HOLLYWOOD ENTERTAINMENT CORP, 424A, 1996-11-29

HOLLYWOOD ENTERTAINMENT CORP
424A, 1996-11-29
VIDEO TAPE RENTAL

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<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 26, 1996
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
RULE 424(A)
REGISTRATION NO. 333-16587

2,000,000 SHARES

[LOGO]

COMMON STOCK

ALL OF THE 2,000,000 SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY
HOLLYWOOD ENTERTAINMENT CORPORATION (THE "COMPANY").

THE COMMON STOCK IS TRADED ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL
"HLYW." ON NOVEMBER 26, 1996, THE LAST SALE PRICE OF THE COMMON STOCK AS
REPORTED ON THE NASDAQ NATIONAL MARKET WAS $19.75 PER SHARE. SEE "PRICE RANGE OF
COMMON STOCK."

SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
-----------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS TO
TO PUBLIC DISCOUNT (1) COMPANY (2)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE................................ $ $ $
TOTAL (3)................................ $ $ $
</TABLE>

(1) SEE "UNDERWRITING" FOR INFORMATION CONCERNING INDEMNIFICATION OF THE
UNDERWRITERS AND OTHER MATTERS.

(2) BEFORE DEDUCTING OFFERING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT
$300,000.

(3) THE COMPANY HAS GRANTED TO THE UNDERWRITERS A 30-DAY OPTION TO PURCHASE UP
TO 300,000 ADDITIONAL SHARES OF COMMON STOCK SOLELY TO COVER
OVER-ALLOTMENTS, IF ANY. IF THE UNDERWRITERS EXERCISE THIS OPTION IN FULL,
THE PRICE TO PUBLIC WILL TOTAL $ , THE UNDERWRITING DISCOUNT WILL
TOTAL $ AND THE PROCEEDS TO COMPANY WILL TOTAL $ . SEE
"UNDERWRITING."

THE SHARES OF COMMON STOCK ARE OFFERED BY THE SEVERAL UNDERWRITERS NAMED
HEREIN WHEN, AS AND IF DELIVERED TO AND ACCEPTED BY THE UNDERWRITERS AND SUBJECT
TO THEIR RIGHT TO REJECT ANY ORDER IN WHOLE OR IN PART. IT IS EXPECTED THAT
DELIVERY OF CERTIFICATES REPRESENTING THE SHARES WILL BE MADE AGAINST PAYMENT
THEREFOR AT THE OFFICE OF MONTGOMERY SECURITIES ON OR ABOUT , 1996.

-------------------

MONTGOMERY SECURITIES DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

, 1996
<PAGE>
[Photograph of bank of 12 television screens with "Hollywood Video" sign in each
screen. Beneath the wall of screens is a box containing the words "Want
Entertainment?...]

[Top cover of three-fold artwork]

[Inside left of three-fold artwork:

Photograph of interior of store with a Hollywood Video employee assisting a
youth with videocassette selection, a man and a woman looking at comedy
videocassette selections, and other customers reviewing "Horror", "Comedy
Concerts", "Animation" and "New" categories of videocassettes.]

[Inside right of three-fold artwork:

Five photographs depicting Hollywood Video store fronts with a box containing
words "Go to Hollywood! TM]

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMPANY'S COMMON STOCK ON THE NASDAQ NATIONAL
MARKET IN ACCORDANCE WITH RULE 10b-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934.
AS AMENDED (THE "EXCHANGE ACT") SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING "RISK FACTORS," AND FINANCIAL STATEMENTS APPEARING
ELSEWHERE IN THIS PROSPECTUS OR INCORPORATED HEREIN BY REFERENCE.

THE COMPANY

The Company opened its first video superstore in October 1988 and had grown
to 25 stores in two states at the end of 1993, 113 stores in eight states at the
end of 1994 and 305 stores in 23 states at the end of 1995. As a result, the
Company's revenue increased from $17.3 million in 1993 to $149.4 million in
1995, and its pro forma net income increased from $1.6 million to $11.8 million
over the same period. The Company opened 148 new stores in the nine months ended
September 30, 1996 and intends to open approximately 100 new stores in the
fourth quarter of 1996. The Company plans to open approximately 300 new stores
in 1997. To support this expansion, the Company has reorganized its operations
into geographic zones, managed from zone offices. The Company recently hired
three senior vice presidents with significant experience managing large,
national chains who are responsible for all aspects of store operations and
development in the zones.

Hollywood Entertainment's goal is to be a dominant national video retailer
and to build a strong national brand which consumers will identify with the
entertainment industry. As part of its strategy to achieve this goal, the
Company has developed a store format and design that captures the bright lights,
excitement and energy of the motion picture industry and enables the public to
easily identify and recognize Hollywood Video superstores. Hollywood Video
superstores average approximately 7,500 square feet and typically carry
approximately 10,000 titles and 16,000 videocassettes, consisting of many copies
of popular new releases and an extensive selection of older or "catalog" movies.
Hollywood Entertainment's goal is to offer more copies of popular new
videocassette releases and more titles than its competitors to achieve greater
customer satisfaction and encourage repeat visits. Hollywood Video stores are
primarily located in high traffic locations, in stand-alone buildings, at the
end of shopping strips or in other highly visible locations.

The Company was incorporated in Oregon in June 1988; its executive offices
are located at 25600 SW Parkway Center Drive, Wilsonville, Oregon 97070, and its
telephone number is (503) 570-1600. References in this Prospectus to the
"Company" or "Hollywood Entertainment" are to Hollywood Entertainment
Corporation and its wholly owned subsidiary.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered......................... 2,000,000 shares
Common Stock to be outstanding after the
offering(1)................................. 35,949,176 shares
Use of Proceeds.............................. For repayment of indebtedness, to fund
expansion and for working capital and other
general corporate purposes. See "Use of
Proceeds."
Nasdaq National Market Symbol................ HLYW
</TABLE>

- ------------------------------

(1) Based on shares outstanding at September 30, 1996. Excludes 4,603,362 shares
reserved for issuance under the Company's 1993 Stock Incentive Plan (the
"Stock Incentive Plan"), of which 4,180,562 shares were subject to
outstanding options at September 30, 1996 at a weighted average exercise
price of $8.75 per share.

3
<PAGE>
FORWARD-LOOKING STATEMENTS

THE INFORMATION, INCLUDING INFORMATION CONCERNING THE COMPANY'S PLANNED
EXPANSION AND FINANCIAL RESOURCES, SET FORTH IN "PROSPECTUS SUMMARY" UNDER THE
CAPTION "THE COMPANY," IN "RISK FACTORS" UNDER THE CAPTIONS "UNCERTAIN ABILITY
TO ACHIEVE AND MANAGE PLANNED EXPANSION" AND "LEGAL PROCEEDINGS," IN
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" UNDER THE CAPTION "LIQUIDITY AND CAPITAL RESOURCES" AND IN
"BUSINESS" UNDER THE CAPTIONS "GENERAL," "EXPANSION STRATEGY," "DECENTRALIZATION
AND CREATION OF ZONE OFFICES," "VIDEO RETAIL INDUSTRY" AND "COMPETITION"
INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT OF 1933 AND IS SUBJECT TO THE SAFE HARBOR CREATED BY THAT
SECTION. CERTAIN FACTORS THAT COULD CAUSE RESULTS TO DIFFER MATERIALLY FROM
THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS ARE SET FORTH IN "RISK
FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" UNDER THE CAPTIONS "LIQUIDITY AND CAPITAL RESOURCES" AND
"GENERAL ECONOMIC TRENDS, QUARTERLY RESULTS AND SEASONALITY" AND IN "BUSINESS"
UNDER THE CAPTION "COMPETITION."

SUMMARY FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER OPERATING DATA)

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------------- ----------------------
1991 1992(1) 1993(1) 1994 1995 1995 1996
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:

Revenue......................................... $ 5,184 $ 11,044 $ 17,339 $ 73,288 $ 149,430 $ 95,488 $ 204,718
Pro forma operating income(2)(3)................ 562 1,796 2,795 9,745 17,537 13,936 23,573
Pro forma net income(2)(4)...................... 892 1,647 6,277 11,786 9,291 12,574
Pro forma net income per share(2)(5)............ $ 0.07 $ 0.11 $ 0.25 $ 0.36 $ 0.29 $ 0.36
Shares used in per share calculation............ 12,936 15,357 25,578 32,962 32,212 34,971

OTHER OPERATING DATA:

Number of stores at end of period............... 10 15 25 113 305 239 453
Comparable store revenue increase(6)............ 24% 27% 16% 7% 1% 0% 6%
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------
AS
ACTUAL ADJUSTED(7)
--------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:

Cash and cash equivalents................................................................................... $ 5,918 $ 22,847
Total assets................................................................................................ 372,315 389,244
Long-term debt (including current portion).................................................................. 85,549 65,549
Shareholders' equity........................................................................................ 231,148 268,077
</TABLE>

- ------------------------------

(1) Pro forma net income and pro forma net income per share include a pro forma
income tax adjustment to reflect the Company as a C corporation rather than
an S corporation for federal and state income tax purposes for 1992 and for
the period which commenced January 1, 1993 and ended July 18, 1993.

(2) Effective January 1, 1995, the Company changed its method of amortizing the
cost of videocassette rental inventory. See Note 2 of Notes to Consolidated
Financial Statements of Hollywood Entertainment Corporation incorporated
herein by reference. The change in amortization method resulted in a charge
to earnings in 1995 totaling $2.6 million, representing the cumulative
effect as of January 1, 1995 if the new method had been applied
retroactively to all videocassettes in service at that date. The pro forma
amounts shown herein reflect the effect on operating income, net income and
net income per share had the new amortization method been in effect as of
the beginning of each of the periods presented. As a result, pro forma
results for 1995 do not include the charge of $2.6 million. Pro forma net
income for 1991 is not determinable.

(3) For each of 1991, 1995 and the nine months ended September 30, 1995 and
1996, pro forma and actual operating income were the same. Actual operating
income for 1991, 1992, 1993, 1994, 1995 and the nine months ended September
30, 1995 and 1996 was $562, $2,270, $3,643, $12,610, $17,537, $13,936 and
$23,573, respectively.

