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Koch to Acquire Navarre Music Unit

14 May, 2007 By: Erik Gruenwedel

With music retail in a downward slump, two venerable independent CD distributors have joined hands.

Koch Entertainment May 14 announced it has signed a conditional agreement to acquire Navarre Entertainment Media Inc. for $6.5 million in cash, plus the assumption of an undisclosed amount of debt.

Navarre Entertainment Media (NEM) is a unit of Minneapolis, Minn.-based Navarre Corp., whose other assets include BCI, Encore and FUNimation.

Koch claims the acquisition will increase its music distribution market share from 1.8% to 2.7%.

Michael Koch, founder and CEO of Koch Entertainment, said in a statement the deal signified his company's belief in “the future of music and music retail.”

That's a commendable stance, considering the total retail value of the U.S. record industry in 2006 fell 6.2% to $11.5 billion, compared to 2005. There were 615 million CDs shipped to retail and specialty outlets, a 12.8% drop from the previous year, according to the Recording Industry Association of America.

And music CD sales, facing stiff competition from legal and illegal music downloads, continue to further erode in 2007.

Navarre, however, claimed NEM generated more than $50 million in net revenues (including sales returns) during the last fiscal year, which ended March 31. It hasn't released fourth quarter results.

“With all aspects of the music industry consolidating, the independent distribution segment needs to acquire critical mass,” said Eric Paulson, chairman of Navarre. “Competing for shelf space at retail for the independent label and artist needs to be done from a position of strength. This is a natural fit for both our labels and the customers.”

Navarre, which doesn't separate sales revenues between music and movies in financial statements, posted income of $4 million for the third quarter (ended Dec. 31) on revenues of $210 million, compared to a loss of $6 million and revenues of almost $215 million during the same period last year.

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