January 17, 2001 4:50 PM PST

CheckOut.com may be on sale rack

CheckOut.com, backed by Hollywood power broker Michael Ovitz, is expected to be sold Thursday to Amplified Holdings, a digital content distribution company, according to a source close to the deal.

The online store and entertainment Web site will be acquired for an undisclosed sum, the source said. Wherehouse Music--which signed an exclusive, $40 million deal with CheckOut in November 1999--will take control of the site's music and video sales. Amplified will operate the back-end engine of the Web store.

CheckOut was formed in May 1999 by Ovitz and Richard Wolpert, a partner for Yucaipa and former president of Disney Online. Despite the initial fanfare garnered from its relationship with Ovitz, CheckOut struggled to get a foothold in the Internet industry--either in content or in retail.

Industry experts say the large failing of CheckOut is that it never established itself strongly as an entertainment destination or as an e-commerce site. By playing both sides of the fence, the company couldn't fully succeed at either. Market pressures in the industry lent to further woes for the company.

Reel.com suffered a similar identity crisis two years after video chain Hollywood Entertainment bought the entertainment site, when it realized that online content and retailing are difficult to house under the same roof.

"Everybody's losing money...see A News.com webcast: Dot-coms: Down and out?We're past the point of thinking attaching a famous name to a Web site has much significance at all," said Malcolm Maclachalan, media e-commerce analyst at IDC.

"They're in a bunch of low-profit businesses; any way out they have to keep alive is probably a good move right now," he added.

Signs of the CheckOut sale cropped up early this year. The company canceled its affiliate program Jan. 6, according to Geoffrey Kleinman, founder of DVD Talk.com, an affiliate Web site to CheckOut. Kleinman said that canceling such programs is usually a sure sign that a company is going out business.

Based in Beverly Hills, Calif., CheckOut sells music, videos and DVDs on the Internet. It also provides video and audio streaming, reviews, and chats.

Privately held Amplified sells services such as digital rights management, Web hosting, streaming and digital downloads to record labels, entertainment companies and online retailers. Customers of its technology include EMI Recorded Music. The company is backed by Valley Media, Bear Stearns' Constellation Ventures and Chase Capital, among others.

Last June, CheckOut and Amplified inked a deal to deliver digital music through Amplified's distribution channels.

 

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