4
<PAGE>
(4) For each of the nine months ended September 30, 1995 and 1996, pro forma and
actual net income were the same. Actual net income, adjusted in 1992 and
1993 as described in footnote 1 above, for 1991, 1992, 1993, 1994, 1995 and
the nine months ended September 30, 1995 and 1996 was $281, $1,177, $2,146,
$8,143, $9,226, $9,291 and $12,574, respectively.

(5) For each of the nine months ended September 30, 1995 and 1996, pro forma and
actual net income per share were the same. Actual net income per share,
adjusted in 1992 and 1993 as described in footnote 1 above, for 1991, 1992,
1993, 1994, 1995 and the nine months ended September 30, 1995 and 1996 was
$0.02, $0.09, $0.14, $0.32, $0.28, $0.29 and $0.36, respectively.

(6) A store becomes comparable after it has been open and owned by the Company
for 12 full calendar months. An acquired store converted to the Hollywood
Video name and store design is removed from the comparable store base when
the conversion process is initiated and returned 12 full calendar months
after reopening.

(7) Adjusted to reflect the sale of 2,000,000 shares of Common Stock offered by
the Company hereby at an assumed public offering price of $19.75 per share
and the application of the estimated net proceeds therefrom. See "Use of
Proceeds."

5
<PAGE>
RISK FACTORS

IN ADDITION TO THE OTHER INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS, THE FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN
EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PURCHASING ANY OF THE SHARES OF
COMMON STOCK OFFERED HEREBY.

UNCERTAIN ABILITY TO ACHIEVE AND MANAGE PLANNED EXPANSION

The Company's future performance will depend on its ability to open new
stores and to operate these stores profitably. The Company has grown from 25
stores in two states at the end of 1993 to 305 stores in 23 states at the end of
1995. The Company opened 148 new stores in the nine months ended September 30,
1996 and intends to open approximately 100 new stores in the fourth quarter of
1996. The Company plans to open approximately 300 new stores in 1997. The
Company has not identified sites for many of these planned stores and does not
have signed leases for most of them. The Company will continue to open stores in
markets where it has limited or no operating history. The Company's expansion is
dependent on a number of factors, including its ability to hire, train and
assimilate management and store-level employees, the adequacy of the Company's
financial resources and the Company's ability to identify and successfully
compete in new markets, to locate suitable store sites and negotiate acceptable
lease terms and to adapt its purchasing, management information and other
systems to accommodate expanded operations. In addition to the net proceeds of
this offering, the Company will need to obtain financing to achieve its planned
expansion of 300 stores in 1997. This financing may not be available or
available on terms favorable to the Company. Failure to obtain financing to fund
the Company's planned expansion or for other purposes would have a material
adverse effect on the Company. The Company's expansion is also dependent on the
timely fulfillment by landlords and others of their contractual obligations to
the Company, the maintenance of construction schedules and the speed at which
local zoning and construction permits can be obtained. There is no assurance
that the Company will be able to achieve its planned expansion or that expansion
will be profitable. There is also no assurance that the Company's new stores
will achieve sales and profitability comparable to the Company's existing
stores.

The size of the Company's store base and the geographic scope of its
operations have expanded significantly over the last several years. This
expansion has placed and is expected to continue to place increasing pressure on
the Company's operating and management controls. The Company has hired a
significant number of additional senior management and other personnel to manage
this larger store base and recently reorganized its operations into four
geographic zones, each of which will be managed by a senior vice president with
responsibility for store operations and new store development in the zone. This
new operating structure is in the early stages of implementation, and there is
no assurance it will be effective for managing the Company's expanding
operations. In addition, to manage its larger store base and planned expansion,
the Company will need to continually evaluate the adequacy of its financial
controls, management information systems and distribution facilities. There is
no assurance that the Company will adequately anticipate or respond to all of
the changing demands that its planned expansion will impose on its
infrastructure. See "Business--Expansion Strategy" and "--Decentralization and
Creation of Zone Offices."

DEPENDENCE ON KEY PERSONNEL; RECENT MANAGEMENT ADDITIONS

The Company's future performance depends on the continued contributions of
certain key management personnel, including Mark J. Wattles, its founder, Chief
Executive Officer and principal shareholder. To support its planned expansion,
the Company has added a substantial number of senior management personnel. There
is no assurance that the Company will retain these new members of management or
that they will be able to successfully manage the Company's existing operations
or achieve its expansion plans. The Company's continued growth and profitability
also depend on its ability to attract and retain other management personnel,
including qualified store managers. See "Management."

6
<PAGE>
COMPETITION AND TECHNOLOGICAL OBSOLESCENCE

The video retail industry is highly competitive. The Company competes with
other local, regional and national video retail stores, including the
Blockbuster Entertainment division of Viacom, Inc. ("Blockbuster"), the dominant
video retailer in the U.S., and with supermarkets, pharmacies, convenience
stores, bookstores, mass merchants, mail order operations and other retailers,
as well as with noncommercial sources such as libraries. According to the Video
Software Dealers Association, in 1995 there were approximately 27,000 video
specialty stores in the U.S., of which approximately 6,500 were video retail
superstores. Some of the Company's competitors have significantly greater
financial and marketing resources, market share and name recognition than the
Company. The Company competes directly with Blockbuster in nearly all of its
markets and the majority of its stores are located within very close proximity
of stores operated by Blockbuster. As a result of direct competition with
Blockbuster, rental pricing of videocassettes has been and may become a more
significant competitive factor in the Company's business, which could have an
adverse impact on the results of operations of the Company.

The Company also competes with pay-per-view satellite and cable television
systems, in which subscribers pay a fee to see a movie selected by the
subscriber. Existing pay-per-view services offer a limited number of channels
and movies and are available only to households with a receiver or converter to
unscramble incoming signals. Digital compression technology combined with fiber
optics and other developing technologies is enabling cable companies, direct
broadcast satellite companies, telephone companies and other telecommunications
companies to transmit a much greater number of movies to homes at more
frequently scheduled intervals throughout the day on demand. Certain cable and
other telecommunications companies have tested and are continuing to test movie
on demand services in some markets. Technological advances or changes in the
manner in which movies are marketed, including in particular the earlier release
of movie titles to pay-per-view and cable television or other distribution
channels, could make these technologies more attractive and economical, which
could have a material adverse effect on the business of the Company. See
"Business--Video Rental Industry" and "-- Competition."

RISKS ASSOCIATED WITH POSSIBLE FUTURE ACQUISITIONS

Although the Company's principal growth strategy is to open new Hollywood
Video superstores, it may continue to pursue potential acquisitions, some of
which may be material in size, including businesses that are not video retailers
but which have potentially attractive locations. The non-real estate assets of
businesses other than video retailers would likely need to be liquidated and the
facility converted to a video retail superstore. Further, any future
acquisitions would require investment of operational and financial resources and
might require integration of dissimilar operations, assimilation of new
employees, diversion of management resources, increases in administrative costs
and the addition of costs associated with debt or equity financing. The Company
has no understandings, commitments or agreements with respect to any
acquisition. There is no assurance that future acquisitions, if any, by the
Company will be successful, will not have an adverse effect on the Company's
results of operations or will not result in dilution to existing shareholders.
See "Business--Expansion Strategy."

LEGAL PROCEEDINGS

In December 1995 three complaints were filed against the Company, certain of
the Company's directors and officers and certain other parties and consolidated
in a single action entitled MURPHY V. HOLLYWOOD ENTERTAINMENT ET AL., case no.
C95-1926-MA, U.S. District Court for the District of Oregon. The consolidated
case is a class action encompassing persons who purchased common stock of the
Company from June 20 through December 5, 1995. Plaintiffs allege violation of
certain federal securities laws with respect to statements made to the public
and losses allegedly sustained by plaintiffs as a result of the decline in the
trading price of the Company's stock in December 1995. In May 1996 the court
certified the class but dismissed claims based on violations of sections 11,
12(2) and 15 of the Securities Act of 1933.

7
<PAGE>
The remaining claims deal with alleged violations of the Securities Exchange Act
of 1934. The trial has been tentatively scheduled for March 1997. The Company
believes this suit is without merit and is vigorously defending the litigation.
The Company does not believe the ultimate outcome of the litigation will have a
material adverse effect on the Company. If the case proceeds to trial and if the
verdict is unfavorable to the Company, or if the Company settles the litigation
on unfavorable terms, the litigation could have a material adverse effect on the
Company.

FLUCTUATIONS IN FUTURE OPERATING RESULTS

Future operating results may be affected by many factors, including
variations in the number and timing of store openings, the performance of new or
acquired stores, the quality and number of new release titles available for
rental and sale and the expense associated with the acquisition of new release
titles, acquisition by the Company of existing video stores, changes in
comparable store revenue, additional and existing competition, marketing
programs, weather, special or unusual events, seasonality and other factors that
may affect retailers in general. In addition, any concentration of new store
openings and the related new store pre-opening costs near the end of a fiscal
quarter could have an adverse effect on the financial results for that quarter
and could, in certain circumstances, lead to fluctuations in quarterly financial
results. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--General" and "--General Economic Trends, Quarterly
Results and Seasonality."

CONTROL BY PRINCIPAL SHAREHOLDER

Upon completion of this offering, the Company's founder, Mark J. Wattles,
will beneficially own approximately 31% of the outstanding Common Stock. As a
result, he may be able effectively to control all matters requiring approval by
the shareholders of the Company, including the election of directors.

POSSIBLE VOLATILITY OF STOCK PRICE

The market price of the Company's Common Stock has fluctuated substantially
since the initial public offering of the Company in July 1993. See "Price Range
of Common Stock." There is no assurance that the market price of the Common
Stock will not decline below the price to the public in this offering. The
Common Stock is traded on the Nasdaq National Market, which market has
experienced and is likely to experience in the future significant price and
volume fluctuations that could adversely affect the market price of the Common
Stock without regard to the operating performance of the Company. The Company
believes factors such as quarterly fluctuations in financial results,
announcements of new technologies in movie distribution or announcements by the
Company or competitors may cause the market price of the Common Stock to
fluctuate, perhaps substantially. These factors, as well as general economic
conditions such as recessions or high interest rates, may adversely affect the
market price of the Common Stock.

