Forecast For Best Buy: Worst Is Yet to Come

by John Jannarone
Friday, March 4, 2011
http://finance.yahoo.com/banking-budgeting/article/112269/forecast-for-best-buy-worst-yet-to-come

Just two years after its arch rival was knocked out of the ring, Best Buy is itself on the ropes.

The company revealed a problem last December that has left investors scrambling for answers. Even with bankrupt Circuit City out of the picture, the retailer was losing market share, especially in the key television and computing categories. Best Buy shares have since tumbled 21% and now trade at a mere nine times this fiscal year's consensus earnings.

Investors shouldn't assume Best Buy simply needs time to recover. Rather, the threats it faces are likely only to worsen. Take Amazon.com, whose relentless growth has undercut the raison d'etre of specialty retailers. That is true both in books -- where Borders Group recently filed for bankruptcy protection -- and in electronics.

Indeed, Amazon's electronics and nonmedia revenue rose 66% to $18 billion last year, helping it lift market share in different segments. Its share of LCD TV sets, for instance, nearly tripled, to 3.7% at the end of 2010 from 1.3% in 2007, estimates research firm Traqline. Its share of portable audio devices rose to 11% from 4.6% in the same period.

A key to that success is that Amazon beats bricks-and-mortar retailers across the board on average electronics prices, a Wells Fargo study showed. Best Buy, on the other hand, traditionally hasn't tried to compete on price alone but has preferred to highlight its tech-savvy staff and wider selection.

Its selection, at least, probably meant more a few years ago, when manufacturers like Sony sold products to Best Buy but not to nonspecialty retailers. But that has changed. Sony now sells to Costco Wholesale, for instance.

And it has become much easier for consumers to compare prices -- ironically, using applications on the smartphones they can purchase in Best Buy. Shoppers can visit Best Buy stores to examine items before buying them elsewhere. Or, as Greg Melich of research firm ISI Group says, they are using Best Buy as Amazon's "showroom."

Best Buy's market share is still so big -- it accounts for nearly a third of U.S. consumer-electronics sales -- it is reasonable to assume many Best Buy shoppers make decisions primarily based on price.

That helps explain why Best Buy is exploring a switch to consistently competitive prices rather than strategically timed sales.

But history suggests changes in pricing strategies can be problematic. David Schick of Stifel Nicolaus points out that BJ's Wholesale Club decided to lower prices on some items in 2002 to defend market share. The result: Sales at stores open more than a year quickly improved. But gross margins fell for eight straight quarters. BJ's shares also fell more than 70% from April 2002 to April 2003, when rival Costco's fell just 20%. While BJ's stock has recovered somewhat since then, it hasn't caught up with Costco's.

And reducing prices might mean Best Buy has to cut costs, such as for its sales staff. That leaves the question of what a specialty retailer still has to offer.

Best Buy's edge has been apparent when shoppers wanted new technologies like LED TVs, which it sold with more success than rivals. But high hopes for 3-D television have faded, and there is nothing promising on the immediate horizon. Moreover, the major source of must-have electronics is Apple, whose own retail-store chain is increasingly a rival even as Best Buy stocks Apple products. Sales at Apple's U.S. stores rose 83% to $2.8 billion in the fourth quarter of 2010, estimates Mr. Melich, making it the third-biggest electronics retailer in the U.S.

Unless a new technology takes hold, the worst of times are likely to come for Best Buy investors.

Write to John Jannarone at john.jannarone@wsj.com

On the Charts: Kanye Fights Off Axl

http://www.rollingstone.com/rockdaily/index.php/2008/12/03/on-the-charts-kanye-fights-off-axl-taylor-swift-gets-black-friday-boost/

On the Charts: Kanye Fights Off Axl, Taylor Swift Gets Black Friday Boost
12/3/08

The Big News: 16 years of anticipation wasn’t enough to get Guns N’ Roses back atop the charts as Axl Rose’s opus Chinese Democracy disappointed the music industry with only 261,000 exclusive-to-Best Buy copies sold, good for third place in the most competitive sales week of 2008. Kanye West’s 808s & Heartbreak also came in below estimated sales figures, but his 450,000 in debut sales were enough to pry the top spot away from Beyoncé’s I Am…Sasha Fierce, which fell to four. Here’s where things get wacky: At number two, ahead of Chinese Democracy and new albums by the Killers and Ludacris, was Taylor Swift’s Fearless, which surged up from four last week thanks to a 23% sales increase. Fearless also crossed the platinum barrier after only three weeks.

