Movie Gallery, the second largest video rental chain in the U.S. has recorded its worse loss since its inception.

The vid-giant has lost more than half a billion dollars in its fourth quarter sparking a massive lay-off of hundreds of employees by the end of 2006.

Much of the loss can be attributed to Movie Gallery’s buyout of Hollywood Entertainment, who owned the Hollywood Video chain across the nation.

This big loss is another indicator that consumer preference is shifting to the more convenient alternative offered by such online rental giants like Netflix and Blockbuster Online.

Movie Gallery CEO Joe Malugen stated that his company will not take the online route due mainly to the prohibitive startup costs that it would take to compete with the established mega online rental franchises, but Malugen also still feels that ultimately the online rental option is “a business that nobody is going to make much money at.”

This is just an observation on my part by looking at what has been occurring over the last 2 years in market trends, but I think online rental services have proven their viability and have the stamina and appeal to last well into the future. And, while there are new technologies on the horizon that will allow for swifter and cheaper movie and programming downloads, not only for rental but also for private ownership, I think Mr. Malugen may be missing the mark on his assessment of the online rental’s ability to make money now and in the future. While his company is now struggling and laying off employees, other companies, both large and small are reaping the benefits of giving its viewing public the ease and comfort of online renting.

Mulugen has proven to be an entertainment visionary since 1985 and I certainly wouldn’t count him out or ignore his insight, and perhaps he has a better view of what is over the next hill when it comes to patron’s viewing and renting habits – time will tell, but for now, his company is feeling the financial squeeze and hundreds of his employees across America will be left to finding new jobs elsewhere.

Source: Variety