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
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,
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.