sure, if the content that a customer wants can be almost instantly burned to a new DVD on request, that is a great idea -- shelf space savings alone would make it worth the effort. The content will reside in some data center possibly, and will be burned on customer request. That is innovation, and hopefully it's the path the DVD industry is embarking on.