Movie Gallery to Open Online Rental Service

The nation's second biggest movie retail chain said Monday that it would open its own online DVD rental service in order to stop the defection of customers to rivals Blockbuster and Netflix.

Movie Gallery, which operates both Movie Gallery and Hollywood Video, would debut the service later this year. A survey of the chain's customers showed that while many were renting new releases through its stores, but opting for the online services for older releases.

It also plans to do the service on the cheap, opting to stay out of the high-cost advertising battle now underway between Netflix and Blockbuster. Existing customers would gain access to low-cost online rental through the service.

The chain has struggled since its 2005 acquisition of Hollywood Video, aimed at taking market-leading Blockbuster head on. However, the company went deeply into debt that was exaggerated by a softening in the in-store rental market.

At the end of last year, the company was more than $1.1 billion in debt, with $33 million cash-on-hand. It hopes to return to profitability this quarter, and is currently renegotiating the terms of its debt agreements.