Industry Roundup

Circuit City turnaround: After a long slump, the Richmond, VA–based retail chain is finally on an upswing. The company reported a 7% increase in sales for the first fiscal quarter, ended May 31—a total of $2.1 billion. Same-store sales rose 6.4%. The total included $21.5 million in revenue from InterTan, a group of Canadian stores acquired by Circuit City on May 12. Circuit City's strongest product categories were flat-panel TVs, digital cameras, computer gear, and portable audio players.

Ultimate still down: The Denver-based upscale retailer is still in the doldrums, reporting a net loss of $8.4 million for the fiscal first quarter, ended April 30. The bottom line compares unfavorably to the net loss of $1.4 million reported for the same period a year earlier. Sales for the first quarter of 2004 were off 2% to $152.4 million, compared with $155.7 million in the same period in 2003. Same-store sales dropped 11%, and gross profit margins declined to 31.5% from 32.7%. Costs as a percentage of sales rose to 40% compared to 34.2% during the first quarter last year. The increase was attributed in part to the addition of seven new stores, increased advertising costs, and higher payroll expenses. Ultimate expects a turnaround this year, with an emphasis on mobile A/V, a 1000+ title DVD inventory, and the addition of Apple iPods to its lineup beginning in July.

Imagine that: Best Buy, North America's top electronics retailer, has launched a new program it calls "Consumer Centricity" in which upper management will listen to store managers who will listen to salespeople who will actually listen to customers. The idea is that by responding to what customers really want—including the possibility that some products might be more popular in some regions than others—the company might be better able to serve them, rather than by dictating from central headquarters what all Best Buy stores should carry. Best Buy describes the initiative as a radical change of information flow from "top-down to bottom-up," one that should "engage us more deeply with customers," according to CEO Brad Anderson. (Idle question: How many thousands did Best Buy pay a consulting firm for this brilliant insight?) The "Consumer Centricity" program was tested in 32 stores and will be expanded to as many as 110 US locations in 2005.

Napster UK: Music download service Napster has launched an operation in the United Kingdom. A division of Roxio, Inc., the Santa Clara, CA company signed deals with EMI Group PLC, Universal Music Group (UMG), Warner Music Group (WMG), and Sony BMG (a joint venture between Sony Corp. and Bertelsmann AG) to provide a library of 500,000 tracks, a total that should rise to 700,000 within 30 days, according to a company press release. Subscription rate is £9.95 ($17.58) per month.

EU vs Sony/Bertelsmann: The antitrust office of the European Union announced on Monday May 24 that it would soon publish its objections to a proposed merger of Sony Music and Bertelsmann Music Group (BMG). The "statement of objections," a standard procedure in EU antitrust reviews, will be delivered before the July 22 deadline on ruling on the merger, which would reduce the music industry's "Big Five" record labels to the "Big Four." In 2000, EU regulators nixed a proposed merger between EMI Group PLC and WMG.

Warner's money woes: WMG is having a tough time trying to cut costs, according to an in-depth article in the May 24 issue of the Wall Street Journal. Despite dropping 1200 workers from the payroll, cutting salaries, and eliminating $250 million in overhead, the enterprise still suffers from what reporters Ethan Smith and Martin Peers describe as "a culture of financial excess that is as old as the modern recording industry." Senior management has reversed some big salary cuts, a move that followed approval by CEO Edgar Bronfman, Jr. for a "company-paid golfing junket on a chartered jet for two top Warner executives and several artist managers" just a few weeks before closing a deal with a new group of investors.

Scion of the Seagram liquor dynasty and sometime songwriter, Bronfman hasn't fared well with his big-music ventures, having overpaid for PolyGram back in 1998 and mismanaged its merger with Universal Music. The sale of Seagram and its Universal entertainment divisions to French utility Vivendi SA two years later ultimately cost company shareholders and the Bronfman family millions, according to the financial press. Bronfman Jr.'s latest attempt to re-energize Warner Music is being watched closely by the industry. The company is currently embroiled in a legal dispute with Maverick Records, co-owned by Warner and pop diva Madonna, over losses amounting to "tens of millions of dollars" incurred during the past five years.

UMG's CD price cuts derailed: Universal Music's much-publicized "JumpStart" program to cut retail prices of CDs (see related story) by as much as 30% never materialized due to objections from beleaguered retailers, according to a front-page story by Ethan Smith in the June 4 edition of the Wall Street Journal. Prices generally didn't drop by more than 5% because retailers "either never adopted the cuts or were slow to implement them—and pocketed the extra cash." A big problem with JumpStart was its reduction in co-op advertising money available for retailers, widely interpreted as a subsidy to help them stay afloat in the face of increasing competition from online sources and deep-discount chains like Wal-Mart stores. Universal has restructured its pricing strategy with a new program called "JumpStart 2.0." For it to be effective, retail sales have to increase by 21%, an unlikely scenario. The original plan lifted UMG's retail sales only 5.8%.

Prince's big comeback: Music critics are raving about Prince's current concert tour. The 44-year-old superstar is wowing sold-out houses with an 18-piece band that includes sax players Candy Dulfer and Maceo Parker, drummer John Blackwell, and bassist Rhonda Jones. Prince makes a point of delivering "real music from real musicians"—not a canned note anywhere—and including a copy of his recent album Musicology with every ticket. The gambit has kept the album on the SoundScan charts for weeks. The tour kicked off in April and runs into September.

Sobering statistic: Americans spend an average of 52 hours per week in front of their televisions, according to a report on broadcasting industry ad sales by Sarah McBride in the May 18 WSJ. We wonder: Is that the same population that claims it has no time for exercise, reading, or attending live concerts?

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