July 31, 1997



Jeffrey B. Yapp
437 34th Street
Manhattan Beach, CA  90266

     Re: Employment at Hollywood Entertainment Corporation

Dear Jeff:

     The following is an outline of the general terms we agreed to regarding
your employment at Hollywood Entertainment Corporation ("Hollywood"):

     1. Your title will be that of President of Hollywood Entertainment
Corporation.

     2. You will receive as your base compensation for services rendered a
monthly salary for the first twelve months of employment in the sum of
$41,666.67 per month; for the second twelve months the sum of $45,833.33 per
month and for the third twelve months the sum of $50,000.00 per month. Hollywood
currently has payroll dates of the 6th and the 21st each month, and you will
receive one-half of your monthly salary on each payroll date.

     3. In the event your employment is terminated by Hollywood at any time
during your first three years of employment ("Initial Employment Period"),
Hollywood will continue to pay to you your base salary up to the end of the
Initial Employment Period or until you begin new employment, which ever comes
first. If you begin new employment at a reasonable compensation amount during
the Initial Employment Period, Hollywood will continue to pay on a monthly
basis, the difference in the compensation you receive from your new employer
(including any deferred or bonus payments) and what you would have made at
Hollywood during the Initial Employment Period.

     4. You have been granted 300,000 option shares with a grant date of July
31, 1997 at an exercise price of $18.75 per share. The options vest at a rate of
16.67% per year on the anniversary of the grant date. The options will be
subject to your entering into Hollywood's Employee Undertaking (copy enclosed).

     5. Hollywood shall reimburse you an amount up to $50,000.00 for the costs
of buying out of your contract on the Callabassas house.

     6. Hollywood shall loan you an amount of up to $500,000 in the form of a
relocation loan for the purchase or construction of a new home in the Portland
- tri-county
<PAGE>
Jeffrey Yapp
July 31, 1997
Page 2


area. The loan shall be interest free and repaid out of the proceeds of the sale
of your Hollywood stock options at a time to be reasonably set by Mark Wattles.
In the event your employment with Hollywood terminates, you shall repay the loan
upon the sale of the house or within twelve months, which ever comes first.

     7. As an employee, you shall be eligible for the employee benefits made
available by Hollywood. As of the date of your employment, the benefits include
group health and dental insurance which is effective the first day of the month
following the date you start your employment, subject to the insuring
requirements of the group plan. Hollywood pays 75 percent of the employee's and
family health insurance. Hollywood will reimburse you for the costs of your
spouse's COBRA coverage, until such time she is added to the Hollywood plan.

     8. Hollywood shall reimburse you up to $40,000.00 for the customary closing
costs associated with the sale of your current residence, grossed up for taxes.

     9. Hollywood shall reimburse you for the customary and reasonable costs of
purchasing your new home in Oregon and for the customary and reasonable costs of
moving your family and household to Oregon, grossed up for taxes.

     10. Hollywood agrees to indemnify and hold your harmless against any legal
action brought by your current employer related to the termination of your
current and your unsigned employment contracts.

     We look forward to your joining Hollywood.

                                       Very truly yours,

                                       HOLLYWOOD ENTERTAINMENT CORPORATION



                                       Mark J. Wattles
                                       President and Chief Executive Officer


              Accepted and agreed to this 6th day of August, 1997.



-----------------------------
Jeffrey B. Yapp