SHARES ELIGIBLE FOR FUTURE SALE

Sale of a substantial number of shares of the Common Stock in the public
market following this offering could adversely affect the market price for the
Common Stock. Upon expiration of a lockup agreement with the Underwriters 90
days after the date of this Prospectus (or earlier upon the consent of
Montgomery Securities), approximately 11,000,000 shares will be eligible for
sale pursuant to Rule 144 under the Securities Act. Of these 11,000,000 shares,
approximately 4,600,000 shares have been or are expected to be pledged as
collateral to secure approximately $17.0 million of obligations of the pledgor.
To the extent the lenders are required to sell these shares to satisfy the
pledgor's obligations, the shares will not be subject to the lockup agreement,
and a substantial number of shares would enter the public market, which could
adversely affect the market price of the Common Stock.

8
<PAGE>
POSSIBLE ADVERSE EFFECT OF ISSUANCE OF PREFERRED STOCK; ANTI-TAKEOVER EFFECT OF
OREGON LAW

The Board of Directors of the Company has authority to issue up to
25,000,000 shares of Preferred Stock and to fix the rights, preferences,
privileges and restrictions of those shares without any further vote or action
by the shareholders. The potential issuance of Preferred Stock may have the
effect of delaying, deferring or preventing a change in control of the Company,
may discourage bids for the Common Stock at a premium over the market price of
the Common Stock and may adversely affect the market price of, and the voting
and other rights of the holders of, Common Stock. In addition, certain
provisions of Oregon law could make it more difficult for a party to gain
control of the Company.

9
<PAGE>
USE OF PROCEEDS

The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered hereby are estimated to be $36.9 million ($42.5 million if
the Underwriters' over-allotment option is exercised in full), assuming a public
offering price of $19.75 per share and after deducting the estimated
underwriting discount and offering expenses. The Company plans to use
approximately $20.0 million of the net proceeds to repay a portion of the amount
outstanding under its revolving line of credit and the balance to fund expansion
and for working capital and other general corporate purposes. At September 30,
1996, $85.0 million was outstanding under the bank line of credit and bore
interest at a weighted average annual rate of approximately 6.9%. Amounts
borrowed were used principally to fund the repurchase by the Company in January
1996 of shares of its Common Stock, issued in connection with the Video Watch
acquisitions, for an aggregate payment of approximately $54.3 million and for
working capital. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources." The
Company may also use a portion of the proceeds of this offering to fund possible
acquisitions, but it has no understandings, commitments or agreements with
respect to any acquisitions. Pending use of the net proceeds, the Company will
invest the funds in short-term, interest-bearing securities.

PRICE RANGE OF COMMON STOCK

The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "HLYW." The following table sets forth for the periods indicated the high
and low sale prices of the Company's Common Stock as reported on the Nasdaq
National Market and as adjusted for all prior stock splits.

<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1994
First Quarter............................................................ $ 8.83 $ 5.00
Second Quarter........................................................... 12.42 7.17
Third Quarter............................................................ 14.75 9.33
Fourth Quarter........................................................... 18.44 13.13
1995
First Quarter............................................................ $ 18.25 $ 11.25
Second Quarter........................................................... 23.13 15.00
Third Quarter............................................................ 35.00 19.00
Fourth Quarter........................................................... 28.63 7.38
1996
First Quarter............................................................ $ 14.25 $ 6.25
Second Quarter........................................................... 19.00 13.13
Third Quarter............................................................ 22.63 11.75
Fourth Quarter (through November 26, 1996)............................... 23.63 17.00
</TABLE>

The last sale price of the Company's Common Stock on November 26, 1996 as
reported on the Nasdaq National Market was $19.75 per share. As of September 30,
1996, there were 207 holders of record of the Company's Common Stock. The
Company has not paid any cash dividends on its Common Stock since its initial
public offering in July 1993 and anticipates that any future earnings will be
retained for development of its business. The payment of any future dividends
will be at the discretion of the Company's Board of Directors.

10
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company as of
September 30, 1996 and as adjusted to give effect to the sale by the Company of
the 2,000,000 shares of Common Stock offered hereby at an assumed public
offering price of $19.75 per share and the application of the estimated net
proceeds therefrom. See "Use of Proceeds."

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------
(IN THOUSANDS)
ACTUAL AS ADJUSTED
----------- -----------
<S> <C> <C>
Cash and cash equivalents........................................... $ 5,918 $ 22,847
----------- -----------
----------- -----------
Current portion of long-term debt................................... $ 484 $ 484
----------- -----------
----------- -----------
Long-term debt, less current portion:
Revolving line of credit.......................................... $ 85,000 $ 65,000
Other long-term debt.............................................. 65 65
----------- -----------
Total long-term debt............................................ 85,065 65,065
----------- -----------

Shareholders' equity:
Preferred Stock, 25,000,000 shares authorized; no shares issued
and outstanding.................................................
Common Stock, 100,000,000 shares authorized; 33,949,176 shares
issued and outstanding; 35,949,176 shares issued and outstanding
as adjusted(1).................................................. 202,585 239,514
Retained earnings................................................. 30,936 30,936
Intangible assets, net............................................ (2,373) (2,373)
----------- -----------
Total shareholders' equity...................................... 231,148 268,077
----------- -----------
Total capitalization.......................................... $ 316,213 $ 333,142
----------- -----------
----------- -----------
</TABLE>

- ------------------------------

(1) Issued and outstanding shares exclude 4,603,362 shares reserved for issuance
under the Stock Incentive Plan, of which 4,180,562 shares were subject to
outstanding options at September 30, 1996 at a weighted average exercise
price of $8.75 per share.

11
<PAGE>
SELECTED FINANCIAL DATA

The selected financial data presented below for each of the years in the
three-year period ended December 31, 1995 and as of December 31, 1994 and 1995
have been derived from the audited financial statements of the Company
incorporated by reference into this Prospectus. The selected financial data
presented below for, and as of the end of, each of the years in the two-year
period ended December 31, 1992 and as of December 31, 1993 have been derived
from the audited financial statements of the Company not incorporated by
reference into this Prospectus. The selected financial data for the nine months
ended September 30, 1995 and 1996 and as of September 30, 1996 have been derived
from the unaudited financial statements of the Company incorporated by reference
into this Prospectus. The selected financial data as of September 30, 1995 have
been derived from the unaudited financial statements of the Company not
incorporated by reference into this Prospectus. In the opinion of management of
the Company, the unaudited financial statements have been prepared on the same
basis as the audited financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position and results of operations for those
periods. Operating results for the nine months ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1996 or for any future period. This data should be read in
conjunction with the financial statements, pro forma financial statements,
related notes and other financial information included elsewhere in this
Prospectus or incorporated by reference herein.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Rental.......................................... $ 4,623 $ 9,762 $ 15,267 $ 61,941 $ 123,894 $ 80,234 $ 173,052
Product sales................................... 561 1,282 2,072 11,347 25,536 15,254 31,666
--------- --------- --------- --------- --------- --------- ---------
Total......................................... $ 5,184 $ 11,044 $ 17,339 $ 73,288 $ 149,430 $ 95,488 $ 204,718
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Operating income.................................. $ 562 $ 2,270 $ 3,643 $ 12,610 $ 17,537 $ 13,936 $ 23,573
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Income before cumulative effect of a change in
accounting principle (1)........................ $ 281 $ 1,177 $ 2,146 $ 8,143 $ 11,786 $ 9,291 $ 12,574
Cumulative effect of a change in accounting
principle (2)................................... -- -- -- -- (2,560) -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (1).................................... $ 281 $ 1,177 $ 2,146 $ 8,143 $ 9,226 $ 9,291 $ 12,574
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net income per share (1):
Net income per share before cumulative effect of
a change in accounting principle.............. $ 0.02 $ 0.09 $ 0.14 $ 0.32 $ 0.36 $ 0.29 $ 0.36
Cumulative effect per share of a change in
accounting principle.......................... -- -- -- -- (0.08) -- --
--------- --------- --------- --------- --------- --------- ---------
Net income per share............................ $ 0.02 $ 0.09 $ 0.14 $ 0.32 $ 0.28 $ 0.29 $ 0.36
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Shares used in per share calculations............. 12,024 12,936 15,357 25,578 32,962 32,212 34,971

PRO FORMA STATEMENT OF OPERATIONS DATA:
Pro forma operating income (2).................... $ 1,796 $ 2,795 $ 9,745 $ 17,537 $ 13,936 $ 23,573
Pro forma net income (1)(2)....................... 892 1,647 6,277 11,786 9,291 12,574
Pro forma net income per share (1)(2)............. $ 0.07 $ 0.11 $ 0.25 $ 0.36 $ 0.29 $ 0.36
Shares used in per share calculations............. 12,024 12,936 15,357 25,578 32,962 32,212 34,971

OTHER OPERATING DATA:
Number of stores at end of period................. 10 15 25 113 305 239 453
Comparable store revenue increase (3)............. 24% 27% 16% 7% 1% 0% 6%
</TABLE>

12
<PAGE>

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------- SEPTEMBER 30,
1991 1992 1993 1994 1995 1996
--------- --------- --------- --------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......................... $ 418 $ 1,013 $ 9,606 $ 39,017 $ 29,980 $ 5,918
Total assets...................................... 4,359 7,475 22,791 142,861 334,660 372,315
Long-term debt (including current portion)........ 1,844 1,873 2,399 3,505 7,971 85,549
Mandatorily redeemable common stock............... -- -- -- -- 54,250 --
Shareholders' equity.............................. 347 2,282 13,303 110,765 217,783 231,148
</TABLE>

- ------------------------------

(1) For 1992 and 1993, includes a pro forma income tax adjustment to reflect the
Company as a C corporation rather than an S corporation for federal and
state income tax purposes for 1992 and for the period which commenced
January 1, 1993 and ended July 18, 1993.

(3) A store becomes comparable after it has been open and owned by the Company
for 12 full calendar months. An acquired store converted to the Hollywood
Video name and store design is removed from the comparable store base when
the conversion process is initiated and returned 12 full calendar months
after reopening.

13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

The Company opened its first video superstore in October 1988 and had grown
to 25 stores in two states at the end of 1993, 113 stores in eight states at the
end of 1994 and 305 stores in 23 states at the end of 1995. The Company's
revenue growth has been accomplished through a combination of new store
openings, strategic acquisitions and, to a lesser extent, comparable store
revenue increases. Store activity for the last three years and the nine months
ended September 30, 1996 is summarized in the table below.