Debuts: Ludacris’ Theater of the Mind grabbed number five, coming in ahead of the Killers’ Day & Age at six. Coldplay’s Prospekt’s March EP entered at 15, one slot behind Barry Manilow’s Greatest Songs of the 80s. Paul McCartney side project the Fireman’s Electric Arguments slotted at 67, Scott Weiland's Happy In Galoshes settled in at 96 and Rivers Cuomo’s Alone 2 bowed at 174.

Last Week’s Heroes: It’s no secret that this week’s slate of major releases disappointed at the cash register as Black Friday music sales were down substantially from last year. Among those who also under whelmed were Nickelback’s Dark Horse, which stumbled from two to seven in its second week, and David Cook, whose self-titled album fell from three down to ten. Next week, we’ll find out if Britney Spears’ Circus can muster up the sales to reclaim the apex of the charts.

Daniel Kreps

Circuit City to stay open in bankruptcy

http://money.cnn.com/2008/11/10/news/companies/circuit_city

Circuit City to stay open in bankruptcy
Beleaguered No. 2 electronics retailer urges budget-conscious consumers not to shun its stores for holiday gifts.
November 10, 2008

NEW YORK (CNNMoney.com) -- Circuit City Stores Inc., the No. 2 electronics seller after Best Buy, filed for bankruptcy protection Monday, hoping the move will allow it to stock its shelves in time for the crucial holiday shopping season.

The move comes about a week after Circuit City said it would close 155 stores as it deals with a worsening economic downturn that has left more consumers with less money to shop. The company intends to keep its remaining stores open through the bankruptcy procedings.

Circuit City said it decided to file for bankruptcy at this time to ensure that it would have "adequate merchandise flow to stores during the important holiday season."

The retailer said consumers should continue to shop at its stores.

"Chapter 11 is not a closing or liquidation," the company said in an e-mail to CNNMoney.com. "We remain committed to doing a better job of taking care of our guests, and making it easier to shop at Circuit City."

For anyone that's on the hunt for a sweet deal on a flatscreen TV, Circuit City spokesman Jim Babb said it's "safe to assume" that consumers can expect deep discounts on TVs and other products in those Circuit City stores that are being liquidated.

In the rest of its stores, Babb said the company's prices will remain competitive with the market over the coming weeks.

Circuit City said it is seeking approval from the bankruptcy court to honor customer programs such as returns, exchanges and gift cards. "Approval of such programs normally is granted," the company said in the e-mail.

The electronics seller said it will still accept credit cards, including Circuit City-branded credit cards, which the company said are not be impacted by its bankruptcy.

Circuit City also said it will continue to honor its warranty plans, including its Circuit City Advantage Protection Plans.

Despite these measures, one industry watcher remained unconvinced that Circuit City could still attract shoppers from here on and especially through the holiday season.

"Consumers will be skeptical about buying a $1,000 or $2,000 flatscreen TV with a warranty at Circuit City," said Craig Johnson, retail analyst and president of Customer Growth Partners. "In their mind, there's no guarantee that the company will still be around in the future."

"Regarding gift cards, if you are buying a $50 gift card for Christmas, where would your comfort level be higher? At a Circuit City or a Best Buy (BBY, Fortune 500)?" Johnson said.

The company's bankruptcy filing was also made at a crucial time of the year for merchants who are preparing for the year-end holiday shopping season.

The November-December period can account for 50% or more of retailers' annual profits and sales. But this year, many Americans have clamped down on their shopping habits amid a weak economy and a shaky job and credit market.

