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.

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