BOSTON (06/12/2000) - Reel.com, the online business of Hollywood Entertainment Corp., will close its e-commerce operations in two weeks because it incurred "large losses and (required) significant cash funding," Hollywood Entertainment said. The site will remain up offering content for movie fans, but purchase requests will soon be directed to online retailer Buy.com.
Hollywood Entertainment funded Reel.com for the past 18 months, investing US$55 million into its online venture, said David Martin, chief financial officer at the Wilsonville, Oregon-based video store chain. The company also sought to take Reel.com public, as well as pursue private placement and other avenues to bolster Reel.com's finances, Martin said. These attempts were unsuccessful, he added.
"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," Mark Wattles, chairman and CEO of Hollywood Entertainment, said in a statement today. "Despite significant customer enthusiasm, we cannot sustain this business."
"Hollywood Entertainment will see profits instead of losses," Martin said. The video store company said its stock price dropped 75 percent during the same period its operating profits were up more than 40 percent. In trading this morning, Hollywood Entertainment's stock price was at $7.25.
The company is the second-largest video-store chain in the U.S., operating more than 1,700 rental stores in 43 states.
According to a statement, Hollywood Entertainment expects to incur an after-tax loss of approximately $25 million "related to the disposal of the Reel.com business." The loss will include lease termination costs, employee severance and benefit costs related to most Reel.com employees, and provisions for the operating losses to be incurred during a short phase-out period.
Existing orders submitted to Reel.com will be fulfilled either through Reel.com or Buy.com. Internet retailer Buy.com will provide online e-commerce services for Reel.com customers in the future. Martin said the content part of Reel.com will continue.