Saturday, June 07, 2008

No money shifting CDs

The physical music market has lost a major company this week, with the announcement that Handleman will handle CDs no longer. They're the US company whose main interest in the music industry was shipping products to WalMart stores. Their official announcement makes it clear that they don't see much profit in the business in future:

As to the timing of our decision, we took into consideration a number of factors, including indications from existing customers of their reluctance to maintain long-term relationships with multiple music distributors in a shrinking market, a growing question in our minds whether our key music suppliers would provide trade terms sufficient for us to support our customers for the peak holiday shipment season, and uncertainty whether our credit agreements would permit sufficient liquidity to operate normally through the upcoming Christmas season if our suppliers did not return to historical trade terms.

"Taking all these factors into consideration, we determined that exiting the North American music business now, in the transactions announced today, was in the best interest of our customers, vendors, employees, shareholders and other stakeholders. We regret the impact of this decision on many of our employees, and will do our best to assist them at this difficult time. We also will work with our valued customers and vendors to achieve a smooth, seamless and timely transition."

The bad news is for the 260 people who will be entering the US job market at a time when it's nowhere near its strongest.

The glimmer of hope, though, is Handleman's suggestion that the market isn't quite dead, but can no longer support "multiple" distributors.

The worry for the industry as whole, though, is the hint that the major labels are no longer in a position to offer stock on credit - even to its largest customers - in anything like enough quantities to allow it to function.

The conclusion is not that there is no market for records; but that the market is small, shrinking, and might become a specialist niche. After years of the big retailers crushing out the small, specialist stores, we could be about to see a major reverse.

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