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Hollywood Entertainment Completes Acquisition of Reel.com

Hollywood Entertainment Corp., dba Hollywood Video, the second largest video rental chain in the United States, said it completed its $90 million acquisition of Reel.com Inc.

The agreement to acquire Reel.com was announced on July 30, 1998. Reel.com operates a video store on the Internet that offering access to over 85,000 movie titles, proprietary movie information, and recommendations that help customers discover movies they'll enjoy.

Hollywood Entertainment issued five million shares of restricted Hollywood Entertainment common stock and redeemable preferred stock, all of which are non-transferable for one year, and $30 million in cash to stockholders of Reel.com. The preferred stock will convert on a one-for-one basis into Hollywood common stock upon approval by Hollywood stockholders.

"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."

Separate and concurrent with the acquisition, certain existing Reel.com stockholders purchased an additional 3,362,800 shares of restricted Hollywood Entertainment common stock from Hollywood Entertainment at a price per share of $13.50, and 637,200 shares in the open market for a total of 4 million shares. The group of investors consists of CMG Information Services Inc., Intel Corp., Paul Allen's Vulcan Ventures Inc. and Scott Beck.

With its acquisition of Reel.com, Hollywood Entertainment said it expects to obtain a significant competitive advantage in the fast-growing interactive home entertainment market. The combination will position Hollywood Entertainment for the future transition from today's e-commerce model using physical distribution to e-commerce through electronic distribution, ie, video-on-demand.

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. Reel.com will build relationships with its new customers using its proprietary editorial content, movie matching, and recommendation capabilities to help them discover movies to purchase from the Web site or rent from the stores.

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Hollywood Entertainment to Acquire Reel.com