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Music Downloads Are Creating a Cascade Effect

23 Sep, 2003 By: Holly J. Wagner

The retail side of this industry is changing so fast these days you can't tell the players without a program anymore.

A lot of observers have said the home entertainment retailing industry is due for a shakeout, especially with the music side imploding in the face of downloads. But there are a lot of conflicting opinions out there about what's going on.

Recent announcements that TransWorld Entertainment would buy bankrupt Wherehouse and CD World look like just the leading edge of a trend that will snowball smaller companies into larger concerns that have a better chance of survival. In particular, Tower Records and Djangos look like low-hanging fruit. Djangos is in bankruptcy, and Tower's foundations appear to be crumbling. The trend looks a little more startling when you realize that TransWorld, Tower and Wherehouse ranked 4, 6 and 9, respectively, in video revenue generated at music and consumer electronics chains, according to Video Store Magazine market research's Top 100 for 2002.

DVDPlanet.com, while a respected brand online, has been a cash drain on parent Image Entertainment for some time. Maybe the lesson there is that content providers are not the best retailers. Now, DVDPlanet will join Infinity Resources' stable of e-tailers, which include DeepDiscountDVD.com and digitaleyes.net. Hopefully, combining the infrastructure and distribution will get DVDPlanet into a stable orbit.

Blockbuster Video, long viewed as one of the stronger players in the video industry, got a rude awakening last year when rentals dropped after Thanksgiving. Analysts wondered if sellthrough had the chain on the ropes. Not letting any grass grow under its feet, Blockbuster has quietly invested in online ventures, including rental and video-on-demand, as well as a small brick-and-mortar chain that buys and sells used DVDs. Now Big Blue reportedly has the urge to merge with Time Warner's Columbia House, which would give Blockbuster a footing in direct mail and online sellthrough, and give Columbia House a … well … house.

It's starting to look like what space scientists call a Cascade Effect, in which one piece of space debris impacts another and each impact sets off a giant, cosmic game of billiards. In that scenario, even the bigger targets are likely to take a few hits as the smaller ones spin out of control.

It will be at least January before we know if the industry is in for a deep impact or a gentle splashdown.

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