UPDATE - US music stores band together for online market
Monday January 27, 11:36 am ET
By Ellis Mnyandu
(Recasts; adds analyst comment, details; changes dateline from LOS ANGELES)
NEW YORK, Jan 27 (Reuters) - Major U.S. music retailers on Monday launched a service to deliver music via the Internet, a step they hope will save them from piracy that has raged on even after the demise of the Napster online song-swapping service.
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The partnership, which comes as the music industry also battles growing pressure from discounters like Wal-Mart Stores Inc. (NYSE:WMT - News), consists of Best Buy Co. (NYSE:BBY - News), Hastings Entertainment Inc. (NasdaqNM:HAST - News), Tower Records, Trans World Entertainment Corp. (NasdaqNM:TWMC - News), Virgin Entertainment Group and Wherehouse Entertainment Inc.
The six retailers said in a statement that their venture, called Echo, will enable them to "effectively compete in the digital music market place".
But Bernstein analyst Colin McGranahan said he sees Los Angeles-based Echo as merely a step by the stores to band together as the direct music distribution model continues to evolve and music labels gain the upper hand.
In the past year, a number of major music labels have been seeking ways to distribute their content directly to the consumers in one attempt to steer clear of the retail downturn.
"This does not seem intuitively a slam dunk," said McGranahan. "Clearly there may be another story behind (this move). It could happen that the music labels are working on something that's leading music retailers to feel they need to get together to have some kind of a united voice."
Just last Tuesday, Wherehouse Entertainment filed for bankruptcy protection for a second time in less than 10 years. The Torrance, California-based company, which along with its peers has been struggling to gain a foothold with consumers, said it will close 120 more stores.
MUSIC INDUSTRY BLUES
The music industry's troubles also forced Best Buy, the top U.S. consumer electronics chain, to shut 107 of its Musicland stores earlier this month.
The retailers said they will each back Echo with in-store marketing. Each participant will independently market and price its digital entertainment offering.
Echo officials were not immediately available to provide details about whether the new venture would be subscription-based or how it would compare with services like Pressplay, an online music subscription joint venture backed by Vivendi Universal (NYSE:V - News) and Sony Corp. (Tokyo:6758.T - News).
Pressplay, for example, agreed in November to provide content from Warner Music, expanding its online subscription library to include music from all five major labels.
Users of Pressplay can download songs to their computer and then copy them to portable devices or burn them onto CDs.
The company competes with MusicNet, which is owned by record labels Bertelsmann AG (BERT.UL) BMG, EMI Group Plc (London:EMI.L - News), AOL Time Warner Inc. (NYSE:AOL - News) and RealNetworks (NasdaqNM:RNWK - News).
Last April Best Buy Chief Operating Officer Allen Lenzmeier told Reuters his company was working with other retailers to devise ways to prevent wholesale copying of CDs without antagonizing customers.
Some music industry watchers predict that as many as 500 music stores out of thousands could close this year after CD sales fell by nearly 9 percent in 2002.
Industry experts also point out that the retailers are caught up in a bind since some of them, including Best Buy, also sell MP3 players and CD burner drives -- the very same gadgets that makes illegal copying and downloading music easy.
AI
