<PAGE>
 
                                                                Exhibit No. 10.2

                                FOURTH AMENDMENT
                                ----------------

          FOURTH AMENDMENT (this "Amendment"), dated as of January 21, 1999,
among VIDEO UPDATE, INC., a Delaware corporation (the "Borrower"), the lending
institutions party to the Credit Agreement referred to below (the "Banks") and
PARIBAS, as Agent (in such capacity, the "Agent").  Unless otherwise indicated,
all capitalized terms used herein and not otherwise defined shall have the
respective meanings provided such terms in the Credit Agreement referred to
below.

                              W I T N E S S E T H:
                              - - - - - - - - - - 

          WHEREAS, the Borrower, the Banks and the Agent are parties to a Credit
Agreement, dated as of March 6, 1998 (as amended, modified or supplemented to
the date hereof, the "Credit Agreement"); and

          WHEREAS, subject to and on the terms and conditions set forth in this
Amendment, the parties hereto wish to amend the Credit Agreement as herein
provided;

          NOW, THEREFORE, it is agreed:

I.  Amendments to Credit Agreement.
    ------------------------------ 

    1.  Section 1.08(d) of the Credit Agreement is hereby amended by (i)
deleting the text "quarterly in arrears on each Quarterly Payment Date"
appearing in said Section, (ii) inserting the text "monthly in arrears on the
last Business Day of each month" in lieu thereof, (iii) deleting the text "three
months, on each date occurring at three" and (iv) inserting the text "one month,
on each date occurring at one" in lieu thereof.

    2.  Section 1.09(vi) of the Credit Agreement is hereby amended by inserting
the text "in excess of one month" between the words "Period" and "may" and by
inserting the following text at the end of said Section "provided that the
                                                         --------         
Borrower shall be permitted to select an Interest Period of six months on the
Fourth Amendment Effective Date with respect to A Term Loans and B Term Loans
maintained as Eurodollar Loans;"

    3.  Notwithstanding anything to the contrary contained in Section
4.02(A)(b) of the Credit Agreement, the mandatory repayment of A Term Loans
otherwise required to be made on January 31, 1999 pursuant to said Section shall
instead be required to be made on March 12, 1999, so long as at all times after
the Fourth Amendment Effective Date (as defined below) and prior to March 12,
1999 the Borrower is working in good faith and cooperating with Arthur Andersen
LLP ("Andersen") in connection with Andersen's engagement to perform consulting
services with respect to the Borrower and its Subsidiaries (the "Andersen
Engagement"), as determined by the Agent in its sole discretion.

    4.  Notwithstanding anything to the contrary contained in Section
4.02(A)(c) of the Credit Agreement, the mandatory repayment of B Term Loans
otherwise required to be made on January 31, 1999 pursuant to said Section shall
instead be required to be made on March 12, 1999, so long as at all times after
the Fourth Amendment Effective Date and prior to March 12, 1999 the Borrower is
working in good faith and cooperating with Anderson in connection with the
Andersen Engagement.
<PAGE>
 
    5.  Section 8 of the Credit Agreement is hereby amended by inserting the
following new Section 8.21 at the end of said Section:

                "8.21  Engagement of Investment Banking Advisor.  The
                       ----------------------------------------      
        Borrower shall have engaged an investment banking advisor acceptable
        to the Agent and the Required Banks to evaluate the Borrower's options
        for raising additional capital and shall have received advice and
        evaluations from such investment banking advisor in scope, form and
        substance acceptable to the Agent and the Required Banks on or prior
        to March 12, 1999."

    6.  Section 7 of the Credit Agreement is hereby amended by inserting
the following new Section 7.30 at the end of said Section:

                "7.30  Updated Schedules to Credit Documents.  The updated
                       -------------------------------------              
        schedules to the Credit Documents delivered pursuant to Section 5(ii) of
        Part II of the Fourth Amendment are true and correct in all material
        respects as of the Fourth Amendment Effective Date and accurately
        present in all material respects all information which was originally
        required to be scheduled pursuant to the relevant Credit Document on the
        Initial Borrowing Date, but modified to reflect the addition of any
        Credit Parties, and any changes thereto which occurred, after the
        Initial Borrowing Date and on or prior to the Fourth Amendment Effective
        Date."