VIDEO SUPERSTORES

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
SEPTEMBER 30,
------------------------------------- -----------------
1993 1994 1995 1996
----- ----- ----- -----------------
<S> <C> <C> <C> <C>
Beginning of period...................................... 15 25 113 305
Opened during period(1).................................. 10 33 122 148
Acquired during period(1)................................ -- 55 70 --
--
--- --- ---
End of period............................................ 25 113 305 453
--
--
--- --- ---
--- --- ---
</TABLE>

- ------------------------------

(1) The number of stores opened or acquired is net of stores closed.

The Company intends to open approximately 100 new stores in the fourth
quarter of 1996 for a total of approximately 250 new stores in 1996. The Company
plans to open approximately 300 new stores during 1997. The Company's ability to
open 300 new stores in 1997 is dependent on a number of factors, including the
ability of the Company to obtain additional financing. See "Risk
Factors--Uncertain Ability to Achieve and Manage Planned Expansion" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

The Company's results are impacted by the timing of and costs incurred in
connection with new store openings. New Hollywood Video stores typically
experience lower sales volume in the first year of operation than do mature
stores. Because a portion of store-level operating expenses is fixed, new stores
generally have lower operating margins in their first year of operation. In
addition, pre-opening expenses are charged to earnings in the first full month
of a store's operation. Therefore, the addition of a significant number of new
stores to the Company's existing store base has had and is expected to continue
to have an adverse impact on the Company's operating margins.

14
<PAGE>
RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, (i) selected
statement of operations data expressed as a percentage of total revenue and (ii)
the number of stores open at the end of the period.

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS AND OTHER OPERATING DATA:
Revenue:
Rental income...................................................... 88.1% 84.5% 82.9% 84.0% 84.5%
Product sales...................................................... 11.9 15.5 17.1 16.0 15.5
--------- --------- --------- --------- ---------
100.0 100.0 100.0 100.0 100.0
--------- --------- --------- --------- ---------
Operating costs and expenses:
Cost of product sales.............................................. 8.6 9.9 9.9 9.4 9.4
Operating and selling.............................................. 62.6 64.6 70.6 68.3 70.6
General and administrative......................................... 7.2 6.0 5.3 5.2 6.3
Amortization of intangibles........................................ 0.6 2.3 2.5 2.5 2.2
--------- --------- --------- --------- ---------
79.0 82.8 88.3 85.4 88.5
--------- --------- --------- --------- ---------
Operating income..................................................... 21.0 17.2 11.7 14.6 11.5
Interest income (expense), net....................................... (1.4) (0.2) 0.8 0.8 (1.3)
--------- --------- --------- --------- ---------
Income before income taxes and
cumulative effect of a change
in accounting principle............................................ 19.6 17.0 12.5 15.4 10.2
Income taxes(1)...................................................... 7.2 5.9 4.6 5.7 4.0
--------- --------- --------- --------- ---------
Income before cumulative effect
of a change in accounting principle(1)............................. 12.4 11.1 7.9 9.7 6.2
Cumulative effect of a change in
accounting principle(2)............................................ -- -- 1.7
--------- --------- --------- --------- ---------
Net income(1)........................................................ 12.4% 11.1% 6.2% 9.7% 6.2%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Number of stores at end of period.................................... 25 113 305 239 453
PRO FORMA STATEMENT OF OPERATIONS DATA:
Pro forma operating income(2)........................................ 16.1% 13.2% 11.7% 14.6% 11.5%
Pro forma net income(1)(2)........................................... 9.5% 8.6% 7.9% 9.7% 6.2%
</TABLE>

- ------------------------------

(1) For 1993 includes a pro forma income tax adjustment to reflect the Company
as a C corporation rather than an S corporation for federal and state income
tax purposes for the period which commenced January 1, 1993 and ended July
18, 1993.

(2) Effective January 1, 1995, the Company changed its method of amortizing the
cost of videocassette rental inventory. See Note 2 of Notes to Consolidated
Financial Statements of Hollywood Entertainment Corporation incorporated
herein by reference. The change in amortization method resulted in a charge
to earnings in 1995 totaling $2.6 million, representing the cumulative
effect as of January 1, 1995 if the new method had been applied
retroactively to all videocassettes in service at that date. The pro forma
amounts shown reflect the effect on net income had the new amortization
method been in effect as of the beginning of each of the periods presented.
As a result, pro forma results for 1995 do not include the charge of $2.6
million.

15
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995

REVENUE

Revenue for the nine months ended September 30, 1996 increased $109.2
million, or 114.4%, to $204.7 million compared to $95.5 million for the nine
months ended September 30, 1995. The increase in revenue was primarily the
result of new store expansion. During the nine months ended September 30, 1996,
the Company increased the number of superstores operated by 148, ending the
period with 453 superstores, compared to 239 superstores at the end of the
corresponding period in 1995. Comparable store revenue increased 6%.

Product sales as a percentage of total revenue were 15.5% for the nine
months ended September 30, 1996 compared to 16.0% for the nine months ended
September 30, 1995.

The Company's pricing of videocassette rentals and merchandise for sale has
not changed significantly compared to the first nine months of 1995.

OPERATING COSTS AND EXPENSES

COSTS OF PRODUCT SALES

The cost of product sales was unchanged at 9.4% of total revenue for the
nine months ended September 30, 1996 compared to the same period of the prior
year due to decreased sales of product as a percentage of total revenue offset
by slightly lower gross margins. The cost of product sales as a percentage of
product sales increased from 58.6% to 60.6% for the nine months ended September
30, 1995 and 1996, respectively. The gross margin on product sales has decreased
as the Company has de-emphasized the sale of certain high gross margin movie
accessories. The Company believes the operating costs associated with
maintaining those products offset the higher gross margins that they generated.

OPERATING AND SELLING

Operating and selling expenses, which principally consist of all store
expenses, including payroll, occupancy, advertising, depreciation and rental
revenue sharing, increased as a percentage of total revenue to 70.6% for the
nine months ended September 30, 1996, compared to 68.3% for the nine months
ended September 30, 1995.

Depreciation expense combined with rental revenue sharing costs was 28.2% of
total revenue for the nine months ended September 30, 1996, compared to 29.0%
for the nine months ended September 30, 1995. The decrease was due to lower
revenue sharing expense and the implementation of improved budgeting procedures
in the purchase of new releases for existing stores. Other operating and selling
expenses increased as a percentage of total revenue primarily due to lower
average revenue per store, resulting from the addition during 1995 and the first
nine months of 1996 of a large number of new and acquired stores, which have
lower revenue per store than mature Hollywood Video stores.

GENERAL AND ADMINISTRATIVE

General and administrative expenses increased from $4.9 million, or 5.2% of
total revenue, for the nine months ended September 30, 1995 to $12.9 million, or
6.3% of total revenue, for the nine months ended September 30, 1996. The
percentage increase is primarily attributable to the initial investment
associated with establishing and staffing the Company's new regional zone
offices.

AMORTIZATION OF INTANGIBLES

Amortization of intangibles increased from $2.3 million, or 2.5% of total
revenue, for the nine months ended September 30, 1995 to $4.5 million, or 2.2%
of total revenue, for the nine months ended

16
<PAGE>
September 30, 1996. The dollar increase was attributable to the inclusion of the
amortization of intangible assets arising from the Title Wave and Video Watch
acquisitions for the entire nine month period ended September 30, 1996, while
only partially included in the nine months ended September 30, 1995.

INTEREST INCOME (EXPENSE), NET

Net interest income (expense) decreased from $800,000 for the nine months
ended September 30, 1995 to ($2.7 million) for the nine months ended September
30, 1996. This change was primarily attributable to the Company's higher level
of borrowing under its revolving line of credit for the nine months ended
September 30, 1996 compared to the third quarter of 1995.

INCOME TAXES

The Company's effective tax rate increased from 36.8% of income before
income taxes for the nine months ended September 30, 1995 to 39.7% for the nine
months ended September 30, 1996 due to higher federal and state tax rates in
1996 compared to 1995.

1995 COMPARED TO 1994

REVENUE

Revenue for 1995 increased $76.1 million, or 104%, to $149.4 million from
$73.3 million for 1994. Comparable store revenue increased 1%. During the year,
the Company opened 122 new stores and acquired 70 stores, including 42 stores
purchased in August 1995 operating under the name "Video Watch" and 12 stores
purchased during March 1995 from Title Wave Stores, Inc.

The Company believes comparable store revenue was negatively impacted by
lower revenues from the rental and sale of video games, lower revenues at stores
acquired during 1994 prior to conversion to the Hollywood Video name and store
design and an uneven and therefore less favorable distribution of new release
"hit" movies during 1995 compared to 1994.

Product sales as a percentage of total revenue increased to 17.1% for 1995
compared to 15.5% during 1994. The increase in product sales as a percentage of
revenue was due to improved merchandising techniques and higher per store
product inventory levels.

The Company's pricing of videocassettes for rental and for sale merchandise
did not change significantly compared to 1994.

OPERATING COSTS AND EXPENSES

COST OF PRODUCT SALES

The cost of product sales remained unchanged at 9.9% of total revenue in
1995 compared to 9.9% of total revenue in 1994. The cost of product sales
decreased as a percentage of product sales from 63.9% in 1994 to 57.8% for 1995.
The gross margin on product sales increased in 1995 compared to 1994 due to
expanded offerings of merchandise with higher gross margins.

OPERATING AND SELLING

Operating and selling expenses, which consist of all store expenses
including payroll, occupancy, advertising, depreciation and rental revenue
sharing expense, increased as a percentage of total revenue to 70.6% in 1995
compared to 64.6% in 1994. Operating and selling expenses increased as a
percentage of total revenue primarily due to lower average revenue per store,
resulting primarily from the addition during 1995 of a large number of new and
acquired stores which have lower revenue per store than mature Hollywood Video
stores.

17
<PAGE>
Depreciation expense combined with rental revenue sharing expense was 29.6%
of total revenue in 1995 compared to 27.9% in 1994. The increase was primarily
due to a change in the Company's method of depreciating videocassette rental
inventory effective January 1, 1995.

GENERAL AND ADMINISTRATIVE

General and administrative expenses, which principally consist of corporate
overhead, decreased from 6.0% of total revenue for 1994 to 5.3% for 1995. The
decrease in expenses as a percentage of revenue was due to the Company's ability
to increase revenue without proportionally increasing corporate overhead
expenses.

AMORTIZATION OF INTANGIBLES

Amortization of intangibles increased from $1.7 million, or 2.3% of total
revenue, during 1994 to $3.8 million, or 2.5% of total revenue, during 1995. The
dollar increase was primarily attributable to the amortization of intangible
assets arising from the Title Wave, Video Watch and other store acquisitions in
1995.

