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Bankrupt Musicland Draws a Crowd

19 Jan, 2006 By: Erik Gruenwedel

Disc replication company Deluxe Media Services, NBC Universal/Universal Studios Home Entertainment, Navarre Corp. and Ventura Distribution are among the 30 largest unsecured creditors owed millions of dollars by bankrupt Musicland Holding Corp.

The Minnetonka, Minn.-based operator of more than 800 Sam Goody, Suncoast and Media Play stores filed Chapter 11 bankruptcy Jan. 12. It is owned by investment group Sun Capital Partners and listed assets of $371.5 million and liabilities of $485.6 million in its filing. A New York Federal Bankruptcy Court-approved $75 million in debtor-in-possession financing from existing creditors will enable Musicland to remain open during the restructuring period.

Navarre Corp. is owed $12.8 million; Deluxe, $7.9 million; NBC Universal/USHE, $6.8 million; and Ventura, $5.8 million. Other home entertainment-related companies include video game publisher Electronic Arts, owed $2.8 million; Image Entertainment, $2.6 million; Geneon Entertainment, $1.5 million; Koch International Corp., $1.4 million; and Baker & Taylor Entertainment with $1.2 million.

Home entertainment distributor Navarre Corp. CEO Eric Paulson said the bankruptcy would not affect Navarre's business going forward. Musicland accounted for 4 percent of the company's fiscal 2006 revenues.

Chatsworth, Calif.-based Image, which lowered its fiscal 2006 guidance $3 million as a result of the bankruptcy, said Musicland represented about 5 percent of net revenues.

A lawyer representing Paramount Pictures Home Entertainment said the studio filed a separate, non-monetary motion with the court in order to be formally informed on the status of the case. Universal Music & Video Distribution Corp. filed a similar motion.

“I'm sure they will get about 800 of these motions,” said the lawyer, who wouldn't disclose what, if anything, Paramount is owed by Musicland.

Ralph Tribbey, editor of The DVD Release Report, doesn't believe fallout from Musicland's bankruptcy will adversely affect the major studios. He said the big studios likely anticipated Musicland's declining fortunes a while ago. It is more of the second- and third-tier suppliers who will get hit the hardest, he said.

“Most of Musicland's problems are music-related and mall-related,” he said.

An early champion of anime DVDs, Musicland's Suncoast stores carry nearly every publishers' product and dedicate a highly visible amount of shelf space to the genre. However, despite Navarre's situation with the retailer, anime industry representatives were confident there were plenty of avenues for their product.

"It is really too early to measure the impact of the Musicland bankruptcy," said Anthony Jiwa, director of marketing for Viz Media. “Certainly any difficulties at Musicland will have an impact on the category. At the same time, other retailers have also championed [anime DVDs].We feel that we are well-positioned, despite any difficulties that Musicland may be experiencing.”

In a press release, Navarre CEO Eric Paulson echoed those thoughts: "We believe that any market share lost by Musicland through this reorganization will be absorbed by other customers and that the net effect on our business going forward should not be significant."

And other publishers aren't giving up on Musicland.

"We stand behind Musicland. They're pioneers of the anime industry in America," said Mike Bailiff, SVP of sales and marketing for ADV Films.

"Without the vision and support of Musicland, anime may never have reached the mainstream acceptance it now enjoys,” said John O'Donnell, managing director of Central Park Media. “All of us at CPM are saddened at this unfortunate turn of events, and we look forward to cooperating with our friends at Musicland to help them emerge from this situation as quickly as possible.

Geneon, the No. 2 anime company in terms of new SKUs, declined to comment on the Musicland bankruptcy announcement.

Additional reporting by Chris Tribbey

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