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Retailers Join for Internet Music Delivery

28 Jan, 2003 By: Holly J. Wagner

Six entertainment retail chains, including one that filed bankruptcy last week and another that recently closed 110 stores because of dwindling music sales, today announced they will seek licenses to offer music downloads over the Internet.

Best Buy Co., Hastings Entertainment, Inc., Tower Records, Trans World Entertainment Corp. – operator of FYE (For Your Entertainment) Stores – Virgin Entertainment Group and Wherehouse Music are collaborating on Echo, a retailer-driven digital music consortium.

Stung by declining sales of music software, the chains are looking to recapture some of the revenue they say they are losing to legal and unauthorized music downloads.

The consortium, created through an investment in Los Angeles-based Echo, will seek licenses to let its retail members compete in the digital music marketplace.

Once licenses are in place, the retailers plan to offer digital music products and services through individually branded or Echo co-branded offerings, using the in-store marketing capabilities of its retail partners.

"The Echo consortium was established to create a viable business strategy that combines physical and digital music distribution," said Dan Hart, CEO of Echo. "With competitive licenses, music retailers can utilize their long history and expertise in building customer relationships, marketing music and breaking new artists to provide a digital music experience that truly serves the consumer."

The plan looks a bit like a hail Mary for an industry in which Wherehouse Music filed for bankruptcy last week and Best Buy closed 110 mall-based stores in the last year – 90 heavily music-dependent Sam Goody stores and 20 Suncoast Video outlets.

"Best Buy is focused on creating consumer-based solutions to digital entertainment services. As part of the retail consortium, we will be better able to articulate our message to consumers, to content owners and to those involved in setting standards and legislation regarding this evolving business," said Scott Young, VP of digital entertainment at Best Buy.

"The message of music retail is simple: we have always excelled at selling music to consumers, and we plan to extend our consumer relationships from the physical world into the digital world," said John Marmaduke, CEO of Hastings Entertainment.

That strategy is increasingly important in a world where online packaged music sales are slipping three times faster than brick-and-mortar music sales, according to ComScore Media Metrix.

"For over forty years Tower Records has held a deep commitment to providing consumers with a breadth of entertainment choices. The formation of a digital retail platform reflects Tower's continuing commitment to serving our customers," said Kevin Ertell, SVP Online Operations at Tower Records.

"We have closely monitored the evolution of digital music in recent years and we feel that the timing is finally right for building a business around it. Moreover, we feel the Echo consortium is uniquely positioned to drive adoption and, ultimately, success," said John Sullivan, CFO of Trans World Entertainment, which owns the FYE (For Your Entertainment), Coconuts, Strawberries, Specs and Planet Music brands.

Glen Ward, CEO of Virgin Entertainment Group, concurred. "Virgin has built its brand and its business on providing great value to consumers. In the digital world, we will do the same."

"Retail has always been about more than simply selling CDs," added Jerry Comstock, CEO of Wherehouse Music. "We are in the customer relationship business."

Nonetheless, Wherehouse's Web site is still down and “under construction” following its bankruptcy announcement.

Best Buy, Hastings, Tower, Trans World, Virgin, and Wherehouse each own equity in Echo and the retail founders collectively own a controlling majority of Echo.

"Working together as a buying group offers every retailer the chance to work for the consumer," said Arnie Bernstein, former president of the National Association of Recording Merchandisers, who will serve on the Board of Echo.

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