    7.  Section 11.01 of the Credit Agreement is hereby amended by (i) deleting
the definition of "Applicable Margin" appearing in Section 11.01 of the Credit
Agreement and (ii) inserting the following new definitions in said Section in
appropriate alphabetical order:

        "Applicable Margin" shall mean the percentage per annum equal to (I) at
     any time prior to the Initial Compliance Date, (i) in the case of Revolving
     Loans, Capital Expenditure Loans and A Term Loans maintained as (x)
     Eurodollar Loans, 4.25% and (y) Base Rate Loans, 3.25%, (ii) in the case of
     B Term Loans maintained as (x) Eurodollar Loans, 4.50% and (y) Base Rate
     Loans, 3.50% and (iii) in the case of Swingline Loans, 3.25% and (II)
     thereafter, (i) in the case of Revolving Loans, Capital Expenditure Loans
     and A Term Loans maintained as (x) Eurodollar Loans, 3.75% and (y) Base
     Rate Loans, 2.75%, (ii) in the case of B Term Loans maintained as (x)
     Eurodollar Loans, 4.00% and (y) Base Rate Loans, 3.00% and (iii) in the
     case of Swingline Loans, 2.75%.

        "Fourth Amendment" shall mean the Fourth Amendment to the Agreement,
     dated as of January 21, 1999.

        "Fourth Amendment Effective Date" shall have the meaning provided in
     the Fourth Amendment.

    8.  Notwithstanding anything to the contrary contained in Section 13.01 of
the Credit Agreement, the Borrower hereby agrees to pay all fees, costs,
expenses and other amounts owing to Andersen in connection with the Andersen
Engagement not paid by Paribas under the terms of the definitive engagement
letter to be entered into in connection with the Andersen Engagement in form and
substance mutually acceptable to the Borrower and the Banks (the "Engagement

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<PAGE>
 
Letter") and to indemnify the Banks and the other Indemnitees (other than
Paribas to the extent expressly provided in the Engagement Letter) for any and
all liabilities, obligations, costs, expenses and disbursements of any kind or
nature that may at any time be incurred by, imposed on or assessed against the
Banks or such other Indemnitees with respect to or resulting from the Andersen
Engagement.

    9.  Each of the Credit Parties, on its own behalf and on behalf of its
successors and assigns, hereby waives, releases and discharges the Agent and
each Bank and all of the affiliates of the Agent and each Bank, and all of the
directors, officers, employees, attorneys and agents of the Agent and each Bank,
from any and all claims, demands, actions or causes of action (known and
unknown) arising out of or in any way relating to the Credit Documents and any
documents, agreements, dealings or other matters connected with the Credit
Documents, in each case to the extent arising (x) on or prior to the Fourth
Amendment Effective Date or (y) out of, or relating to, actions, dealings or
matters occurring on or prior to the Fourth Amendment Effective Date.  The
waivers, releases, and discharges in this Section 9 shall be effective
regardless of whether the conditions to this Amendment are satisfied and
regardless of any other event that may occur or not occur after the Fourth
Amendment Effective Date.

II. Miscellaneous.
    ------------- 

    1.  In order to induce the Banks to enter into this Amendment, the Borrower
hereby makes each of the representations, warranties and agreements contained in
Section 7 of the Credit Agreement, in each case on the Fourth Amendment
Effective Date, both before and after giving effect to this Amendment, subject
to the acknowledgment set forth in the second sentence of Section 2 of Part II
of this Amendment.

    2.  This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.  In connection with the foregoing, the
Borrower acknowledges and agrees that an Event of Default under Section 10.03(i)
of the Credit Agreement is in existence as a result of its failure to comply
with one or more of the financial covenants contained in the Credit Agreement,
both before and after giving effect to this Amendment, and nothing contained in
this Amendment shall be construed as a waiver of such Event of Default.

    3.  This Amendment may be executed in any number of counterparts and by the
different parties hereto on separate counterparts, each of which counterparts
when executed and delivered shall be an original, but all of which shall
together constitute one and the same instrument.  A complete set of counterparts
shall be lodged with the Borrower and the Agent.

    4.  THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF
NEW YORK.

    5.  This Amendment shall become effective on the date (the "Fourth
Amendment Effective Date") when (i) the Borrower, the Banks constituting the
Required Banks, each Bank with outstanding A Term Loans and each Bank with
outstanding B Term Loans shall have signed a copy hereof (whether the same or
different copies) and shall have delivered (including by way of facsimile
transmission) the same to White & Case LLP, 1155 Avenue of the Americas, New
York, NY 10036 Attention: David Kizner (facsimile number 212-354-8113) and (ii)
the Borrower shall have delivered updated Schedules III, VIII, X and XV to the
Credit Agreement, Annexes A, B, C, D, E, F and G to the U.S. Security Agreement,
Schedules A, B, C

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<PAGE>
 
and D to each Canadian Security Agreement, Annexes A and B to
the U.S. Pledge Agreement and Schedule A to the Canadian Pledge Agreement, in
each case modified to reflect the addition of any Credit Parties, and any
changes thereto which occurred , after the Initial Borrowing Date and on or
prior to the Fourth Amendment Effective Date.

