The news that Movie Gallery (MOVI) will be soon seeking protection under Chapter 11 bankruptcy, shows the misunderstanding they had of the changing marketplace when they bought Hollywood Video in 2005, outbidding Blockbuster (BBI) in the process. Now they're wishing they hadn't won the bid.
They paid $1 billion for the company, and now they aren't able to service their $1.2 billion in debt, citing slower than expected rentals.
What they did was misread the market, as they bought at the end of the growth period of in-store video sales, while paying a premium price for the company. The slowing sales aren't allowing the company to pay its debt.
What Movie Gallery misunderstood at the time was distribution and convenience was what consumers' demanded, not more physical outlets to shop from. In other words, they thought scale would make a difference to their business: a huge mistake.
They should have put their resources at the time into strategies like Blockbuster has used to offer options in-store and on the Internet.
We must understand our market, that's the story here. The changes in the industry, even in 2005, could be seen by those not even in that specific space. Just getting big, merging or spending money, without being involved in the right things will no longer cut it.
One question we must always ask ourselves is if we are operating in what has become a commodity business. This industry has definitely become that, with other market forces competing for viewers' eyes than ever before.
We have cable on-demand, iTunes, Web sites popping up all over offering professional content, video downloads and streaming video, etc. Differentiation is almost impossible anymore in watching movies.
If we can no longer differentiate, then pricing is all that can be competed on. That makes this industry a commodity.
We must know what it is we offer that can be marketed as something different. If we can't do that, we will have trouble breaking into the industry or expanding our businesses.
» Movie Gallery and Consequences of Wrong Change from ManagersRealm
In 2005, Movie Gallery (MOVI) got into a big battle with Blockbuster (BBI) over the acquisition of Hollywood video. Blockbuster must be secretly thanking their lucky stars on losing the bid. Since paying out $1 billion for the company, Movie... [Read More]
Tracked on: October 6, 2007 7:16 PM | Permalink to Trackback