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Layoffs Underscore Down Image Q2

14 Nov, 2006 By: Erik Gruenwedel

Citing a disappointing second quarter (ended Sept. 30) and maturing DVD retail market, Image Entertainment Nov. 14 announced it would trim its workforce 17% or 35 employees, including closure of its London-based operations by the end of the month.

Chatsworth, Calif.-based Image, which cut 27 employees Nov. 9, said the layoffs would save the distributor $3.8 million in annual costs. Staffing cuts were across the board and included one vice president position.

The company will maintain its Las Vegas distribution center, which employs about 38 people.

“The layoffs have been very heartbreaking and wrenching for us to lose a lot of friends who have been at Image for a long time,” said president and CEO Martin Greenwald, in a conference call.

He said the cuts were necessary to move the company toward profitability, a reality Image executives said might not be realized through the remainder of fiscal 2007.

The distributor projects third quarter (ended Dec. 31) revenues from $26 million to $28 million compared to $39 million last year, which included $4.5 million in sales related to holiday DVD sales of the original BBC version of “The Chronicles of Narnia.”

Image said it recorded $496,000 in charges in the quarter due to the Tower Records bankruptcy and $443,000 in expenses related to the Lionsgate contested proxy vote, the board of director's special committee created to seek alternative strategies to boost shareholder value and investment banker analysis of the Relativity Media distribution agreement.

Image CFO Jeffrey Framer said sales to Trans World Entertainment, which acquired bankrupt Musicland in January, were up significantly but had not covered Image's original losses attributed to Musicland.

He said the liquidator that acquired Tower's assets — some originally purchased from Image — resulted in a saturated market of deeply discounted inventory.

“Until that inventory supply is exhausted, our revenue is going to be impacted,” said Framer.

On the flipside, he said sales to Internet-based retailers, including Amazon, Netflix, AEC and Critic's Choice Video, among others, rose at least 35% in the first two quarters.

Digital revenues (Egami Media) increased to $205,000, compared to $29,000 for the same period last year. Image expects to reach $1 million in electronic video sellthrough by next March.

Best selling DVD releases for the quarter included Bob & Tom Radio: The Comedy Tour, Yanni Live: The Concert Event (DVD & CD), Katt Williams Live, Black Magic (Shaw Brothers Special Edition) and Criterion's reissues of Seven Samurai and Brazil.

Image CEO Greenwald said the distributor has taken “a chainsaw and scalpel” to its 120-title quarterly release, reducing quarterly output to 90 titles (primarily music concert, comedy and Criterion Collection) beginning in April.

For the quarter, Image posted a loss of $3.8 million on revenues of $22.8 million, compared to a loss of $613,000 on revenues of $23.7 million during the same period last year.

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