    6.  By executing and delivering a copy hereof, each Credit Party hereby
agrees that all Loans shall be (and are) fully guaranteed pursuant to the
Subsidiaries Guaranty in accordance with the terms and provisions thereof and
shall be (and are) fully secured pursuant to the Security Documents.

    7.  From and after the Fourth Amendment Effective Date, all references to
the Credit Amendment in the Credit Agreement and the other Credit Documents
shall be deemed to be references to the Credit Agreement as modified hereby.

                                  *    *    *


    IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Amendment to be duly executed and delivered as of the date first above
written.

                                 VIDEO UPDATE, INC.

                                 By: /s/Daniel A. Potter
                                    --------------------------------
                                    Name:  Daniel A. Potter
                                    Title: Chairman & CEO


                                 BANQUE PARIBAS,
                                   Individually and as Agent


                                 By: /s/Donald J. Ercole
                                    --------------------------------
                                    Name:  Donald J. Ercole
                                    Title: Managing Director

 

                                 By: /s/Edward Irwin
                                    --------------------------------
                                    Name: Edwin Irwin 
                                    Title:  Director


                                 CAROLINA FIRST BANK

                                 By: /s/Charles D. Chamberlain
                                    --------------------------------
                                    Name:  Charles D. Chamberlain
                                    Title: Executive Vice President

 

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<PAGE>
 
                                 BANK AUSTRIA CREDITANSTALT
                                   CORPORATE FINANCE, INC.

                                 By:       /s/ John G. Taylor
                                    ----------------------------------
                                    Name:  John G. Taylor
                                    Title: Senior Associate

                                 By:       /s/ Scott Kray
                                    ----------------------------------
                                    Name:  Scott Kray
                                    Title: Vice President

 

                                 FIRST SOURCE FINANCIAL LLP
                                    By: First Source Fiancial, Inc., its Agent


                                 By:       /s/ James W. Wilson
                                    ---------------------------------- 
                                    Name:  James W. Wilson
                                    Title: Senior Vice President


                                 FLEET NATIONAL BANK


                                 By:       /s/ Michael F. O'Neill
                                    ----------------------------------
                                    Name:  Michael F. O'Neill
                                    Title: Senior Vice President



                                 MERRILL LYNCH SENIOR FLOATING
                                 RATE FUND, INC.


                                 By:       /s/ John M. Johnson
                                    ----------------------------------
                                    Name:  John M. Johnson
                                    Title: Authorized Signatory

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<PAGE>
 
                                 PPM AMERICA, INC., as attorneys-in fact, on
                                   behalf of Jackson National Life Insurance
                                   Company


                                 By:       /s/ Michael DiRe
                                    ---------------------------------
                                    Name:  Michael DiRe
                                    Title: Managing Director


                                 BOEING CAPITAL CORPORATION


                                 By:       /s/ David A. Nelson
                                    ----------------------------------
                                    Name:  David A. Nelson
                                    Title: Special Credits Officer


                                 KEY CORPORATE CAPIRAL, INC.


                                 By:       /s/ Marvin S. Kodish
                                    ----------------------------------
                                    Name:  Marvin S. Kodish
                                    Title: Designated Signer


                                 PARIBAS CAPITAL FUNDING LLC

                                 By:       /s/ M.S. Alexander
                                    ----------------------------------
                                    Name:  M.S. Alexander
                                    Title: Director


                                 THE BANK OF NOVA SCOTIA

                                 By:       /s/ F.C.H. Ashby
                                    ----------------------------------
                                    Name:  F.C.H. Ashby
                                    Title: Senior Manager Loan Operations

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<PAGE>
 
                                 ML  CLO XIX STERLING (CAYMEN) LTD.

                                 By: Sterling Asset Manager, as its Investment
                                     Advisor

                                 By:       /s/Louis A. Pistecchia
                                     ----------------------------------
                                     Name:  Louis A. Pistecchia
                                     Title: Executive Vice President



                                 KZH STERLING LLC


                                 By:        /s/ Virginia Conway
                                     ---------------------------------
                                     Name:  Virginia Conway
                                     Title: Authorized Agent

 

         Each of the undersigned, each being a Subsidiary Guarantor under, and
as defined in, the Credit Agreement referenced in the foregoing Fourth
Amendment, hereby consents to the entering into of the Fourth Amendment, and
agrees to the provisions thereof (including without limitation, Sections 6 and 7
of Part II thereof).

                                 MOOVIES, INC.


                                 By:        /s/Daniel A. Potter
                                     ----------------------------------
                                     Name:  Daniel A. Potter
                                     Title: President


                                 TINSELTOWN VIDEO, INC.

