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TK's MORNING BUZZ: Hollywood's Wattles Should Have Known Reel.com Was a Real Dot-com Lemon Before He Bought It

21 Nov, 2000 By: Thomas K. Arnold

In the wake of the Reel.com debacle, it's interesting to note that a new Jupiter Communications study, commissioned by National Association of Recording Merchandisers, concludes that most of the Web music sites coming online these days in the wake of file-swapper MP3's settlement with Universal aren't going to make it.

Hardest hit will be the music recommendation sites, the ones that "hope to become a key consumer destination through the lure of recommendation tools,"Jupiter says. (Reel.com began life as a movie recommendation site, venturing into e-commerce a few months after launch.)

With the once-promising market for banner ads increasingly hard to crack,there's little chance these recommendation sites will make enough money to survive; "they will have to develop relationships with larger online music orcontent destinations or license their services," Jupiter says.

Meanwhile, many e-commerce music sites are faltering and being bought out by larger concerns. Jupiter, however, warns that troubled e-commerce sites aren't always a good deal, no matter how low the price: "Companies should be cautious," Jupiter says. "The targeted sites may be among the most heavily trafficked, but the value of the prospects has less to do with the size of the pool than with the quality of its prospects."

These prospects should be evaluated based on three primary criteria, Jupiter says:
*The superfluous uses of promotions and special offers, which "often unintentionally condition customers to delay a purchase until a product has a negative margin."
*Behavioral characteristics of customers, including how long they spend online and whether they actually buy or merely browse.
*Customer overlap. The online environment, says Jupiter, has encouraged more than 80% of consumers to shop around at two or more merchants.

In light of this, it's easy to see why Reel.com failed--and that there were telltale warning signs that Hollywood Entertainment Corp. chief Mark Wattles should have noticed before he spent so much money on the Web operation that badly damaged his once-thriving brick-and-mortar operation.

Reel.com did rely heavily on promotions and special offers (who can forget Titanic for $9.95?). Reel.com was a movie information leader when the site was first launched in the middle 1990s, but as soon as other movie sites, like the Internet Movie Database, came around, with far deeper and better information, Reel.com's customer retention abilities should have come into question. And with Amazon.com, a much bigger and better-funded seller of packaged home entertainment products, Reel.com didn't stand a chance.

Perhaps Reel.com should have seen the writing on the wall, cut way back and focused on DVD, as a handful of hot little comers did the moment the format was launched.

Perhaps Reel.com would have done that, had Wattles the Emperor Builder not gotten ahold of it with the intention of turning it into the second Amazon.

Comments? Contact TK directly at:TKArnold@aol.com

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