Wherehouse Buys Blockbuster Music for $115 million

Up from the deep: Torrance, CA-based Wherehouse Entertainment announced last week that it will purchase Blockbuster Music from Viacom Inc. for $115 million. The merged operation will have 598 stores throughout North America, second only to Minnesota-based Musicland. The deal comes at the end of a prolonged slump for the music industry, one that was particularly hard for Blockbuster.

Wherehouse recently emerged from bankruptcy, and during its court-mandated restructuring period closed its marginal stores. Blockbuster Music had its own difficulties after churning its upper management and undergoing a very expensive move of its corporate headquarters, shrinking from 425 stores in December 1997 to 393 by the end of March. Last year, the chain of music stores reported a pre-tax loss of $2.5 million on sales of $133.3 million.

The entire music-retailing industry is recovering from an extended period of lackluster sales, but in the past year public interest in music has picked up enough to make retailing viable again. During the slump, many retailers cut back on staff, closed stores, and reduced inventory in an attempt to stay afloat, creating prime conditions for mergers and acquisitions.

Analyst Thomas Tahjian of NationsBanc Montgomery Securities said he expects further consolidations in the industry. "Today's approximately one dozen national and regional music retail chains will consolidate to about six major players within the next five years," he said. While the large chains will be positioned to expand, the total number of music stores nationwide may decline by as many as 500, according to some estimates.

Viacom, Inc., Blockbuster's corporate overlord---which also owns Paramount Pictures, the MTV network, and Blockbuster Video---had been shopping for a buyer for quite a while when the Wherehouse deal materialized. Viacom Chairman Sumner Redstone told Reuters news service that his company was "extremely pleased with the transaction," calling it "another step in Blockbuster's revitalization." Blockbuster Music had been expected to bring offers as high as $200 million.