What Happened to Hollywood Video?

Hollywood Video closed all of its approximately 2,700 stores in 2010 when its parent company, Movie Gallery, filed for bankruptcy and liquidated. The closures marked the end of a 22-year run as America's second-largest video rental chain. The company couldn't compete with Netflix's mail-order DVD service (launched 1997), Redbox's $1 DVD kiosks (2002), and eventually streaming services like Netflix streaming (2007) and Hulu (2008).

The 2005 acquisition by Movie Gallery proved disastrous, loading the combined company with over $1 billion in debt just as the rental industry faced unprecedented disruption. DVD rental revenue declined 10-20% annually as consumers shifted to more convenient alternatives. High commercial real estate costs for physical stores became unsustainable as foot traffic dried up. Movie Gallery filed for Chapter 11 bankruptcy in 2007, emerged briefly, then filed again in 2010. This time, there was no recovery—the company liquidated, closing all Hollywood Video and Movie Gallery stores permanently.

Founded by Mark Wattles in 1988 in Wilsonville, Oregon, Hollywood Video grew aggressively through the 1990s by competing directly with Blockbuster. The company's strategy focused on several key differentiators:

Larger stores with more selection: Hollywood Video stores were typically larger than Blockbuster locations, offering wider selections of titles including more catalog films and special interest content.

Better new release availability: The chain guaranteed customers would find the new releases they wanted or receive a free rental, addressing Blockbuster's frequent problem of popular titles being out of stock.

No late fees: Hollywood Video pioneered no-late-fee policies years before Blockbuster reluctantly followed, removing the rental industry's most hated policy.

Strategic locations: The chain carefully selected high-traffic retail corridors and shopping centers, often placing stores directly across from Blockbuster locations to capture comparison shoppers.

By 2004, Hollywood Video operated over 2,000 stores across the United States, making it the clear #2 video rental chain in America. The company had successfully carved out a substantial market share and built a loyal customer base who appreciated the chain's customer-friendly policies.

In 1999, Hollywood Video launched Game Crazy, an innovative shop-in-shop concept for video game rentals and sales that operated inside Hollywood Video locations. Game Crazy was years ahead of its time, offering services that would later become mainstream:

Video game trade-ins and used game sales: Before GameStop dominated this market, Game Crazy pioneered the business model of buying used games from customers and reselling them at lower prices.

New game pre-orders and midnight launches: Game Crazy stores hosted midnight release events for major game launches, creating community excitement.

Console sales: The sections sold new and used gaming consoles, controllers, and accessories.

Game rentals: Customers could rent the latest games before committing to purchase, a service that's largely disappeared today.

At its peak, Game Crazy operated in over 3,000 Hollywood Video locations nationwide. The concept was genuinely innovative and generated significant additional revenue beyond movie rentals. However, Game Crazy shared Hollywood Video's fate—when Movie Gallery liquidated in 2010, all Game Crazy sections closed along with their parent stores. The brand disappeared entirely, though its business model would be perfected by GameStop and other specialty gaming retailers.

Throughout the 1990s and early 2000s, Hollywood Video and Blockbuster engaged in fierce competition for rental market share:

Store count: Blockbuster operated roughly 9,000 stores at its peak compared to Hollywood Video's 2,700, giving Blockbuster greater brand recognition and convenience.

Pricing: Both chains competed aggressively on pricing, with Hollywood Video often undercutting Blockbuster on older titles while matching prices on new releases.

Late fees: Hollywood Video eliminated late fees first, forcing Blockbuster to reluctantly follow years later. This policy difference gave Hollywood Video a significant customer satisfaction advantage.

Selection: Hollywood Video stores typically offered larger catalog selections and more copies of new releases, addressing common Blockbuster customer complaints.

Customer experience: Hollywood Video cultivated a more laid-back, customer-friendly atmosphere compared to Blockbuster's more corporate feel.

Despite Hollywood Video's advantages, Blockbuster's massive store network and deeper pockets (backed by Viacom for many years) gave it market leadership. However, these advantages couldn't save either chain from digital disruption. Ironically, both companies would collapse within a few years of each other—Movie Gallery (Hollywood Video's parent) liquidated in 2010, while Blockbuster filed for bankruptcy the same year and closed most stores by 2013.

In 2005, Movie Gallery—a regional video rental chain—acquired Hollywood Video for approximately $1 billion, creating a combined company with over 4,700 stores nationwide. The acquisition was intended to create economies of scale that could better compete with Blockbuster and emerging threats like Netflix.

However, the acquisition proved catastrophic:

Massive debt: The $1 billion+ purchase price loaded the combined company with enormous debt payments just as industry revenue began declining.

Timing: The acquisition came just as Netflix's mail-order service gained mainstream traction and Redbox began rolling out DVD kiosks. The rental industry's business model was already under threat.

Integration challenges: Combining two large retail chains proved difficult and expensive, draining resources needed to address digital disruption.

Overlapping stores: Many markets had both Hollywood Video and Movie Gallery locations, requiring store closures and consolidation.

