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UPDATE: Troubled Valley Media Facing Shrinking Options

1 Nov, 2001 By: Joan Villa

In the face of a slipping stock price, layoffs at a recently shuttered distribution facility and a scaled-back product line, wholesaler Valley Media faces dubious prospects for long-term survival if a rumored sale to competitor Alliance Entertainment fails to materialize.

Valley c.e.o. Peter Berger says his company can still carve a viable business from new and catalog music sales and catalog movie product, which carries a higher margin than the new-release movie product Valley recently eliminated. The focus will be on “cross-selling” video to audio accounts that want DVD for their niche clientele, he says.

“Last year our audio alone was a $300 million to $400 million business and video was a little less than that,” he says. “Even with tight margins, if you do what you're supposed to do, you can still make money.”

However, in the fiscal year ended March 31, Valley's sales declined 12.1% to $803.7 million and the company had to write off millions in bad debt from bankrupt accounts, ending the year with a net loss of nearly $30 million.

Valley will report quarterly earnings next week, but since exiting the rental business in April, the distributor has quietly lost more major customers such as Toys ‘R' Us and Amazon.com that have either gone direct or are buying from Alliance and other distributors.

Valley also recently consolidated all audio and video fulfillment to its Woodland, Calif., headquarters and closed its Louisville, Ky., distribution facility, cutting 400 positions that Berger says are “furloughed until we get through this period of time.”

Berger says some lost accounts like The Wiz were planning to go direct with studios anyway. However, he admits Valley's “finite amount of money and credit” strain the company's ability to fill its orders, and makes it vulnerable to losing more accounts. He says he is pursuing options, including meetings with Alliance to discuss “common interests” that so far have not produced a letter of intent to purchase.

“We realize the uncertainty is causing a bit of confusion with our customer base, with our vender base, and we're doing everything in our power to minimize the uncertainty of Valley's long-term activity and pushing to get a resolution,” he says. “We've had some challenging times but the objective of the management team is to get Valley in the best shape for the future, whether as a stand-alone entity or as part of something else. We'll pursue all alternatives.”

The financial strain has become apparent to some studios who say they either won't ship to the distributor or will ship only on what Berger calls “tight credit terms.”

One independent retail chain that had been a longtime Valley customer was recently told to take a $4,000 credit in product or accept a cash payment worth 50 cents on the dollar. “We went in and ordered catalog DVD titles,” the retailer says. “We were lucky we found what we needed. We got our credit and basically won't deal with them any more.”

Valley staved off a threatened delisting from the NASDAQ exchange in June but again faces a slipping stock price, closing at 60 cents per share on Tuesday. Berger attributes the decline to sales of shares from former executives who recently received payouts from employee stock ownership plans and elected to sell, he says.

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