Industry analysts warn that retailers will have to do whatever they can this year if they hope to have at least decent holiday sales.

Will stay in business for now
According to the company's Chapter 11 filing with the U.S. bankruptcy court in Richmond, Va., Circuit City has 566 operating stores in the United States and will continue to do business and pay its workers while it restructures debt and its business operations.

In announcing the store closings last week, Richmond-based Circuit City said it would cut about 17% of its 40,000 domestic workers.

Johnson said Circuit City's problems are partly its own making. On the external front, the retailer's competitive landscape has became much more formidable as Best Buy continues to enhance its product offerings and service.

Circuit City has also felt the squeeze from discounters like Wal-Mart who has aggressively expanded into electronics over the last few years.

More importantly, Johnson believes Circuit City shot itself in the foot when the company decided last year to fire more 3,000 of its highest-paid sales staff and replace them with lower-paid workers.

"This was a huge strategic blunder," said Johnson. "People want a knowledgeable sales person when they are spending $2,000 on a TV. They don't want to buy it from some kid at Wal-Mart," he said

The company said it has negotiated a commitment for a $1.1 billion credit line to supplement its working capital. The company said the credit line will replace the company's $1.3 billion asset-based line provided by its lenders.

Circuit City said the credit line will give it immediate liquidity while it works to reorganize the business and enable it to pay its vendors and employees.

"We recently have taken intensive measures to overcome our deteriorating liquidity position," James Marcum, Circuit City's acting president and chief executive officer, said in a statement.

"The decision to restructure the business through a Chapter 11 filing should provide us with the opportunity to strengthen our balance sheet, create a more efficient expense structure and ultimately position the company to compete more effectively," he said.

Beast of the Month - August 2008

Robalini's Note: Still a little behind, but catching up...

Beast of the Month - August 2008
Hu Jintao, Chinese President

"I yam an anti-Christ..."
John Lydon (aka Johnny Rotten) of The Sex Pistols, "Anarchy in the UK"

"One World, One Dream"
Slogan of the 2008 Summer Olympics

On August 8, the Summer Olympics will be held in Beijing. It will begin at 8PM, which will make it the eighth hour of the eighth day of the eighth month of the eighth year of the century. (In case you didn't know, eight is considered the luckiest number in China, and the Chinese people are particularly superstitious about it.) When it is, it will be viewed in the korporate media as the final coronation of China as one of the few world superpowers. Like it actually needs one.

It's hard to believe it's been nine years since someone from China has won BOTM, and eleven since Jiang Zemin took home the trophy. Why that's particularly hard to believe is because in the past nine years, China has not gotten weaker, but rather frighteningly stronger.

Want the proof? Just walk down the aisle of your local Best Buy, Target or (of course) WalMart. Try to avoid buying products which aren't made in the People's Republic. Good luck. Freelance writer Sara Bongiorni did that a full year in 2005 with her family. Needless to say, it often turned shopping for even everyday products into an epic journey. Her four-year-old son, despondent over the cool toys and gadgets he was unable to obtain, had this to say about the end of the boycott: "When we can buy China things again, let's never stop." Ms. Bongiorni summed up her dilemma thusly:

"The funny thing about China's ascent is that we, as a nation, could shut the whole thing down in a week. Jump-start a 'Just Say No to Chinese Products Week,' and the empire will collapse amid the chaos of overloaded cargo ships in Long Beach harbor. I doubt we could pull it off. Americans may be famously patriotic, but look closely, and you'll see who makes the flag magnets on their car bumpers. These days China delivers every major holiday, Fourth of July included."

Of course, if China was merely destroying Team USA's manufacturing sector while poisoning kids with lead-filled toys, it would be bad enough. Currently, China is the number two holder of US Treasury securities, ahead of the UK and only trailing Japan. It is number two with a bullet. What this means is that increasingly China will have a major say in the decisions of our political establishment. It's hard to ignore that in the late 80s and early 90s, for all the hysteria that was directed at the evil Japanese empire, they were nowhere near the economic threat to America that China is now, and a fellow democracy to boot as compared to a communist dictatorship. So where are the panic-stricken pop novels like Michael Crichton's Rising Sun over China?