INTEREST INCOME (EXPENSE), NET

Net interest expense was $0.1 million, or 0.2% of total revenue, in 1994
while net interest income was $1.1 million, or 0.8% of total revenue, in 1995.
The change in net interest was primarily due to the receipt of the net proceeds
of the Company's public stock offering completed in July 1995, resulting in a
decrease in average debt outstanding and an increase in interest earned on cash
investments.

INCOME TAXES

The Company's effective tax rate for 1995 was 36.8%, compared to 34.9% in
1994. The increase in 1995 was due to a higher federal statutory rate and a
higher aggregate state tax rate, partially offset by higher tax exempt interest
income.

1994 COMPARED TO 1993

REVENUE

Revenue for 1994 increased $56.0 million, or 323%, to $73.3 million from
$17.3 million for 1993. Comparable store revenue increased 7%. During the year,
the Company opened 33 new stores and acquired 55 stores. The increase in same
store revenue was attributable to a greater volume of customer transactions; the
Company's prices did not change significantly compared to 1993.

Product sales as a percentage of total revenue increased to 15.5% for 1994
compared to 11.9% during 1993. The increase in product sales as a percentage of
revenue was due to bulk sales of discontinued merchandise, increases in the
number of videocassettes available for sale, improved merchandising techniques
and the sale of video games in certain stores.

OPERATING COSTS AND EXPENSES

COST OF PRODUCT SALES

The cost of product sales increased to 9.9% of total revenue in 1994
compared to 8.6% in 1993, due to increased sales of products partially offset by
higher gross margins on product sales. The cost of product sales as a percentage
of product sales decreased to 63.9% in 1994 compared to 72.2% in 1993. The gross
margin on product sales increased due to lower product acquisition costs,
resulting from more favorable purchasing terms negotiated in October 1993 with
one of the Company's major distributors.

18
<PAGE>
OPERATING AND SELLING

Operating and selling expenses, which consist of all store expenses
including payroll, occupancy, advertising, depreciation and rental revenue
sharing expense, increased as a percentage of total revenue to 64.6% in 1994
compared to 62.6% for 1993. Operating and selling expenses increased as a
percentage of total revenue primarily due to lower average revenue per store,
resulting from the addition during 1994 of a large percentage of new and
acquired stores.

Depreciation expense, primarily from rental inventory, combined with rental
revenue sharing costs was 27.9% of total revenue in 1994 compared to 28.8% in
1993. All other operating and selling expenses accounted for the remaining
change in costs as a percentage of total revenue during 1994 compared to 1993.

GENERAL AND ADMINISTRATIVE

General and administrative expenses, which principally consist of corporate
overhead, decreased from 7.2% of total revenue for 1993 to 6.0% for 1994. The
decrease in costs as a percentage of total revenue was due to the Company's
ability to increase revenue without proportionally increasing overhead expenses.

AMORTIZATION OF INTANGIBLES

Amortization of intangibles increased from $0.1 million, or 0.6% of total
revenue during 1993 to $1.7 million, or 2.3% of total revenue for 1994. The
increase was primarily attributable to the amortization of certain intangible
assets resulting from acquisitions completed in 1994.

INTEREST INCOME (EXPENSE), NET

Net interest expense decreased from $0.2 million, or 1.4% of total revenue
in 1993 to $0.1 million, or 0.2% of total revenue for 1994. This decrease was
primarily attributable to an increase in interest earned as a result of the net
proceeds of the Company's public offerings completed in July 1993 and August
1994.

INCOME TAXES

The Company's effective tax rate for 1994 was 34.9% compared to 37.0% (pro
forma) in 1993. The decrease was primarily the result of higher tax-exempt
investment income earned on the Company's cash balances.

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal capital requirements are for opening new stores, the
purchase of rental inventory and the possible acquisition of existing stores.
The Company has funded its operations primarily through cash from operations,
the proceeds of four public offerings, loans under the Company's revolving bank
line of credit, trade credit and equipment leases.

At September 30, 1996, the Company had cash and cash equivalents of
approximately $5.9 million and working capital of $11.2 million. Videocassette
rental inventories are accounted for as noncurrent assets under generally
accepted accounting principles because they are not assets which are reasonably
expected to be completely realized in cash or sold in the normal business cycle.
Although the rental of this inventory generates a substantial portion of the
Company's revenue, the classification of these assets as noncurrent excludes
them from the computation of working capital. The acquisition cost of
videocassette rental inventories, however, is reported as a current liability
until paid and, accordingly, is included in the computation of working capital.
Consequently, the Company believes working capital is not as significant a
measure of financial condition for companies in the video retail industry as it
is for companies in other industries. Because of the accounting treatment of
videocassette rental inventory as a noncurrent asset, the Company may, from time
to time, operate with a working capital deficit.

19
<PAGE>
Net cash provided by operating activities was $67.7 million for the nine
months ended September 30, 1996 compared to $36.7 million for the comparable
period in 1995. The increase in cash provided by operations was primarily due to
higher net income from operations and higher depreciation and amortization
expenses, partially offset by an increase in merchandise inventories and a
decrease in accounts payable.

Cash used in investing activities was $115.7 million for the nine months
ended September 30, 1996 compared to $102.4 million for the comparable period in
1995. For the nine months ended September 30, 1996, cash used in investing
activities consisted primarily of purchases of videocassette rental inventory
for new and existing stores totaling $75.0 million and capital expenditures
totaling $42.2 million, offset by a reduction in construction and other
receivables totaling $1.7 million. Capital expenditures included the costs to
open new stores, remodel certain existing stores and enhance information
systems.

Cash provided by financing activities for the nine months ended September
30, 1996 totaled $23.9 million and included the repurchase of all of the shares
issued in connection with the Video Watch acquisition for aggregate
consideration of $54.3 million and the repayment of $7.4 million of long-term
debt.

Future capital requirements consist primarily of financing the addition of
new retail stores and converting certain acquired stores to the Hollywood Video
name and store design, together with the possible acquisition of existing
stores. The Company anticipates opening approximately 100 new stores in the
final three months of 1996 and 300 new stores in 1997. Each video store opening
requires initial capital expenditures, including leasehold improvements,
inventory, equipment and costs related to site location, lease negotiations,
construction supervision and permits, of approximately $500,000, excluding
leasehold improvements that are customarily paid for by the property developer.

The Company has a revolving credit agreement for a working capital line of
$100.0 million. Funds borrowed bear interest, at the Company's option, at either
LIBOR, IBOR or the bank's base rate, plus approximately 1.25%, depending on the
amount of borrowings. The Company must also pay a fee of 0.3% per annum on the
available and unused portion of the credit facility. Amounts outstanding under
the credit line are collateralized by substantially all the assets of the
Company. The credit line expires on December 28, 1998. As of September 30, 1996,
$85.0 million was outstanding under the line. Of this amount, approximately
$50.0 million was borrowed to fund the share repurchase described above. The
availability of borrowings under the revolving credit agreement is based on the
level of eligible inventory, the Company's financial performance and compliance
with certain covenants and financial ratios. The Company is negotiating an
increase in the amount of the credit line to $150.0 million. Expansion of the
credit line to $150.0 million is subject to the negotiation and execution of
definitive documentation and possible further syndication of the loan, and there
is no assurance that the credit line will be expanded.

The Company believes the net proceeds of this offering, its borrowing
capacity, projected cash flow from operations, cash on hand and equipment leases
and trade credit will provide the necessary capital to fund its plan of opening
approximately 100 new video retail superstores in the final three months of 1996
and a substantial portion of its planned expansion in 1997. If the credit line
is expanded to $150.0 million, the Company believes it will have sufficient
financing to fund its planned expansion through the end of 1997. If, however,
the revolving credit line is not expanded, the Company will need to obtain
additional financing to achieve its planned expansion of 300 stores in 1997.
This financing may not be available or available on terms favorable to the
Company. Failure to obtain financing to fund the Company's expansion plans or
for other purposes would have a material adverse effect on the Company. See
"Risk Factors--Uncertain Ability to Achieve and Manage Planned Expansion."

20
<PAGE>
GENERAL ECONOMIC TRENDS, QUARTERLY RESULTS AND SEASONALITY

The Company anticipates that its business will be affected by general
economic and other consumer trends. Future operating results may be affected by
various factors, including variations in the number and timing of new store
openings, the performance of new or acquired stores, the quality and number of
new release titles available for rental and sale, the expense associated with
the acquisition of new release titles, additional and existing competition,
marketing programs, weather, special or unusual events and other factors that
may affect retailers in general. In addition, any concentration of new store
openings and the related new store pre-opening costs and other expenses
associated with the opening of new stores near the end of a fiscal quarter could
have an adverse effect on the financial results for that quarter and could, in
certain circumstances, lead to fluctuations in quarterly financial results.

The video retail industry generally experiences relative revenue declines in
April and May, due in part to the change in Daylight Savings Time and due to
improved weather, and in September and October, due in part to the start of
school and the introduction of new television programs. The Company believes
these seasonality trends will continue.

21
<PAGE>
BUSINESS

GENERAL

Hollywood Entertainment owns and operates 496 video retail superstores in 29
states and is the second largest video retailer in the United States as measured
by sales. According to well-known video industry analyst, Paul Kagan Associates,
Inc. ("Paul Kagan"), in 1995 the Company operated the highest volume video
stores in the country. The Company opened its first video superstore in October
1988 and had grown to 25 stores in two states at the end of 1993, 113 stores in
eight states at the end of 1994 and 305 stores in 23 states at the end of 1995.
The Company opened 148 new stores in the nine months ended September 30, 1996
and intends to open approximately 100 new stores in the fourth quarter of 1996.
The Company plans to open approximately 300 new stores in 1997.

As part of its goal to build a strong national brand, Hollywood
Entertainment has developed a store format and design that captures the bright
lights, excitement and energy of the motion picture industry and enables the
public to easily identify and recognize Hollywood Video superstores. Hollywood
Video superstores average approximately 7,500 square feet and typically carry
approximately 10,000 titles and 16,000 videocassettes, consisting of many copies
of popular new releases and an extensive selection of older or "catalog" movies
classified into 28 categories, such as "Adventure," "Comedy," "Drama,"
"Classics," and "Childrens," and displayed alphabetically within those
categories. Hollywood Entertainment's goal is to offer more copies of popular
new videocassette releases and more titles than its competitors to achieve
greater customer satisfaction and to encourage repeat visits. Each Hollywood
Video store rents videocassettes, video games and videocassette and video game
players and sells videocassettes, accessories and confectionary items. Hollywood
Video stores are primarily located in high traffic locations, in stand-alone
buildings, at the end of shopping strips or in other highly visible locations.

