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
, 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 [email protected].

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