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For Reel.com, it's The End
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June 12, 2000: 5:10 p.m. ET
Video retailer discontinues e-commerce site, blaming large losses
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NEW YORK (CNNfn) - Hollywood Entertainment Corp. said Monday it will wrap its online retail division, Reel.com, another casualty of the e-commerce shakeout.
Hollywood Entertainment said it expects to incur an aftertax loss of $25 million related to closing down Reel.com. All employees of the online division have been laid off, the company said.
Berkeley, Calif.-based Reel.com was unable to obtain outside financing, according to Mark Wattles, Hollywood Entertainment chief executive officer, "as a result of the major declines in the value of publicly traded e-commerce companies."
Wattles said that despite strong Internet customer traffic and revenue, company officials "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."
 With "Hollywood's stock dropping 75 percent during the same period that the operating profits of Hollywood Video stores were up over 40 percent, we could no longer justify funding the e-commerce business," said Wattles in a statement.
Buy.com (BUYX: Research, Estimates), a multi-product e-tailer, has contracted with the company to fulfill all outstanding movie orders placed through Reel.com. Hollywood Entertainment said it expects that Reel.com's Web site will continue to provide entertainment content, but redirect commerce transactions to buy.com.
Hollywood Entertainment (HLYW: Research, Estimates) operates the second largest video store chain in the U.S. with 1,800 video stores across the country.
Two years ago, Reel.com won $10.5 million in venture financing from cutting-edge Internet investment concerns Vulcan Ventures, headed by ex-Microsoft co-founder Paul Allen and Andover, Mass.-based CMG Information Services (CMGI: Research, Estimates).
Industry trade magazine Variety reported that Hollywood Entertainment was losing $5 million a month because of Reel.com's drag.
In Friday trading, shares of Hollywood Entertainment closed down 3/32 at 7 1/4. The company's 52-week high is 22-1/8; the low for that period is 6-1/16. Buy.com closed down 1/8 at 5 1/8. 
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