DECENTRALIZATION AND CREATION OF ZONE OFFICES

To support its larger store base and continued expansion, the Company has
opened three zone offices in Chicago, Illinois; Dallas, Texas; and Portland,
Oregon and plans to open a fourth zone office in the Northeast in the first half
of 1997. Each zone now includes approximately 100 to 250 stores, and the Company
believes each zone will be capable of opening 80 to 100 stores annually and of
supporting the operations of 400 to 500 stores. Each zone is headed by a senior
vice president of operations, who has responsibility for new store development
and store operations in the zone, including recruiting, training, marketing and
budgeting, and is accountable for the profit and loss of all stores in the zone.
The Company recently hired three senior vice presidents with significant
experience managing large, national chains to fill these positions and is
recruiting a senior vice president to open the fourth zone office in the
Northeast. The senior vice presidents will be supported by a team that will
include vice presidents of new store development and store operations and
directors of construction, recruiting, training, marketing and budgeting. As
part of the Company's decentralization strategy, the corporate office and
warehouse will provide central support to the zones, including systems, product
purchasing, distribution, accounting and national marketing programs. In
addition, the corporate office will continue to give final approval for all new
store sites and store design and oversee quality standards and other critical
elements of the Hollywood concept. The Company believes the creation of
geographic zones managed from zone offices with profit and loss responsibility
will allow the Company to more effectively manage its business, thereby
enhancing its ability to achieve its expansion plans without compromising
operating standards. See "Risk Factors-- Uncertain Ability To Achieve and Manage
Planned Expansion."

VIDEO RETAIL INDUSTRY

OVERVIEW. According to Paul Kagan, total U.S. consumer spending on movies
has increased from less than $3.0 billion in 1980 to approximately $27.0 billion
in 1995. The U.S. videocassette rental and sales industry has grown at a
compound annual growth rate of approximately 8.6%, from $9.8 billion in revenue

22
<PAGE>
in 1990 to $14.8 billion in 1995, and is expected to reach $18.2 billion in
2000. The video rental industry is highly fragmented and in recent years has
been characterized by increased consolidation as larger "superstore" chains,
video stores with at least 7,500 videocassettes, have continued to increase
market share by opening new stores and acquiring smaller, local operators.
According to the Video Software Dealers Association, a video retailing industry
association, the number of video specialty stores has decreased from 31,500 in
1990 to 27,000 in 1995, approximately 6,500 of which were "superstores,"
including approximately 3,180 Blockbuster stores. The Company believes this
consolidation will continue as the video retail industry evolves from
"mom-and-pop" stores to regional and national superstore chains.

MOVIE STUDIO DEPENDENCE ON VIDEO RETAIL INDUSTRY. According to Paul Kagan,
the video retail industry is the single largest source of revenue to movie
studios and represented approximately $4.3 billion, or 47%, of the $9.3 billion
of estimated domestic studio revenue in 1995. Of the hundreds of movies produced
by the major studios each year in the U.S., relatively few are profitable for
the movie studio based on box office revenue alone. The Company believes the
customer is more likely to view "non-hit" movies on rented videocassette than in
any other medium because video retail stores provide an inviting opportunity to
browse and make an impulse choice among a very broad selection of new releases.
As a result, video retail stores, including those operated by the Company,
purchase movies on videocassette regardless of whether the movies were
successful at the box office, thus providing the major movie studios a reliable
source of revenue for almost all of the hundreds of movies produced each year.
Consequently, the Company believes movie studios are highly motivated to protect
this unique and significant source of revenue.

The following chart depicts the percentage of movie studio revenue from each
movie distribution channel in 1995 according to Paul Kagan.

MOVIE STUDIO REVENUE FROM DISTRIBUTION CHANNELS

PIE CHART: Video Retail Stores 46.6%

Movie Theaters 28.6%

Pay Cable and Basic Cable Television 16.1%

Network and Syndicated Television 6.8%

Pay-Per-View Television 1.4%

Other 0.5%

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<PAGE>
Historically, movie studios have sought to generate incremental sources of
revenue through the addition of new distribution channels. To maximize revenue,
the studios have implemented a strategy of sequential release "windows," giving
each distribution channel the rights to its movies for a limited time before
making them available to the next sequential channel. The studios have
determined the sequential order in which they release movies to each
distribution channel based upon the order they believe will maximize their total
revenue from all distribution channels combined. These distribution channels
generally include, in release date order, movie theaters, video retail stores,
pay-per-view television, including direct broadcast satellite ("DBS"), pay cable
television, basic cable television and, finally, network and syndicated
television.

ORDER OF SEQUENTIAL RELEASE WINDOWS TO PRIMARY CHANNELS OF DISTRIBUTION

<TABLE>
<S> <C>
First: Movie theatres
Second: Video retail stores
Third: Pay-per-view television (including DBS)
Fourth: Pay cable (HBO, Showtime, etc.)
Fifth: Basic cable television
Sixth: Network television
Seventh: Syndicated television
</TABLE>

TRENDS IN VIDEO RENTALS AND SALES. The domestic video retail industry
includes both rentals and sales. Movie studios determine videocassette suggested
retail prices to both consumers and video rental stores and, through that
pricing, influence the relative levels of videocassette rentals and sales.
Videocassettes released at a relatively high price, typically $60 to $65
wholesale, are generally purchased by video retail stores and promoted primarily
as a rental title and then later re-released by the studios at a lower price,
typically $10 to $20 wholesale, to promote sales directly to consumers. Certain
high grossing box office films, generally with box office revenue in excess of
$100 million, are released on videocassette at a relatively low initial price,
typically $10 to $15 wholesale, and are generally purchased by video retailers,
mass merchants, grocery stores and other retailers and promoted both as a rental
title and for sale directly to consumers.

The consumer market has historically been primarily a rental market.
According to Paul Kagan, video rental revenue has increased from $6.6 billion in
1990 to $7.5 billion in 1995 and is expected to increase to $8.3 billion in
2000. Although rental revenue decreased slightly in 1995, the Company believes
industry-wide rental revenue in 1996 will exceed 1995 rental revenue. At the
same time, consumers attracted by hit animated films, cross promotions and lower
videocassette prices have begun to spend more on purchasing videos. Video sales
have increased from $3.2 billion in 1990 to $7.3 billion in 1995 and are
expected to increase to $9.9 billion in 2000. As a result, video sales as a
percentage of total industry revenue have increased from approximately 32% in
1990 to nearly 50% in 1995.

The availability of "hit" sell-through movie titles, with their lower
initial prices, allows video retailers to stock more copies of these "hit"
movies for rental at a substantially lower aggregate cost. In addition, movie
studios typically spend substantial amounts to promote these "hit" sell-through
titles, which the Company believes creates extraordinarily high consumer
awareness. As a result, rental demand for these titles is much higher than for
comparable "hit" titles initially priced and promoted for rental. Because the
best selling sell-through titles are often among the leading rental titles, the
return on investment in rental inventory for those titles is typically much
higher than for comparable titles initially priced and promoted for rental.

24
<PAGE>
STORE LOCATIONS

The following map depicts the locations of the Company's stores as of
September 30, 1996.

[Map of the United States of America with the number of Hollywood Video stores
set forth inside state boundary.]

EXPANSION STRATEGY

The Company opened its first video superstore in October 1988 and had grown
to 25 stores in Oregon and Washington by the end of 1993. In 1994 the Company
significantly accelerated its store expansion program, adding 88 new stores (55
of which were acquired) and expanding into California, Texas, Nevada, New
Mexico, Virginia and Utah. In 1995 the Company opened 122 new stores, acquired
70 stores and entered major new markets in the midwest, southwest, east and
southeast regions of the United States. The Company's expansion strategy is to
continue to open or, to a lesser extent, acquire stores in regions where it has
existing operations and to expand into new geographic regions where it believes
it can become a dominant video retailer. The Company opened 148 new stores in
the nine months ended September 30, 1996 and intends to open approximately 100
new stores in the fourth quarter of 1996. The Company plans to open
approximately 300 new stores in 1997.

The Company believes the selection of locations for its stores is critical
to the success of its operations. The Company has assembled a new store
development team with broad and significant experience in retail tenant
development. The majority of the Company's new store development personnel are
located in the geographic area for which they are responsible, but all final
site approval takes place at the corporate office, where new sites are approved
by a committee of senior management personnel. Important criteria for the
location of a Hollywood video superstore include density of local residential
population, traffic count on roads immediately adjacent to the store location,
visibility and accessibility of the store and availability of ample parking. The
Company generally seeks what it considers the most desirable locations,
typically locating its stores in high visibility stand-alone structures or in
prominent locations in multi-tenant shopping developments. The Company typically
competes for these prime sites with other retailers, banks,

25
<PAGE>
restaurants and gas stations. All of the Company's stores are in leased
premises; the Company does not own any real estate.

The Company's expansion is dependent on a number of different factors and is
subject to various risks. See "Risk Factors--Uncertain Ability to Achieve and
Manage Planned Expansion," "--Dependence on Key Personnel; Recent Management
Additions," "--Risks Associated with Possible Future Acquisitions" and
"--Competition," and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."

BUSINESS STRATEGY

The Company's goal is to be a dominant national video retailer and to build
a strong national brand which consumers will identify with the entertainment
industry. The Company's business strategy includes the following key elements:

- BROAD SELECTION AND SUPERIOR AVAILABILITY. The Company strives to provide
its customers with the broadest selection of videocassette movies and
video games. Hollywood Video superstores typically carry approximately
10,000 titles and 16,000 videocassettes and video games. The Company's
goal is to offer more copies of popular new videocassette releases and
more titles than its competitors. The Company typically purchases 35 to 95
copies of "hit" movies for each Hollywood Video store and may purchase as
many as 200 copies for high volume stores. In the case of certain "hit"
sell-through movies, the Company has purchased as many as 400 copies for
rental at high volume stores.