Okay, maybe that's a little over-the-top: China, after all, is no longer a communist dictatorship, it's a capitalist dictatorship. China has a $7 trillion a year GDP when measured in purchasing power parity, second only to the USA. Since 1978, when free market reforms were implemented, it has grown at an annual rate of over 8 percent. This growth has been aided over the last decade by the reacquisition of both Hong Kong in 1997 and Macau and 1999. Hong Kong long has been the world's shining example of free market economics (Milton Friedman gushed about it in his 1980 book Free to Choose) while Macau has surpassed Las Vegas as the world's largest gambling center, and now only Dubai exceeds it as an example of 21st century capitalism on steroids. Meanwhile, China's biggest oil producer PetroChina became the first trillion dollar company in value last November, and Shanghai has become the world's largest cargo port. With all this money flowing to China, talks of reunification with Taiwan can no longer be dismissed as merely a dream.

But China is definitely still an ugly dictatorship. The crackdown on Tiananmen Square may have happened nineteen years ago, but an environment toxic to freedom still is alive and well. When Hu Jintao (The Konformist Beast of the Month) was selected to take over China's presidency in 2002 from Jiang Zemin, there was widespread hope that he would become the nation's Gorbachev, that political freedom would be unleashed by what was suspected to be a closet liberal. This was aided by his close relationship with Premier Wen Jiabao, who is about as close to a populist figure that can be found in the Chinese establishment. Nearly six years later, this has been proven to be a bogus fantasy, a fantasy exposed most blatantly by the continuing suppression of the people of Tibet. Indeed, the recent crackdown on Tibetan followers of the exiled Dalai Lama has become so intense, there has been a heavy push for nations to boycott the Olympic opening ceremonies as protest. Other noted examples of China's continued repression are the persecution of the Falun Gong religious movement, the backing of a ruthless military junta in Burma and its ties to the bloodshed in Darfur via continued support of Sudan.

Some refer to the 2008 Games as the "Genocide Olympics" thanks to these crimes against humanity, and has led to further calls for a boycott, most notably from actress and UNICEF Goodwill Ambassador Mia Farrow, actor and Tibetan activist Richard Gere, director Steven Spielberg and Nobel Peace Prize winner Desmond Tutu. The most in-your-face example of China's continued autocratic style is the nation's crackdown on the Internet, which is already a major hurdle for journalist attempting to cover the Olympic Games. This is despite being lied to repeatedly by China that Internet censorship would be lifted on journalists during the games. (Hard to believe a dictatorship would use deception to land an esteemed multi-billion dollar reward.) According to an International Olympic Committee commissioner: "Had the I.O.C., and those vested with the decision to award the host city contract, known seven years ago that there would be severe restrictions on people being able to enter China simply to watch the Olympics, or that live broadcasting from Tiananmen Square would essentially be banned, or that reporters would be corralled at the whim of local security, then I seriously doubt whether Beijing would have been awarded the Olympics.” The climate of persecution that pervades the Summer Games has been so vast, criticisms of Beijing's toxic smog due to intense air pollution have been almost an afterthought. It appears that for all the talk of open markets leading to freedom, it's going to take longer to achieve Chinese democracy than it has taken Axl Rose to finish his GNR album of the same name.

