Hollywood Entertainment Pulls Plug on Reel.com
E-commerce startups have quickly gone from being the darlings of the business world to being the pariahs. Investors’ enthusiasm has waned in the past several months as it became clear that most e-commerce operations were never going to turn a profit. Hollywood Entertainment executives finally faced the inevitable just a few weeks ago and decided that their best strategy is to concentrate on the video rental business, which has always been their strong suit. The company owns Hollywood Video, the nation’s second-largest video rental chain.
"I've just given up on the ability to make a profit on the e-commerce business," said Mark Wattles, chairman and chief executive of Hollywood Entertainment. "The losses of the e-commerce business have been very large." Wattles’ company purchased Reel.com two years ago in a complicated deal valued at $100 million in cash and stock. Chief financial officer David Martin stated that in 1999 Reel.com lost $82.5 million on revenue of $41.9 million, whereas Hollywood Video made a profit of $46 million on revenue of $1.05 billion.
Losing twice as much as it was making, Reel.com has severely affected the corporation’s profitability and stock valuation. Hollywood Entertainment stock, which was trading at $23.50/share a year ago, closed at $6.75/share on Friday June 16. Company officers say they will keep the Reel.com site active with movie reviews and celebrity trivia, and may use it to experiment with video-on-demand sometime next year.