- EXCITING, ENJOYABLE AND CONVENIENT SHOPPING EXPERIENCE. The Company's
superstores are designed to capture the bright lights, excitement and
energy of the motion picture industry. The Company focuses on creating an
atmosphere that invites consumers into the store, encourages browsing and
generates repeat customers. Hollywood Video stores are typically located
in high traffic, high-visibility locations. The Company believes excellent
customer service, a bright, clean and friendly shopping environment and
convenient store locations are important to its success.

- EXCELLENT ENTERTAINMENT VALUE. The Company offers consumers the
opportunity to rent any of its approximately 10,000 catalog movie titles
for five days for only $1.50. All new release movies and video games can
be rented for only $3.00. The Company believes movie rental in general,
and its pricing structure and rental terms in particular, provide
consumers convenient entertainment and excellent value.

COMPETITION

The video retail industry is highly competitive. The Company competes with
other local, regional and national video retail stores, including Blockbuster,
and with supermarkets, pharmacies, convenience stores, bookstores, mass
merchants, mail order operations and other retailers, as well as with
noncommercial sources such as libraries. According to the Video Software Dealers
Association, in 1995 there were approximately 27,000 video specialty stores in
the U.S., of which approximately 6,500 were video retail superstores. Some of
the Company's competitors have significantly greater financial and marketing
resources, market share and name recognition than the Company.

The Company believes the principal competitive factors in the video retail
industry are title selection, the number of copies of popular titles available,
store location and visibility, customer service and employee friendliness,
convenience of store access and parking and, to a lesser extent, pricing. The
Company's stores compete with stores operated by Blockbuster, most in very close
proximity. As a result of direct competition with Blockbuster, rental pricing of
videocassettes may become a more significant competitive factor in the Company's
business, which could have an adverse impact on the results of operations of the
Company. The Company believes it generally offers more titles and more copies of
popular titles than the majority of its competitors. In addition to competing
with other video retailers, the

26
<PAGE>
Company competes with all leisure-time activities, especially entertainment
activities such as movies, sporting events and network and cable television
programs.

The Company competes with cable, satellite and pay-per-view cable television
systems, in which subscribers pay a fee to see a movie selected by the
subscriber. Existing pay-per-view services offer a limited number of channels
and movies and are only available to households with a direct broadcast
satellite receiver or a cable converter to unscramble incoming signals. Digital
compression technology and other developing technologies are enabling cable
companies, direct broadcast satellite companies, telephone companies and other
telecommunications companies to transmit a much greater number of movies to
homes at more frequently scheduled intervals throughout the day on demand.
Certain cable and other telecommunications companies have tested and are
continuing to test movie on demand services in some markets. The Company
believes movie studios have a significant interest in maintaining a viable movie
rental business because the sale of videocassettes to video retail stores
represents the largest source of revenue for the studios. In addition, home
video provides the only viable source of revenue on "non-hit" or "B-title"
movies which make up the majority of movies produced by the major studios each
year. As a result, the Company believes movie studios will continue to make
movie titles available to cable television or other distribution channels only
after revenues have been derived from the sale of videocassettes to video
stores. In addition, the Company believes substantial technological developments
will be necessary to allow pay-per-view television to match the viewing
convenience and selection available through video rental, and substantial
capital expenditures will be necessary to implement these systems. Although the
Company does not believe cable television or other distribution channels
represent a near-term competitive threat to its business, technological advances
or changes in the manner in which movies are marketed, including in particular
the earlier release of movie titles to pay-per-view, including DBS, cable
television or other distribution channels, could make these technologies more
attractive and economical, which could have a material adverse effect on the
business of the Company.

27
<PAGE>
MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE REGISTRANT.

The following table sets forth information with respect to the Company's
directors, executive officers and certain other key employees as of the date of
this Prospectus.

<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY
- -------------------------------------------------- --- --------------------------------------------------
<S> <C> <C>
Mark J. Wattles................................... 36 Chairman of the Board, President and Chief
Executive Officer

Donald J. Ekman................................... 44 Senior Vice President, General Counsel, Secretary
and Director

James N. Cutler, Jr............................... 44 Director

Richard A. Galanti................................ 40 Director

Max G. Fratto..................................... 53 Executive Vice President of Store Operations

James O. George................................... 49 Executive Vice President of Product and Marketing

Bruce A. Walters.................................. 39 Executive Vice President of Store Development

F. Bruce Giesbrecht............................... 36 Senior Vice President of Product Management

Douglas A. Gordon................................. 29 Senior Vice President of Finance

Glen E. Hahn...................................... 44 Senior Vice President of Operations (Central Zone)

John R. Hnanicek.................................. 32 Senior Vice President of Information Systems

Dale A. Naftzger.................................. 51 Senior Vice President of Operations (Western Zone)

William M. Spae................................... 44 Senior Vice President of Operations (Southern
Zone)

William P. Zebe................................... 38 Senior Vice President of Development
</TABLE>

MARK J. WATTLES founded the Company in June 1988 and has served as Chairman
of the Board, President and Chief Executive Officer since that time. In May 1986
Mr. Wattles founded Convenience Video Movies, Inc., a videocassette distributor
that operated video rental centers in approximately 300 convenience stores
throughout the country, and served as its Chief Executive Officer until November
1987. Mr. Wattles founded Downtown Video, a two-store video rental company, in
1985 and served as its general manager until 1986.

DONALD J. EKMAN became a director of the Company in July 1993 and became
Vice President and General Counsel in March 1994. Mr. Ekman was a partner in
Ekman & Bowersox from January 1992 until March 1994, and from August 1990 until
December 1991, he practiced law with Foster Pepper & Schefelman. Prior to August
1990, he practiced law with Bullivant, Houser, Bailey, Pendergrass & Hoffman.

JAMES N. CUTLER, JR. became a director of the Company in July 1993. Since
1980 Mr. Cutler has been President and Chief Executive Officer of The Cutler
Corporation, a holding company for various private businesses, and, since 1982
he has been a director of Arrow Transportation Company of Delaware, a trucking
company. Mr. Cutler also serves as an officer or a director of a number of other
private corporations.

RICHARD A. GALANTI became a director of the Company in April 1996. Mr.
Galanti has been a director of Price/Costco, Inc. since January 1995 and
Executive Vice President--Finance of Price/Costco, Inc. since October 1993. From
January 1985 to October 1993, Mr. Galanti was Senior Vice President, Chief
Financial Officer and Treasurer of Costco Wholesale Corporation, which he joined
in March 1984 as Vice

28
<PAGE>
President--Finance. From 1978 to February 1984, Mr. Galanti was an investment
banker with Donaldson, Lufkin & Jenrette Securities Corporation. In March 1995
Mr. Galanti settled an action brought by the Securities and Exchange Commission
("SEC") alleging a five-year-old violation of the Securities Exchange Act of
1934 and Rule 10b-5 thereunder that was unrelated to Mr. Galanti's positions
with Price/Costco, Inc., Costco Wholesale Corporation or Hollywood
Entertainment. Without admitting or denying the allegations of the SEC's
complaint, Mr. Galanti agreed to pay $64,408 and entered into an order requiring
him to comply with the relevant sections of the federal securities laws and
rules.

MAX G. FRATTO joined the Company as Executive Vice President of Store
Operations in May 1994. From 1991 to 1994 Mr. Fratto was a partner in Wallpaper
Warehouse of Idaho, a small retail chain. From 1986 to 1991 he served as Vice
President of W.N.S., Inc., a retail holding company, where he was responsible
for the Wallpapers to Go division. Prior to 1986, Mr. Fratto was Vice President
of Store Operations for several General Mills, Inc. specialty retailing
companies.

JAMES O. GEORGE joined the Company in October 1995 as Executive Vice
President of Product and Marketing. Previously, Mr. George was employed by
Blockbuster Entertainment for eight years. Most recently, Mr. George served as
Zone Vice President, where he managed the operations of over 450 Blockbuster
stores.

BRUCE A. WALTERS joined the Company in June 1995 as Executive Vice President
of Store Development. Previously, Mr. Walters was employed by McDonald's
Corporation for 14 years. Most recently, Mr. Walters served as the Director of
International Real Estate. From 1990 to 1994, Mr. Walters was the Director of
European Real Estate for McDonald's Corporation in London, England. For the
prior nine years, Mr. Walters held various positions in domestic real estate and
store development.

F. BRUCE GIESBRECHT was named Senior Vice President--Product Management in
January 1996 and joined the Company in May 1993 as Vice President of Corporate
Information Systems and Chief Information Officer. From August 1992 to May 1993,
Mr. Giesbrecht served the Company as a consultant. Mr. Giesbrecht was a founder
of RamSoft, Inc., a software development company specializing in management
systems for the video industry, and served as its President.

DOUGLAS A. GORDON was named Senior Vice President--Finance in November 1995
and joined the Company as Vice President of Strategic Analysis and Forecasting
in May 1995. From September 1991 to May 1995, Mr. Gordon worked for Montgomery
Securities as a vice president and senior analyst covering the entertainment and
retail industries.

GLEN E. HAHN joined the Company in April 1996 as Senior Vice President of
Operations (Central Zone). From 1993 to 1996, Mr. Hahn was Senior Vice
President--Director of Stores for Fayva/Parade of Shoes (a specialty retail
footwear division of J. Baker), overseeing approximately 400 stores. From 1979
to 1993, Mr. Hahn worked for Payless Shoesource (a division of May Department
Stores) in various capacities. From 1987 to 1993, Mr. Hahn worked as Division
Operations Manager for Payless Shoesource, overseeing the development of nearly
200 new stores during this period and the overall operations of approximately
580 specialty retail footwear stores at the time of his departure.

JOHN R. HNANICEK joined the Company in October 1996 as Senior Vice President
of Information Systems. From March 1996 to October 1996, Mr. Hnanicek was Chief
Information Officer for HomePlace, a privately owned home furnishings speciality
retailer, operating 37 stores at the time of his departure. From July 1995 to
February 1996, Mr. Hnanicek was Chief Information Officer for Communicate!
Powerstores, Inc., a start-up communications superstore. From 1990 to 1995, Mr.
Hnanicek worked for OfficeMax, Inc., in various capacities, including most
recently as Senior Vice President--Information Systems and Logistics. During
this period, OfficeMax grew from 10 to 420 stores.

