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RealTime IT News

On the Cutting Room Floor

In a charming twist of irony, eToys announced plans to acquire eParties' limited assets for $1.6 million in stock. The struggling party planner sent its entire workforce packing on an extended summer vacation earlier this month, before publicly acknowledging the pending sale.

Successfully hatched from the "original" Net incubator, idealab!, it's only fitting that eToys should sift through the remains of the failed eParties, launched from the newly minted eCompanies' incubator. And the timing was made to order. Last month eToys unveiled plans to add hobby products and party goods to its repertoire by year's end. The toy e-tailer just didn't have a roof to put it under until now.

There sure wasn't any sticker shock here. However, if eToys can ever manage a toehold on Toys "R" Us , and its stock price follows suit, eCompanies may actually get a return on their original eParties investment.

Goldman Sachs analyst Anthony Noto applauded the move into the high margin business. But when asked to comment on eToys' anemic share price, he curiously commented, "It may take shares awhile to recover. Investors are building positions in an orderly fashion without driving up the stock price."

Honest, I don't make this stuff up.

It's a wrap

Reel.com has ended up on the cutting room floor. Hollywood Entertainment , the second largest video rental chain in the U.S., announced plans yesterday to amputate its online retail arm. The parent company shed all 200 Reel.com employees and rerouted its remaining order flow through BUY.COM . Which isn't a marked improvement. Boasting negative gross margins and a screen door barrier to entry, it won't be long before BUY.COM succumbs to the same fate. But I digress.

Sources close to Reel.com speculate that the video e-tailer was plowing through roughly $5 million a month, but I suspect the burn rate was closer to $7 million. All told, Hollywood pumped about $50 million into the company since purchasing it back in 1998, before finally calling it quits.

Here's the real kicker. Watching Hollywood Entertainment turn out the lights on its online venture left me with a disturbing feeling. Reel.com had already filed to go public last December. Hambrecht & Quist was taxiing down the runway to sell the offering to retail investors, looking to raise roughly $60 million. Six short months later, Reel.com is hastily written off as just another dot-com experiment.

I like Hollywood Entertainment, but this spin-off deal was nothing but a pipe dream. If you're looking to shed a tear for the start-up, consider first that you and I were the guinea pigs. It was our money that would have found its way into company execs' already stuffed pockets had the IPO market not put the squeeze on.

Keep the change.

Any questions or comments, love letters or hate mail? As always, feel free to forward them to kblack@internet.com.