Video Update

Video Update was an American chain of stores that rented movies to consumers. It originated in the St. Paul, Minnesota, area in 1982, when Daniel Potter and John Bedard established a small video-rental business after meeting in law school and sharing an interest in films. The first location operated on Rice Street in Little Canada, Minnesota, and the founders initially lived in the building's basement. The business adopted the Video Update name as it began franchising in 1983, with several early franchisees owned by law students. During its first decade, Video Update was primarily a franchise operation. By early 1986 it had 91 U.S. units, including 41 in the Minneapolis–St. Paul region. The company also considered international expansion, including a proposed development program in Singapore. Its early growth was complicated by an unsuccessful attempt to bring video distribution in-house. The move was poorly received by film studios and contributed to cash-flow difficulties, negative net worth, creditor pressure, and restrictions on the company's ability to sell additional franchises in Minnesota. Video Update nevertheless continued developing its store network and opened its first company-owned location in 1989. The decisive change came with the company's initial public offering on July 20, 1994. The listing gave Video Update access to equity capital at a time when the U.S. video-rental sector was consolidating and major chains were competing for locations in new shopping centers. After the IPO, the company raised additional capital and pursued an acquisition-led strategy. Between 1995 and 1997 it bought regional operators including Video Powerstores in Arizona and Nevada, Indy Video in the Indianapolis area, and Cox Video stores in Oklahoma and Texas. It also expanded into Canada through acquisitions of Wilderness Video Group, Video West, and Video View. By the year ending in April 1997, Video Update had added 145 stores and reached approximately 340 locations. The company's largest transaction was the acquisition of the South Carolina-based Moovies chain. Negotiations began in 1996, and the merger was completed in 1998 after a prolonged renegotiation of the exchange ratio. The combination produced a chain of roughly 685 stores and made Video Update the third-largest U.S. movie-rental operator behind Blockbuster and Hollywood Video. Management hoped that the larger scale would improve the company's bargaining position with movie studios and help it obtain more favorable revenue-sharing arrangements. The integration instead created substantial costs and organizational difficulties. Video Update spent about $7 million replacing Moovies signs, while the two businesses remained poorly integrated and expansion plans were curtailed. The Moovies transaction also left Video Update heavily leveraged just as the rental market weakened. The company moved from a reported profit of approximately $5 million for the year ending in April 1997 to losses of about $14 million and $110 million in the following two years. It closed more stores than it opened in fiscal 1998–1999 and faced disputes with vendors, service providers, creditors, and former executives. By August 1999 the network still included more than 700 company-owned and franchised stores, but management planned further closures. The company's share price collapsed, and shareholders rejected a proposed reverse stock split intended to help preserve Nasdaq eligibility, resulting in delisting. In 2000, a lender's refusal to amend part of the financing used for the Moovies acquisition triggered a loan default and intensified demands from vendors and other creditors. Video Update filed for Chapter 11 bankruptcy protection on September 18, 2000. The filing listed more than 1,000 creditors and did not initially include the Canadian division. Store closures reduced the U.S. network substantially during the bankruptcy, while the company also faced disputes over executive retention, internal controls, employee theft, accounting, and alleged misconduct. Movie Gallery acquired Video Update's senior secured bank debt in 2001 and subsequently became the purchaser of the company's U.S. and Canadian stores and name. The bankruptcy court approved the sale in December 2001. Some franchisees rebranded after failing to reach new agreements with Movie Gallery, while at least one independently operated store retained the Video Update name for years. The last known franchised location, in Eagan, Minnesota, closed in 2012. Video Update therefore survives primarily as an example of the rapid expansion, consolidation, leverage, and eventual financial distress that characterized the late-1990s physical video-rental industry.

Video Update began in the St. Paul, Minnesota, area in 1982. Daniel Potter and John Bedard, who had met in law school, opened an early store in Little Canada and initially operated the business from the premises. The company adopted the Video Update name in 1983 as it began offering franchises. Its early model relied heavily on franchisees, many of whom were law students, and the chain reached 91 U.S. units by February 1986. The company considered opening as many as several dozen locations in Singapore, although the proposed program was later scaled back. The business encountered financial and operating difficulties during the 1980s. An effort to control movie distribution internally caused friction with film studios and contributed to cash-flow problems. The company's net worth became negative, creditors and the Internal Revenue Service sought payment, and Minnesota regulators restricted further franchise sales in the state. Video Update moved its offices to the Minnesota World Trade Center in 1986 and opened its first company-owned store in 1989. The 1994 Nasdaq IPO transformed the scale of the business. Video Update used public-market funding to compete for retail sites and to acquire established regional chains. From 1995 through 1997 it purchased Video Powerstores, Indy Video, and Cox Video locations in the United States. It also entered Canada through the acquisitions of Wilderness Video Group, Video West, and Video View. The expansion made the company a significant North American operator, with approximately 340 stores by April 1997. Video Update then pursued Moovies, a rapidly expanding South Carolina chain. Negotiations began in 1996, and the original 1997 stock-swap proposal was revised after severe declines in both companies' share prices. The revised transaction was completed in 1998 and increased Video Update's network to approximately 685 stores. The company spent millions of dollars replacing signs and expected its new scale to improve negotiations with movie studios. In practice, the acquired chain was concentrated in different types of markets and was not integrated effectively. Merger negotiations also consumed management attention, and the company's chief financial officer resigned during the process. The enlarged company inherited substantial debt and entered a deteriorating rental market. Reported losses grew sharply after 1997, store closures accelerated, and the company became involved in disputes with Rentrak, a sign contractor, a former Moovies executive, shareholders, vendors, and lenders. The stock was delisted after shareholders rejected a reverse stock split. A lender's refusal in 2000 to amend the financing terms associated with the Moovies acquisition caused a default, while auditors issued a going-concern warning. Video Update filed for Chapter 11 on September 18, 2000, with more than 1,000 creditors listed in the petition. The bankruptcy process involved further store closures, disagreements over executive retention, and concerns about accounting and management controls. Movie Gallery acquired the company's senior secured bank debt in March 2001 and obtained court approval to purchase the U.S. and Canadian stores in December 2001. Franchisees did not all remain under the Video Update name; some rebranded when new agreements could not be reached. One franchised store in Eagan, Minnesota, reportedly continued operating under the name until it closed in 2012.

