Movie Gallery, the operator of the Hollywood Video rental chain, plans to close 805 poorly performing U.S. stores after falling sales and mounting losses led to its second bankruptcy in three years, Reuters reported.

The closings affect one-third of the private equity-backed company’s 2,415 U.S. stores, and several thousand of the company’s roughly 19,100 employees probably will lose their jobs, Reuters said. Movie Gallery also operates 184 stores in Canada.

The company, which is based in Wilsonville, Ore., first landed in bankruptcy court in October 2007, unable to sustain the debt it took on in its $850 million acquisition of a rival, Hollywood Entertainment, in 2005. Movie Gallery agreed to assume about $350 million of Hollywood Entertainment’s borrowings as a part of the deal.

It emerged the following year with the private equity firm Sopris Capital Associates and affiliates as its majority equity owner, a regulatory filing shows.

Movie Gallery and video retailer rivals such as Blockbuster have suffered as more consumers switch to services such as Google’s YouTube, Netflix’s mail-order service and kiosk operators such as Coinstar’s Redbox.

Last month, Blockbuster lowered its earnings forecast after a disappointing holiday sales season.

Movie Gallery and four affiliates filed for protection on Tuesday with the U.S. bankruptcy court in the Eastern District of Virginia. Its Movie Gallery Canada affiliate was not part of the filing.

“Absent the filing of these Chapter 11 cases and the corresponding ability to exit a substantial number of underperforming stores and further deleverage its capital structure, the company likely would not be able to continue as a going concern,” the chief restructuring officer, Steve Moore, said in a court filing.

The company also operates stores under the Movie Gallery and Game Crazy brands. It disclosed the planned store closings and said it had hired the Gordon Brothers Group to help liquidate the stores in a separate filing. The company also said it hired Moelis & Company as its investment banker.

Movie Gallery’s video rental business has been hurt by increased competition, Mr. Moore said, while its video game business has suffered from falling sales of Nintendo’s Wii console and games and a dearth of high-profile new games.

The company’s revenue fell to $1.4 billion in 2009 from $2 billion in 2008, and its fourth-quarter operating loss increased more than 52 percent to $129.3 million from $84.8 million, Mr. Moore said.

Movie Gallery owes more than $540 million in principal to its first- and second-lien lenders, it said. By October 2009, it was delinquent on many obligations and faced possible looming defaults under loan covenants, it also said.

Movie Gallery, founded in 1985, once operated nearly 4,800 stores, following its 2005 purchase of Hollywood Entertainment.

Movie Gallery shares last traded on Jan. 29 at 7.9 cents on the Pink Sheets, Reuters data show.

As much as I think Movie Gallery and Blockbuster are hurting from Netflix, Redbox, and Youtube, I don't think that's really the main cause. It's just times are changing. Back in the 90s, the only thing going was renting movies, playing at an arcade, or playing a crappy PC game if you were lucky to own a computer. Now that technology has made things cheaper, there's a ton of stuff to compete for your entertainment pleasure... texting, facebook, blogging, mmorpgs, tons of tv channels, etc. There's just a bunch of more stuff to do.

It's a shame to see Hollywood Video go out of business. They had a fairly extensive foreign video section and the staff was knowledgeable. You get neither of those from a Redbox kiosk.