Cultural clash: Movie Gallery's more conservative, regional approach conflicted with Hollywood Video's aggressive, customer-focused culture.

The acquisition left the combined company poorly positioned to weather the coming storm. Heavy debt service consumed cash that could have been invested in digital initiatives or competitive responses to Netflix and Redbox.

Hollywood Video's business model couldn't survive the one-two punch of Netflix and Redbox:

Netflix mail-order (1997-present): For $7.99/month, Netflix offered unlimited DVD rentals with no late fees, delivered by mail. Customers could keep movies as long as they wanted and return them in prepaid envelopes. This eliminated trips to the video store and late fee anxiety. By the mid-2000s, Netflix had millions of subscribers and was significantly impacting video store traffic.

Redbox kiosks (2002-present): Redbox placed automated DVD rental kiosks in grocery stores, McDonald's, and Walmart locations. For just $1 per night (compared to $3-5 at video stores), customers could rent new releases from convenient neighborhood locations. Redbox's low overhead and strategic placement made it extremely competitive.

Netflix streaming (2007): When Netflix launched streaming video, the death sentence for video stores was written. For the same $7.99/month, Netflix subscribers could watch unlimited streaming content instantly. No driving, no late fees, no returning anything.

Hollywood Video attempted responses—launching its own online rental service and trying to compete on price—but these efforts were too little, too late. The company was saddled with expensive retail leases and couldn't match the convenience and economics of digital alternatives. Store traffic and revenue declined 10-20% annually in the late 2000s, making the business model unsustainable.

In October 2007, Movie Gallery (Hollywood Video's parent company) filed for Chapter 11 bankruptcy protection, citing declining rental revenue, excessive debt from the 2005 Hollywood Video acquisition, and increasing competition from Netflix, Redbox, and cable video-on-demand.

The bankruptcy filing allowed Movie Gallery to:

Reduce debt: The company shed approximately $700 million in debt through bankruptcy court proceedings.

Close underperforming stores: Hundreds of unprofitable locations were closed, particularly in markets with overlapping Hollywood Video and Movie Gallery stores.

Renegotiate leases: The company terminated or renegotiated expensive commercial leases, reducing occupancy costs.

Restructure operations: Management streamlined corporate overhead and consolidated distribution operations.

Movie Gallery emerged from bankruptcy in mid-2008 with a smaller footprint of approximately 3,500 stores. Management expressed confidence that the restructured company could compete effectively in the evolving entertainment landscape.

However, the fundamental problems remained: consumers were abandoning physical DVD rentals for digital alternatives, and no amount of restructuring could reverse that trend. The 2007 bankruptcy bought time but didn't solve the core business model problem.

In February 2010, Movie Gallery filed for bankruptcy a second time. This time, there would be no recovery. The company announced it would liquidate all assets and close all remaining Hollywood Video and Movie Gallery stores.

Why the second bankruptcy was terminal:

Netflix streaming explosion: By 2010, Netflix streaming had gone mainstream, with millions of subscribers watching unlimited content for $7.99/month. Physical DVD rentals were in freefall.

Hulu and cable VOD: Additional streaming options from Hulu and cable companies' video-on-demand services gave consumers multiple alternatives to video stores.

Redbox expansion: Redbox had expanded to over 20,000 kiosks nationwide, capturing customers who still wanted physical DVDs.

Unsustainable economics: With revenue declining 20%+ annually, Movie Gallery couldn't cover rent, payroll, and inventory costs for thousands of physical stores.

No buyers: Unlike the 2007 bankruptcy, no companies stepped forward to acquire the business or provide financing. The rental industry was clearly dying.

Liquidation sales began in spring 2010, with stores offering deep discounts on DVDs, games, fixtures, and equipment. Employees were laid off, leases were terminated, and inventory was sold off. By summer 2010, the last Hollywood Video stores had closed their doors permanently, ending the 22-year run of Blockbuster's biggest competitor.

The closure of Hollywood Video (along with Blockbuster's near-simultaneous demise) marked the definitive end of the video rental era.

For millennials and Gen Xers, Hollywood Video represents powerful nostalgia:

Friday night ritual: Visiting Hollywood Video on Friday evening to pick out weekend movies was a cherished routine for millions of families.

Game Crazy memories: The in-store gaming section introduced many kids to gaming culture and the concept of used game trading.

No late fees: Hollywood Video's customer-friendly policies made it the preferred alternative to Blockbuster for many customers.

Movie discovery: Before streaming algorithms, browsing Hollywood Video's shelves led to unexpected discoveries and recommendations from knowledgeable staff.

Community gathering place: Video stores served as neighborhood social spaces where people discussed movies and shared recommendations.

While streaming services offer unprecedented convenience and selection, something was lost when video stores disappeared: the physical experience of browsing shelves, the anticipation of bringing home your selections, and the shared cultural experience of visiting the video store.

Hollywood Video's closure symbolizes how quickly digital disruption can transform entire industries. Within just a decade, Netflix and streaming services eliminated a business model that had dominated home entertainment for 30 years.