• 2012

  Last known Video Update-branded franchise closes

  [1]Video Updateen.wikipedia.org

  A franchised location in Eagan, Minnesota, was reported to be the final store using the name.

• 2001

  Movie Gallery purchase approved

  [1]Video Updateen.wikipedia.org

  The bankruptcy court approved Movie Gallery's purchase of the U.S. and Canadian operations.

• 2000

  Chapter 11 bankruptcy filing

  [1]Video Updateen.wikipedia.org

  The company filed for bankruptcy protection on September 18 after a loan default and mounting creditor pressure.

• 1998

  Moovies merger completed

  [1]Video Updateen.wikipedia.org

  The transaction made Video Update the third-largest U.S. movie-rental chain, with roughly 685 stores.

• 1997

  Network reaches approximately 340 stores

  [1]Video Updateen.wikipedia.org

  Acquisitions and new locations expanded the chain substantially across the United States and Canada.

• 1994

  Nasdaq initial public offering

  [1]Video Updateen.wikipedia.org

  The company began public trading on July 20 and gained capital for expansion.

• 1989

  First company-owned store opens

  [1]Video Updateen.wikipedia.org

  After years of primarily franchise-led expansion, Video Update opened its first company-owned location.

• 1983

  Franchising begins under the Video Update name

  [1]Video Updateen.wikipedia.org

  The company adopted the Video Update name as it began opening franchised units.

• 1982

  Company founded in Minnesota

  [1]Video Updateen.wikipedia.org

  Daniel Potter and John Bedard established the business in the St. Paul area.

A neighborhood-focused movie-rental retailer and franchising network that competed through local market coverage, acquisitions, and relatively modest store-investment costs rather than the highly standardized presentation associated with larger national chains.

• Physical media rental · 1982

  Movie-rental stores

  Video Update operated neighborhood stores where customers rented feature films and other home-video titles. Its network combined company-owned locations with a large franchise system, and the chain expanded by acquiring established regional operators.

• Retail franchising · 1983

  Franchise program

  Franchising was central to Video Update's early development. Independent operators opened locations under the chain's name, allowing the company to build a broad footprint without owning every store. Franchise relationships later became a major issue during the bankruptcy and post-sale transition.

• Physical media rental · 1989

  Company-owned rental stores

  Video Update began developing company-owned locations in 1989 and later added stores through acquisitions. The company emphasized relatively limited investment in store decoration compared with larger competitors, an approach analysts viewed as helping control costs during its expansion phase.

• 2001

  Concerns over accounting and management controls

  Following the acquisition, Movie Gallery stated that Video Update had lacked certain internal accounting and management controls before and during bankruptcy and indicated that officers may have engaged in embezzlement or fraud. These were reported allegations and control concerns, not established findings against every officer.

  Source

• 1999

  Litigation over former Moovies executive

  A jury found that Video Update's buyout of a former Moovies chief operating officer's contract was fraudulent and awarded the executive $1.3 million.

  Source

Read more

• 2000

  File for Chapter 11 protectionOther

  Background

  A lender declined to amend financing terms, leading to a default amid losses, creditor pressure, and an auditor's going-concern warning.

  Action taken

  Video Update filed for Chapter 11 bankruptcy on September 18, 2000.

  Aftermath

  The chain closed many stores and was ultimately sold to Movie Gallery through the bankruptcy process.

  Source

• 1998

  Complete the Moovies mergerM&A

  Background

  Video Update sought greater scale and hoped a larger network would improve its ability to negotiate with movie studios.

  Action taken

  The company completed a stock-based combination with Moovies after renegotiating the original exchange terms.

  Aftermath

  The merger created a roughly 685-store chain but produced signage costs, management distraction, poor integration, and substantial leverage.

  Reported signage replacement cost. $7 million (1998)

  Source

• 1994

  Use public capital to accelerate consolidationStrategy

  Background

  After its IPO, Video Update operated in a sector increasingly dominated by large national rental chains.

  Action taken

  Management used public-market financing to pursue acquisitions and secure locations in new shopping centers.

  Aftermath

  The strategy expanded the chain quickly but increased its exposure to integration risk and acquisition debt.

  Source

1. 1Video Updateen.wikipedia.org