DALE A. NAFTZGER joined the Company in April 1996 as Senior Vice President
of Operations (Western Zone). From May 1995 to November 1995, Mr. Naftzger was
Chief Operating Officer of Caribon Coffee Company, a privately owned speciality
coffee retailer with approximately 40 company-owned units at the

29
<PAGE>
time of his departure. From 1994 to 1995, Mr. Naftzger was President and Chief
Executive Officer of Chop Chop Chinese to You, a venture capital financed
Chinese food delivery business, operating 40 units and three distribution
centers at the time of his departure. From 1992 to 1994, Mr. Naftzger was Senior
Vice President--Operations for Checkers Drive-In Restaurants, overseeing all 248
company-owned and 200 franchised units at the time of his departure. From 1987
to 1992, Mr. Naftzger worked for Taco Bell Corporation as Zone Vice President,
overseeing the development of approximately 100 new units during this period and
the overall operations of approximately 350 units at the time of his departure.
From 1980 to 1987, Mr. Naftzger worked for Wendy's International, Inc. in
various capacities, including from 1985 to 1987, as Zone Vice
President--Operations, overseeing more than 500 company-owned and 400 franchised
units at the time of his departure.

WILLIAM M. SPAE joined the Company in July 1996 as Senior Vice President of
Operations (Southern Zone). From 1991 to June 1996, Mr. Spae worked for Wendy's
International as Divisional Vice President, overseeing the development of
approximately 130 new units during this period and the overall operations of
more than 100 company-owned and 150 franchised units at the time of his
departure. From 1987 to 1991, Mr. Spae was a Zone Vice President for Taco Bell
Corporation, overseeing more than 160 company-owned and approximately 100
franchised units.

WILLIAM P. ZEBE was named Senior Vice President--Development in January 1996
and joined the Company as National Vice President of Real Estate in May 1994.
Mr. Zebe previously worked from June 1993 to April 1994 as the Real Estate
Manager for the Western Zone for Blockbuster Video, Blockbuster Music and
Blockbuster franchisee-owned Discovery Zone. From 1992 to May 1993, Mr. Zebe was
a Real Estate Representative for Blockbuster.

30
<PAGE>
UNDERWRITING

Montgomery Securities and Donaldson, Lufkin & Jenrette Securities
Corporation (the "Underwriters") have agreed, subject to the terms and
conditions set forth in the Underwriting Agreement, to purchase from the Company
the number of shares of Common Stock indicated below opposite their respective
names at the offering price less underwriting discounts and commissions set
forth on the cover page of this Prospectus. The Underwriting Agreement provides
that the obligations of the Underwriters are subject to certain conditions
precedent and that the Underwriters are committed to purchase all of the shares
if they purchase any of the shares.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Montgomery Securities............................................................
Donaldson, Lufkin & Jenrette Securities Corporation..............................
----------
Total.......................................................................... 2,000,000
----------
----------
</TABLE>

The Underwriters have advised the Company that the Underwriters propose
initially to offer the Common Stock to the public on the terms set forth on the
cover page of this Prospectus. The Underwriters may allow to selected dealers a
concession of not more than $ per share, and the Underwriters may allow, and
such dealers may reallow, a concession of not more than $ to certain other
dealers. The concession to selected dealers and the reallowance to other dealers
may be changed by the Underwriters, and after the offering, the offering price
and other selling terms may be changed by the Underwriters. The Common Stock is
offered subject to receipt and acceptance by the Underwriters, and to certain
other conditions, including the right to reject orders in whole or in part.

The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 300,000 additional shares of Common Stock to cover over-allotments, if any,
at the same price per share as the initial shares to be purchased by the
Underwriters. The Underwriters may purchase such shares only to cover
over-allotments made in connection with this offering.

In connection with this offering, the Underwriters and certain selling group
members may engage in passive market making transactions in the Common Stock of
the Company on Nasdaq immediately prior to the commencement of sales in this
offering, in accordance with Rule 10b-6A under the Exchange Act. Passive market
making consists of displaying bids on Nasdaq limited by the bid prices of
independent market makers and purchases limited by such prices and effected in
response to order flow. Net purchases by a passive market maker on each day are
limited to a specified percentage of the passive market maker's average daily
trading volume in the Company's Common Stock during a specified prior period and
must be discontinued when such limit is reached. Passive market making may
stabilize the market price of the Common Stock of the Company at a level above
that which might otherwise prevail and, if commenced, may be discontinued at any
time.

The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or will contribute to payments the Underwriters may be required
to make in respect thereof.

The Company and Mark J. Wattles have agreed not to offer, sell or otherwise
dispose of, directly or indirectly, any shares of Common Stock of the Company
for a period of 90 days after the date of this Prospectus, without the prior
written consent of Montgomery Securities, except that the Company, without such
consent, may grant options or issue stock upon exercise of new or outstanding
options pursuant to the Stock Incentive Plan and except with respect to certain
shares that are subject to pledges. See "Risk Factors--Shares Eligible for
Future Sale."

31
<PAGE>
Montgomery Securities has been named as a defendant in the complaint filed
against the Company relating to alleged violations of certain federal securities
laws. See "Risk Factors--Legal Proceedings." The underwriting agreement between
Montgomery Securities and the Company with respect to the Company's June 1995
Common Stock offering contains certain provisions relating to the
indemnification of Montgomery Securities and the other underwriter against
certain liabilities, including certain liabilities under the federal securities
laws.

32
<PAGE>
LEGAL MATTERS

The validity of the issuance of the Common Stock offered hereby will be
passed upon for the Company by Stoel Rives LLP, Portland, Oregon. Certain legal
matters relating to this offering will be passed upon for the Underwriters by
Brobeck, Phleger & Harrison LLP, Palo Alto, California.

EXPERTS

The financial statements and schedules of Hollywood Entertainment
Corporation, as of December 31, 1994 and for each of the two years in the period
ended December 31, 1994 incorporated by reference into this Prospectus have been
audited by Coopers & Lybrand L.L.P., independent accountants, as indicated in
their reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing.

The financial statements incorporated in this Prospectus by reference to the
Annual Report on Form 10-K of Hollywood Entertainment Corporation as of, and for
the year ended, December 31, 1995 have been so incorporated in reliance on the
report (which contains an explanatory paragraph relating to the Company's change
in amortization method for videocassette rental inventory) of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.

The financial statements of Title Wave Stores, Inc. at January 1, 1994 and
January 7, 1995 and for the years ended January 2, 1993, January 1, 1994 and
January 7, 1995 incorporated by reference into this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their reports thereon appearing in the reports incorporated by
reference into this Prospectus, and are included in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.

The financial statements of Video Watch Inc. at December 31, 1993 and 1994
and for the two years ended December 31, 1994 incorporated by reference into
this Prospectus and Registration Statement have been audited by Plante & Moran
LLP, independent auditors, as set forth in their reports thereon appearing in
the reports incorporated by reference into this Prospectus and are included in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports and other information with the
Securities and Exchange Commission (the "Commission"). The Company has also
filed with the Commission a Registration Statement under the Securities Act with
respect to the shares of Common Stock offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. For further information with respect to the
Company and the shares of Common Stock offered hereby, reference is made to such
Registration Statement, exhibits and schedules. Statements contained in this
Prospectus as to the contents of any contract or other document referred to are
not necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. A copy of the Registration Statement and the reports and other
information filed pursuant to the Exchange Act may be inspected and copied at
the offices of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549
and at regional offices of the Commission located at 7 World Trade Center, 13th
Floor, New York, New York 10048 and 1400 Citicorp Center, 500 West Madison
Street, Chicago, Illinois 60661. Copies of all or any part of the Registration
Statement and the reports and other information filed pursuant to the Exchange
Act may be obtained from the Public Reference Section of the Commission,
Washington, D.C. 20549 upon the payment of the fees prescribed by the
Commission. The Commission maintains an Internet Web Site at http://www.sec.gov.

33
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents previously filed by the Company with the Commission
pursuant to the Securities Exchange Act of 1934, as amended, (the "Exchange
Act") are incorporated in this Prospectus by reference:

(a) The Company's Annual Report on Form 10-K for the year ended December 31,
1995;

(b) The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, June 30, and September 30, 1996;

(d) The Company's Current Report on Form 8-K dated August 9, 1995 (and
Amendment No. 1 thereto on Form 8-K/A); and

(e) The description of the Company's Common Stock contained in the Company's
registration statement on Form 8-A filed under Section 12 of the Exchange Act,
dated July 15, 1993, including any amendment or report updating such
description.

In addition, all documents filed by the Company pursuant to sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and
prior to the termination of this offering shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing of
such documents (such documents, and the documents enumerated above, being
hereinafter referred to as "Incorporated Documents"). Any statement contained in
an Incorporated Document shall be deemed to be modified or superseded for
purposes of this Prospectus to the extent that a statement contained herein or
in any other subsequently filed Incorporated Document modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.

The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, including any beneficial
owner, on the written or oral request of any such person, a copy of any or all
of the Incorporated Documents, other than exhibits to such documents, unless
such exhibits are specifically incorporated by reference therein. Requests shall
be directed to Hollywood Entertainment Corporation, 25600 SW Parkway Center
Drive, Wilsonville, OR 97070, Attention: Mr. Donald J. Ekman, Senior Vice
President and General Counsel (telephone number (503) 570-1600). The information
relating to the Company contained in this Prospectus does not purport to be
comprehensive and should be read together with the information contained in the
Incorporated Documents.

34
<PAGE>
[INSIDE BACK COVER OF PROSPECTUS:

Photograph of interior of store with shelves containing videos under categories
"Drama," "Foreign," "Musicals," and customers among the video racks reading
video descriptions and scanning titles in order to make their selections of
videocassettes to rent.]
<PAGE>
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, IN ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.

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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY........................................................ 3
RISK FACTORS.............................................................. 6
USE OF PROCEEDS........................................................... 10
PRICE RANGE OF COMMON STOCK............................................... 10
CAPITALIZATION............................................................ 11
SELECTED FINANCIAL DATA................................................... 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.............................................................. 14
BUSINESS.................................................................. 22
MANAGEMENT................................................................ 28
UNDERWRITING.............................................................. 31
LEGAL MATTERS............................................................. 33
EXPERTS................................................................... 33
AVAILABLE INFORMATION..................................................... 33
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 34
</TABLE>

2,000,000 SHARES

[LOGO]

COMMON STOCK

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PROSPECTUS

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MONTGOMERY SECURITIES

DONALDSON, LUFKIN & JENRETTE
S E C U R I T I E S C O R P O R A T I O N

, 1996

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