Over the last eight years, two camps of the GOP have been divided over whether to continue treating China as a trading partner or turning them into an adversary for a Cold War sequel. (These two camps can be referred to as the "Shopping Mall Fascists" and the "War & Oil Fascists" for those keeping score at home.) This division is illustrated in the pro-China positions of both Fox Chairman Rupert Murdoch and Christian televangelist Pat Robertson, both having normally anti-Communist views apparently trumped by their desire to profit in the untapped Chinese market. (Robertson's mammon is particularly telling, as he actually has defended China's forced abortion policy to control population, a step beyond the mere "pro-choice" position of American abortion activists he regularly bashes.) The general results of this debate has led the Bush Team to continue the plunge into transferring dollars into China's coffers while getting any dig into them whenever they can, no matter how petty. One noted example: the April Fools 2001 crash between a US spy plane and a Chinese fighter jet that led to the death of PLA pilot Wang Wei. Immediately, the Bush Administration insisted the incident happened in international airspace (a dubious claim) and demanded the release of the entire crew. (It's hard to imagine that if a Chinese spy plane near US borders caused the death of an American navy pilot, Team USA would immediately release the crew and their plane without investigation.) Ten days later, when the Bush Administration gave a belated and unconvincing apology after an increasingly shrill hysteria swept through the press, China released the crew, but by then the diplomatic damage had been unnecessarily done. Cut to 2006, when a visit by Jintao to the US was littered with snubs that showed a calculated pattern. Among the greatest hits: referring to China as “the Republic of China" (the actual title for Taiwan) during the official White House greeting. Perhaps even worse was granting a Falun Gong anti-China activist press credentials to a joint Bush-Jintao press conference. The press conference was interrupted for three minutes by an angry denunciation of Jintao and China by the activist, something which would've been halted immediately if it was an attack on Bush's failed War in Iraq. Normally, the granting of a press pass is so controlled, only right-wing closet gay prostitutes who sleep at the White House overnight can evade the tight scrutiny, which indicates the Falun Gong supporter's activities were sanctioned by the Bush Administration all along.

Of course, not all battles between China and the US are so minor. Both countries have used bogus excuses to use military weaponry in space, moves that indicate a "Star Wars" may eventually explode between the two nations for control of the Earth's skies. And as PetroChina's rise clearly shows, there is a huge battle already being covertly waged between the two countries over the vast Caspian Sea oil reserves. This covert war may go deeper than most suspect: while 9/11 conspiracy theories mainly focus on the US military, Israel, Saudi Arabia or the UK as the alternative culprit, Gordon Thomas makes the case in the book Seeds of Fire that the terrorist attack was actually a Chinese operation to punish the US and strengthen ties between China and Islamic nations. In particular, the book details the close financial relationship between China and the Taliban before 9/11. (Coincidentally, the Taliban was run from power almost immediately after China was voted into the WTO in November 2001.) That being the case, perhaps the tensions between the US and China will become increasingly overt as China continues to gain power without firing a single weapon.

In any case, we salute Hu Jintao as Beast of the Month. Congratulations, and keep up the great work, Hu!!!

Sources:

Barboza, David. "Macao Surpasses Las Vegas as Gambling Center." New York Times 23 January 2007 <http://www.nytimes.com/2007/01/23/business/worldbusiness/23cnd-macao.html>.

Bodeen, Christopher. "Under Hu, China Tightening Media Reins." Washington Post 21 April 2006 <http://www.washingtonpost.com/wp-dyn/content/article/2006/04/21/AR2006042100951.html>.

Bongiorni, Sara. "A Year Without 'Made in China'." Christian Science Monitor 20 December 2005 <http://www.csmonitor.com/2005/1220/p09s01-coop.html>.

Bongiorni, Sara. A Year Without "Made in China": One Family's True Life Adventure in the Global Economy. Hoboken: Wiley, 2007.

Chin, Larry. "Is the Anglo-American Empire Losing the 'Great Energy Game'?" Online Journal 8 January 2007 <http://onlinejournal.com/artman/publish/article_1612.shtml>.

"China's Hu Vows to 'Purify' Internet." Reuters 24 January 2007 <http://www.reuters.com/article/idUSPEK9570520070124>.

"Dalai Lama: China Causing 'Cultural Genocide'." CNN 17 March 2008 <http://edition.cnn.com/2008/WORLD/asiapcf/03/16/tibet.unrest>.

Eimer, David. "China Earthquake: Superstition a Potent Force." London Telegraph 24 May 2008 <http://www.telegraph.co.uk/news/worldnews/asia/china/2021715/China-earthquake-Superstition-a-potent-force.html>.

