RealTime IT News

Reel.com Folds

Hurt by lack of funding from investors, Hollywood Entertainment Corp.'s video and DVD shop closed its doors this week, laying off more than 200 employees.

Beginning Tuesday, Reel.com ceded its merchandise to Net superstore Buy.com. Apologizing for "reduced title availability," Reel.com assured consumers that all orders placed through June 12 would be filled.

On Tuesday, Hollywood decided that Reel.com's site will continue to operate, but all commerce transactions will be directed to Buy.com. Ongoing expenses associated with maintaining Reel.com will come from Hollywood's existing marketing budget.

Hollywood Entertainment, which grabbed Reel.com two years ago for about $100 million, expects to lose about $25 million.

"Reel.com has built an excellent Web site for movie buyers and those interested in movie content. Revenue, customer traffic and customer satisfaction have all been very strong," said Mark Wattles, chairman and chief executive officer of Hollywood Entertainment, which owns the Hollywood Video chain of video superstores.

"Unfortunately the business model of rapid customer acquisition required large losses and significant cash funding. As a result of the major declines in the value of publicly traded e-commerce companies, we have been unable to obtain outside financing for Reel and do not believe it is in the best interests of Hollywood's banks, bondholders and shareholders to continue funding Reel from Hollywood's strong video store cash flow. Despite significant customer enthusiasm, we cannot sustain this business."

Wattles said keeping Reel.com open was no longer realistic because Hollywood's stock dropped 75 percent during the time operating profits from its video stores were up more than 40 percent.

With almost 1,800 stores in 46 states, only Blockbuster owns a larger share of the video rental market than Hollywood Entertainment.

Reel.com is the latest store to suffer the e-commerce shakeout fate, joining British high-end fashion store Boo.com and Toysmart.com.

Some news content sites are encontering the same fate. Last week, crime news site APBNews.com folded, laying off 140 emplyees. Salon.com and Oxygen Media also announced cutbacks last week.