MCVIL GALLLk INC

1he Company
Movle Callery was founded ln 1983 when lL began operaLlng vldeo speclalLy sLores and
sLarLed Lo have franchlse operaLlons ln some sLaLes of Amerlca ln beLween 1988 and 1992
Lhe company boughL ouL Lhe franchlsees as companyowned sLores resulLlng ln lncreased
annual revenue 1he company wenL publlc ln 1994 Lo fund an aggresslve expanslon sLraLegy
uslng Lhe proceeds from an lC resulLlng ln more Lhan 100 acqulslLlons and growlng number
of reLall sLores wlLhln Lhe nexL 6 years 8y 2003 Lhe number of sLores ralsed Lo 2000 and Lhe
purchase of vldeo updaLe gave Lhe company lnLernaLlonal presence wlLh 100 reLall ouLleLs
ln Canada And by 2003 lL grew Lo 4700 ouLleLs wlLh revenues ln excess of $23 bllllon
annually ln 2006 Movle Callery lnc became Lhe second largesL vldeo renLal company ln
norLh Amerlca wlLh 4700+ reLall sLores locaLed ln 30 sLaLes plus Canada and Mexlco 1he
company speclallzed ln Lhe renLal and sale of uvu and vPS movles and vldeo games

1he Current S|tuat|on
Powever by mld2006 Lhe company was poLenLlally faclng bankrupLcy due Lo loss lncurred
from Lhe arrlval of new compeLlLors and a Lechnologlcal change ln Lhe lndusLry now Lhe
purpose of Lhe company ls Lo cuL lLs cosL and expenses lncrease lLs revenues and proflLs
and poslLlon lLself for fuLure success by coplng wlLh Lhe markeL changes

Market|ng Strateg|es fo||owed so far
ConsolldaLed Lhe franchlsees lnLo companyowned sLores and grew Lhe number boLh
lnLernally and Lhrough 100+ acqulslLlons uslng proceeds from an lC
1argeLed small Lowns and suburban areas where lL could compeLe very efflclenLly
agalnsL Lhe small reglonal sLores by dellverlng flrsLrun movles aL cheaper prlces
Acqulred Pollywood vldeo whlch LargeLed urban areas and areas where Movle
Callery was weak 1hls aggresslve expanslon sLraLegy propelled Lhe company lnLo
Lhe second place behlnd 8lockbusLer ln Lhe uS vldeo renLal markeL
Acqulred vPC LnLerLalnmenL ln Canada where vPC Cnllne allowed dlrecLLohome
dellvery servlce by flrsL class mall Lo Lhe Canadlans' home for a baslc monLhly fee

ey Issues
1here had been Lwo key lssues wlLh Movle Callery
Aggresslve expanslon sLraLegy lnvolved many acqulslLlons and especlally Lhe
purchase of Pollywood LnLerLalnmenL lefL Movle Callery heavlly ln debL and led Lo
flnanclal crlsls
1he advenL of compeLlLors wlLh onllne vldeo renLal servlces (such as neLfllx) reduced
Lhe revenue of company's reLall sLores and lLs cash flow leadlng Lo 90 loss of lLs
sLock value ln 2003

Act|on |an
1he goal ls Lo lncrease proflLs and revenue and for LhaL Movle Callery needs Lo provlde Lhe
cusLomers Lhe convenlence onllne vldeo renLal companles are provldlng so LhaL Lhey can
reLaln and also grow Lhelr subscrlber base

Slnce Lhe flnanclal poslLlon of Movle Callery needs Lo be sLrengLhened Lo recover from
heavy debL Lhe overwhelmlng number of reLall ouLleLs does need Lo be curLalled especlally
Lhe underperformlng ones 1hls would consequenLly resulL ln laylngoff and reduclng Lhe
number of workers Lhus lowerlng operaLlng cosLs and expenses

Movle Callery should now focus lLs buslness more on Cnllne vldeo renLal servlces llke
neLfllx raLher Lhan reLall ouLleLs because cusLomers wanL beLLer convenlence 1he company
already acqulred vPC Cnllne whlch dellvers selecLed movles from webslLe Lo subscrlbers'
home ln Canada by shlpmenL now Lhey should expand Lhe servlce ouLslde Canada ln oLher
sLaLes of norLh Amerlca Slnce shlpmenL normally delays Lhe dellvery of movles only Movle
Callery branded sLores ln selecL locaLlons across Lhe sLaLes of norLh Amerlca would acL as
boLh reLall ouLleLs and dlsLrlbuLlon cenLers 1hls way Lhe dellvery could be fasLer All Lhe
oLher sLores would be closed down 1he offerlngs should be slmllar Lo neLfllx le no laLe
fees and movle should be malled back Lo lLs reLall ouLleL Lo renL anoLher

Moreover movle downloads are belng already offered by Movlellnkcom 1hls ls anoLher blg
LhreaL slnce lL even cuLs off Lhe dellvery Llme 1herefore Movle Callery should lnvesL ln 8u
Lo produce lLs own slLe for movle downloads 1PA1'S l1!! Auu MC8L uL1AlLS ll u WAn1!!