America’s second largest video chain, Hollywood Entertainment, has spent $100m acquiring Reel.com, a Berkeley, California-based internet video storefront. Confidence in the long-term viability of the merged companies appears to be high, with 70% of the purchase price changing hands in the form of stock. Reel was founded with money from CMG Ventures, Intel, Paul Allan’s Vulcan Ventures and various individuals. CMG was one Reel owner to convert its entire 34% stake in Reel to equity in Hollywood. We are investing in the future of the living room, explained chairman and CEO Dave Wetherell. Mark Wattles, CEO and chair of Hollywood Entertainment, said that his company needs to establish an online beachhead to prevent business drying up altogether. The internet could eventually take customers away from video stores, he said. To prevent that happening, Hollywood plans to provide internet terminals in its physical stores to let customers access Reel.com. Half of our customers have no idea what it is that they want to watch when they walk through that door, Wattles said, Reel.com can help them make that choice. At first glance Reel.com looks like any other internet storefront, but the site does boast some useful features, notably its movie matcher which provides recommendations based on films the user has already seen and liked. Maybe because this facility is produced by human editors and not automatically generated, it comes up with some suprisingly intuitive suggestions. Ask for more films like Breakfast at Tiffany’s and you’ll be offered the charming 80s flick Say Anything, while fans Terry Gilliam’s Brazil will probably also enjoy the trippy French City of Lost Children. At first we thought we could duplicate something like this, but then we realized, no way, says Wattles. The synergies between the physical and online businesses are supposed to increase customer loyalty, or as Wattles puts it: We can lock customers into the site, and into the store. It’s an interesting notion. Historically, though, netizens have not taken kindly to being locked in. Freedom to choose is just a click away at Amazon.com, which in April acquired the venerable and venerated Internet Movie Database as the basis of its retail video venture (CI No 3,398).
