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Hollywood Entertainment to Acquire Reel.com

Hollywood Entertainment Corp., doing business as video retail chain Hollywood Video, said it signed a definitive agreement to acquire Reel.com Inc., a video-only store on the Internet, for approximately $100 million.

Reel.com offers more than 85,000 movie titles, proprietary movie information, and recommendations, and rentals.

Hollywood Entertainment will issue five million shares of restricted Hollywood Entertainment common stock and redeemable preferred stock, and pay $30 million in cash to stockholders of Reel.com.

"This acquisition allows us to leverage Hollywood's base of 25 million members, industry knowledge, and studio relationships to a new and rapidly growing distribution channel," said Mark Wattles, chairman and CEO of Hollywood Entertainment.

"Because of the uniqueness of an individual customer's taste in movies, I believe the Internet together with the PC's information processing capabilities is positioned to create a substantial increase in movie consumption through matching, collaborative filtering, and customized recommendations," he added.

Separately, a group of Reel.com's stockholders will purchase an additional five million shares of restricted Hollywood Entertainment common stock at a price per share of $13.50, a discount of the public market price to reflect the restricted nature of the investment. The investment group will be entitled to appoint two members to Hollywood Entertainment's board of directors.

The new members of Hollywood's board of directors will include Scott Beck, former CEO of Boston Market and previously vice chairman of Blockbuster Entertainment, and Dave Wetherell, chairman and CEO of CMG Information Services Inc.

The investor group consists of CMG@Ventures, the strategic investment and business development unit of CMG Information Services, Inc.; Intel Corp.; Paul Allen's Vulcan Ventures Inc.; and Scott Beck.

Reel.com will continue to operate with its own independent management headed by the current CEO, Julie Wainwright.

Hollywood's members will be directed to Reel.com's Web site via in-store promotions, in-store kiosks, and co-op advertising, among other traffic building vehicles.



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