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Video Chain Movie Gallery Buys MovieBeam

Video rental chain Movie Gallery, which is, under the Hollywood Video and Movie Gallery brands is the number-two video rental company in the United States after you-know-who, has announced that it has acquired MovieBeam, a company which offered set-top boxes which downloads video-on-demand titles over the air using public airwaves.

MovieBeam certainly has a strong pedigree: the company was spawned by Disney and had the backing of Intel, Cisco, and other industry heavyweights. And it’s approach is novel—instead of pulling content down via satellite or a home broadband connection, MovieBeam set-top boxes pull in movies over the air using signals piggybacking on PBS transmissions in selected markets around the country. Users pay $7 a month for the service, then from $2.50 to $4 per title they watch. MovieBeam pushes about 10 new titles a month, including some high-definition offerings; the MovieBeam set-top boxes moved into Radio Shack stores last year in time for the end-of-year holiday rush.

The holiday retail season must not have gone very well for MovieBeam; although neither company is disclosing the terms of the deal, Movie Gallery says it expects the total cost of the acquisition and ongoing development costs to be less than $10 million in 2007. In a statement, Movie Gallery Chairman and CEo Joe Malugen said: “We believe the MovieBeam service provides the best video-on-demand service available in the marketplace today and is a strong compelling complement to the consumer retail video store experience. Our acquisition of MovieBeam is the first phase of our long-term strategic plan to provide digital content to consumers. We will begin merchandising the MovieBeam service in our Hollywood Video and Movie Gallery stores and on our Web sites in the near future and we have exciting plans to build upon the existing content digitization and broadcast platforms.”

Movie Gallery doesn’t currently offer any by-mail or on-demand digital services, so it’s likely the company hopes to leverage MovieBeam technology to develop businesses which will let it compete with the ever-growing range of digital video services, including Apple’s iTunes and Apple TV, Amazon Unbox, Microsoft’s Xbox Live offerings, and even recently-birthed offerings from Netflix and even Wal-mart.

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