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TK's MORNING BUZZ: The Jury is Still Out Whether Hollywood Video Will Ultimately Pull Through

6 Mar, 2001 By: Thomas K. Arnold

The announcement yesterday that Hollywood Entertainment Corp. had reached an agreement with its lenders to defer most of its $37.5 million amortization payment can be read two ways.

One is that Hollywood shrewdly cut a deal to avoid default, and that the banks are more than willing to work with the chain and help it build itself back up.

But two is that Hollywood, quite simply, didn't have the money.

Investors also appeared uncertain over exactly which way to take the announcement, in which Hollywood agreed to make a $6 million payment today and defer the remaining $31.5 million until May 5.

The No. 2 video rental chain's stock, which recently shot up past the $2 mark after trading in the dollar range for most of January and February, closed the day at 2-11/32 -- not bad, and nearly twice what new board member Douglas Glendenning -- it turns out his listing as "c.e.o. and chairman" in published reports was a mistake -- paid for his 100,000 shares of stock.

The jury is still out whether Hollywood will ultimately pull through. Chief Mark Wattles has done a good job convincing investors that the video rental end of the business is profitable, and that the only black marks came from the ill-fated purchase of e-commerce site Reel.com, which Hollywood dumped over the summer.

Studio executives are silently praying that Hollywood makes it. If nothing else, the Wilsonville, Ore.-based chain gives them a hedge against Blockbuster. But it's not much of a hedge. Hollywood has fewer than 2,000 stores in the United States to Blockbuster's 5,000-plus. And the other public video chains, except for Movie Gallery, are pretty much out of the picture.

Video Update is in bankruptcy, Video City is in bankruptcy, and West Coast Entertainment has officially dissolved with the recent sale of its last remaining corporate stores.

The last thing studio executives want is for Blockbuster to get any bigger than it already is (with buying clout estimated at between 35% and 45% of all rental-priced videos, depending on the studio). They'd love a field of five or six strong players to keep Blockbuster in check.

Instead, they've got one, whose strength is dubious. And that makes studio executives extremely nervous.

A lot in Hollywood, shall we say, is riding on Hollywood.

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

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