A Motley Fool ( fool.com ) Post worth REPOSTING
Subject: Re: CMGI Is For REEL Number: of 104
Author: TMFNico AÿAÿAÿread profile | no interview Date: 8/2/98 11:04 PM (ET)
I just got finished listening to the conference call held by Dave Wetherell, chairman and CEO of CMG Information Services, and Mark Wattles, chairman and CEO of Hollywood Entertainment. A few things in particular stand out.
Hollywood Entertainment's Wattles indicated several times how the deal was a hedge against competition to their Hollywood Video bricks and mortar outlets. But not only a hedge. The acquisition of Reel.com is "in preparation for the electronic delivery of movies." This is being presented as a vision of "the future of movies," in which Hollywood Video stores will be converted from cash flow machines to "membership development centers" at internet sites. In other words, "community" (though I don't believe that word was actually used.)
Hollywood Entertainment had looked into the possibility of building the equivalent of Reel.com on their own. It was felt that it would take 2 years to do that, however, and it would not have been enough to catch up to Reel.com, given the pace of internet developments. A rather interesting comment, I think, considering how often we encounter, as a pillar of the "low barriers to entry" argument, the notion that one or another high-traffic web site would be easy to build and replicate. Reel.com claims that unique daily visitors to its site increased from 20,000 this spring to 200,000 presently, and will generate an estimated $10 million in sales this year. The Hollywood Entertainment deal is being valued at approximately $100 million.
In the conference call, Hollywood was asked about competition with Amazon.com, who are anticipated to be moving into the video sale and rental business, and recently purchased the Internet Movie Database, which also catalogs data and reviews about movies. This was minimized by saying there was "no way an expert in books can become an expert in movies."
A report on the deal quoted Reel.com's CEO Julie Wainwright as saying that, "My personal view of Amazon is that I don't believe they'll be No. 1 in all three categories," referring to books, CDs, and movies. And several times during the conference call, Wattles referred to the intention of being one of if not the leading online video operations.
What is especially interesting about this deal are the anticipated synergies between Hollywood Video's conventional stores and Reel.com. In-store kiosks will be set up which will allow customers to access and use the Reel.com data base in making movie selections. Hollywood's research indicates that most of their customers do not have a specific title in mind when the first enter the store. It is hoped that the brick and mortar stores and the Reel.com web site will each help build traffic to the other.
That doesn't seem unreasonable, and it will certainly be interesting to see how it develops. I've wondered if such an in-store kiosk scheme would make sense for Barnes & Noble, as a means of creating synergies between their traditional stores and their web site. B&N wouldn't have the task of first associating two different names, as is the case with Hollywood Video and Reel.com.
At the same time, if such synergies can be created, and proved to be worthwhile, would it make any sense for Amazon to <shudder!> open up a select number of terrestrial stores, perhaps as showcases for "the Amazon experience?" Seems unlikely. But it should be noted that there is a physical Reel.com outlet in Berkeley, and there were plans to open stores in New York and Los Angeles. Whether those plans will go forward in light of this deal is unknown.
Hollywood Video is the second largest video rental business after Viacom's Blockbuster, with over 1000 stores. At some level, its acquisition of Reel.com suggests the video version of a combination of a pre-IPO Amazon.com and Borders. Reel.com's CEO Julie Wainwright was in fact brought in to take the company public -- something which will obviously not be happening, thus depriving world wide message board readers the joy of 24/7 debates as to the proper valuation of the never-to-be created equity. Drats! But that's OK. This deal, and the way it promises to reflect back on the evolving Amazon, and the internet as an evolving and competing commerce platform, should provide more than enough frames per second for us to blink at. Doncha think?
BTW, I'm not sure how much longer it will be available, but the Hollywood Entertainment/CMGI conference call can be listened to at 800-475-6701. The access code is 400665.
TMF Nico
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