'Dot-Cc' Name Sells for $1 Million
By William McCall
AP Business Writer
PORTLAND, Ore. - Hollywood Entertainment said Monday it is pulling the financial plug on its cash-draining Reel.com Web site before it drags down the bricks-and-mortar foundation the company has built into the nation's No. 2 video chain.
Hollywood will maintain the Reel.com site and its movie listings, but the site will forward orders for videos and DVDs to another company at a separate Web site.
David Martin, chief financial officer for the Wilsonville-based company, said it has gotten tougher to find financial backing for Internet sites that keep spending huge amounts of money on building business without showing a profit.
``Two years ago it made sense to fund something like Reel.com with another $50 million,'' Martin said. ``But now e-commerce is just not a wise use of our capital.''
Hollywood Entertainment lost $82 million on Reel.com last year and company founder and chairman Mark Wattles had been shopping for a buyer.
Wattles said the company's stock price fell 75 percent over the past 18 months, despite a 40 percent increase in the operating profits for its chain of nearly 1,800 Hollywood Video stores.
Hollywood Entertainment said it will take a $25 million after-tax charge to close Reel.com and lay off most the site's employees.
Another Web retailer, Buy.com of Aliso Viejo, Calif., will fill outstanding orders under terms of an agreement with terms that were not disclosed.
Analysts said Hollywood Entertainment may have been ahead of its time because online video rental demand will increase as technology improves and Internet access speeds up dramatically with more high-speed access through phone and cable lines.
``The time for this would be in a fully broadband world when you can download video in real time,'' said David Cooperstein of Forrester Research in Cambridge, Mass. ``That is definitely the future.''
Cooperstein also said Hollywood Entertainment was caught between Reel.com and maintaining growth of its stores, still dwarfed by No. 1 Blockbuster Video with 6,500 stores nationwide.
Hollywood Entertainment has slowed from its rate of building one new store a day to about one store every two days.
``It's hard to work in both bricks-and-mortar and online,'' Cooperstein said. ``Working both sides of the street means that sometimes traffic is always going the wrong way.''
Hollywood Entertainment's shares ended regular trading Monday at $7.25, down 9.38 cents, or 1.3 percent on the Nasdaq Stock Market.
© Copyright 2000 The Associated Press
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