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By Matt Pillar, Editor In Chief, Retail Solutions Online/Integrated Solutions For Retailers

If it wasn't already, the beginning of the end of brick-and-mortar movie rentals is now — officially — upon us.

On the heels of Movie Gallery filing Chapter 11 bankruptcy last week, Blockbuster Video CEO James Keyes sounded downright gloomy in a Friday interview with TheStreet. For its part, Movie Gallery execs cited "the economic and competitive realities facing its business" as cause for the filing. While I can see "competitive realities" the likes of Netflix and Redbox as legitimate contributors to the Movie Gallery's demise and Blockbuster's struggles, I'm not easily sold on the "economic realities" of the recession as a contributing factor. Short of a walk in the park, dates don't get any cheaper than dinner in and a movie rental. No, I think that failure to adapt its delivery model to meet consumer demand is almost solely why, in the past two years, Movie Gallery has closed hundreds of stores. Further, its stated goal of emerging from its restructuring process focused on a smaller base of profitable stores is, in my opinion, akin to life support for the terminally ill.

As for Blockbuster, Friday's interview with TheStreet certainly won't do the company any favors on The Street. Keyes more or less admitted to a thorough clock-cleaning by Netflix and Redbox on hot title sales in December. He acknowledged that losses of nearly $200 million in 2009 will ensure the closing of 20% of its stores by 2011, and his vision for the chain's remaining brick-and-mortar stores looked blurry at best. But where his take on stores is vague, the rollout of RedPrairie Execution Management at Blockbuster, an initiative Blockbuster VP of operations Jeff Gloor says will help store managers spend more time coaching sales associates and driving sales, is telling. Sounds to me like a stake in the ground for a brick-and-mortar future.

But as if the pot needed more spice, the news on Redbox last week wasn't at all good either. The company is still engaged in a legal battle with Warner Home Video, 20th Century Fox Home Entertainment, and Universal Studios Home Video over how long it must wait to put out new releases. As such, it had taken to purchasing new releases directly from retailers. But effective last week, Walmart enacted a five-copy purchase limit on new DVD releases, a move Target had already made last year. Lawsuits and limited supply are apparently, at least temporarily, Redbox' Achilles heel.

Fundamentally, bricks and mortar (and all their associated overhead) are not necessary to facilitate the sale of digital media. When – and if – Movie Gallery and Blockbuster accept this reality and make sweeping format and delivery changes, perhaps they'll actually be able to compete for Netflix and Redbox market share. Movie Gallery hasn't let on that it's in the game, but according to Keyes, Blockbuster is rolling out 10,000 kiosks this year, and bolstering its Blockbuster On Demand initiative. Too little, too late? Give me your opinion at matt.pillar@jamesonpublishing.com.