 
                                 By:        /s/Daniel A. Potter
                                     ---------------------------------
                                     Name:  Daniel A. Potter
                                     Title: President

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<PAGE>
 
                                 WILLIAMS VIDEO, INC.


                                 By:       /s/ Daniel A. Potter
                                     ----------------------------------
                                     Name:  Daniel A. Potter
                                     Title: President


                                 MOOVIES OF THE CAROLINAS, INC.


                                 By:       /s/ Daniel A. Potter
                                     ----------------------------------
                                     Name:  Daniel A. Potter
                                     Title: President


                                 MOOVIES OF GEORGIA, INC.


                                 By:       /s/ Daniel A. Potter
                                     ----------------------------------
                                     Name:  Daniel A. Potter
                                     Title: President


                                 MOOVIES OF IOWA, INC.


                                 By:       /s/ Daniel A. Potter
                                     ----------------------------------
                                     Name:  Daniel A. Potter
                                     Title: President


                                 MOOVIES OF MICHIGAN, INC.


                                 By:       /s/ Daniel A. Potter
                                     ---------------------------------
                                     Name:  Daniel A. Potter
                                     Title: President

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<PAGE>
 
                                 MOVIE WAREHOUSE FRANCHISE SYSTEMS, INC.


                                 By:        /s/ Daniel A. Potter
                                     ----------------------------------
                                     Name:  Daniel A. Potter
                                     Title: President


                                 E.C.6., INC.


                                 By:        /s/ Daniel A. Potter
                                     --------------------------------
                                     Name:  Daniel A. Potter
                                     Title: President


                                 SONI, INC.


                                 By:        /s/ Daniel A. Potter
                                     ---------------------------------
                                     Name:  Daniel A. Potter
                                     Title: President


                                 PQ3, INC.


                                 By:        /s/ Daniel A. Potter
                                     ---------------------------------
                                     Name:  Daniel A. Potter
                                     Title: President


                                 SNO, INC.


                                 By:        /s/ Daniel A. Potter
                                     ---------------------------------
                                     Name:  Daniel A. Potter
                                     Title: President

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<PAGE>
 
                                 GBO, INC.

 
                                By:        /s/ Daniel A. Potter
                                    ----------------------------------
                                    Name:  Daniel A. Potter
                                    Title: President


                                 D-SKIPPY, INC.


                                 By:        /s/ Daniel A. Potter
                                     ---------------------------------
                                     Name:  Daniel A. Potter
                                     Title: President


                                 DCO, INC.


                                 By:        /s/ Daniel A. Potter
                                     ---------------------------------
                                     Name:  Daniel A. Potter
                                     Title: President


                                 PTO, INC.


                                 By:        /s/ Daniel A. Potter
                                     ---------------------------------
                                     Name:  Daniel A. Potter
                                     Title: President


                                 THE MOVIE STORE, INC. #2


                                 By:        /s/ Daniel A. Potter
                                     ---------------------------------
                                     Name:  Daniel A. Potter
                                     Title: President

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<PAGE>
 
                                 THE MOVIE STORE III, INC.


                                 By:        /s/ Daniel A. Potter
                                     ---------------------------------
                                     Name:  Daniel A. Potter
                                     Title: President


                                 ALPHARETTA MEDIA ASSOCIATES, INC.


                                 By:        /s/ Daniel A. Potter
                                     ---------------------------------
                                     Name:  Daniel A. Potter
                                     Title: President


                                 VIDEO UPDATE CANADA INC.


                                 By:        /s/ Daniel A. Potter
                                     ---------------------------------
                                     Name:  Daniel A. Potter
                                     Title: President

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<PAGE>
 
                                 24 HOUR ENTERTAINMENT GROUP LTD.


                                 By:        /s/ Daniel A. Potter
                                     ---------------------------------
                                     Name:  Daniel A. Potter
                                     Title: President


                                 24 HOUR ENTERTAINMENT LEASING LTD.


                                 By:        /s/ Daniel A. Potter
                                     ---------------------------------
                                     Name:  Daniel A. Potter
                                     Title: President


                                 1137239 ONTARIO LIMITED


                                 By:        /s/ Daniel A. Potter
                                     ---------------------------------
                                     Name:  Daniel A. Potter
                                     Title: President


                                 RIO MEDIA ASSOCIATES, INC.


                                 By:        /s/ Daniel A. Potter
                                     ---------------------------------
                                     Name:  Daniel A. Potter
                                     Title: President


                                 PIC-A-FLICK OF GREENVILLE, INC.


                                 By:        /s/ Daniel A. Potter
                                     ---------------------------------
                                     Name:  Daniel A. Potter
                                     Title: President

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