"The Genocide Olympics?" Washington Post 14 December 2006.

Harnden, Toby. "Outrage as Preacher Refuses to Condemn Chinese Abortions." London Telegraph 20 July 2001 <http://www.telegraph.co.uk/news/worldnews/1316790/Outrage-as-preacher-refuses-to-condemn-Chinese-abortions.html>.

Hilton, Isabel. "China's One-party Monopoly of Power Is Coming to an End." London Guardian 12 July 2007 <http://www.guardian.co.uk/commentisfree/2007/jul/12/comment.china>.

Kahn, Joseph. "China Confirms Test of Anti-Satellite Weapon." New York Times 23 January 2007 <http://www.nytimes.com/2007/01/23/world/asia/23cnd-china.html>.

Kluger, Jeffrey. "Was A Satellite Shootdown Necessary?" Time 20 February 2008 <http://www.time.com/time/health/article/0,8599,1714811,00.html>.

Lou, Ying. "PetroChina's Value Tops $1 Trillion, Surpassing Exxon." Bloomberg November 2007 <http://www.bloomberg.com/apps/news?pid=20601087&sid=aQyRJI72Kor8>.

Marquand, Robert. "E.U. Weighs Olympic Boycott Over Tibet." Christian Science Monitor 27 March 2008.

Mone, Gregory. "Choking at the Olympics." Popular Science August 2007.

Musil, Steven. "Internet Censorship Plagues Journalists at Olympics." CNET News 29 July 2008 <http://news.cnet.com/8301-1023_3-10002097-93.html>.

Ritter, Peter. "The New Space Race: China vs. US." Time 13 February 2008 <http://www.time.com/time/world/article/0,8599,1712812,00.html>.

"Shanghai Now the World's Largest Cargo Port." Asia Times Online 7 January 2006 <http://www.atimes.com/atimes/China_Business/HA07Cb02.html>.

Stelter, Brian. "Networks Fight Shorter Olympic Leash." New York Times 21 July 2008 <http://www.nytimes.com/2008/07/21/sports/olympics/21nbc.html>.

Thomas, Gordon. Seeds of Fire: China And The Story Behind The Attack On America. Tempe: Dandelion Books, 2001.

"WHO Fears Over Beijing Pollution." BBC 17 August 2007 <http://news.bbc.co.uk/2/hi/asia-pacific/6950883.stm>.

Dr Pepper flowing as new Guns album arrives

http://www.reuters.com/article/entertainmentNews/idUSTRE49N00320081024

Dr Pepper flowing as new Guns album arrives
Thu Oct 23, 2008
By Jonathan Cohen

NEW YORK (Billboard) - Guns N' Roses fans thirsting for the band's first album of new material in 17 years will have a sweet, fizzy treat to savor as they listen.

Dr Pepper is making good on a promise to provide every person in America a can of the soft drink if "Chinese Democracy" were to arrive in 2008, and has revealed details of the plan.

"We never thought this day would come," Dr Pepper vp marketing Tony Jacobs said Wednesday. "But now that it's here all we can say is: The Dr Pepper's on us."

Interested fans are being asked to visit DrPepper.com (http://www.drpepper.com) on November 23, the day "Chinese Democracy" is released in the U.S. exclusively via Best Buy. After registering online, fans will receive a coupon redeemable for a 20-ounce Dr Pepper wherever the drink is sold.

The twist: The coupon is available for only 24 hours and will expire on February 28.

Best Buy will acquire music-sharer Napster

http://www.businessweek.com/ap/financialnews/D9375HSG3.htm

September 15, 2008
Best Buy will acquire music-sharer Napster

Consumer electronics retailer Best Buy Inc. said Monday it will acquire online music-sharing site Napster Inc. for about $126.8 million in cash in a move to boost its digital media capabilities.

Best Buy will begin a tender offer for all outstanding Napster shares for $2.65 per share, representing a 95 percent premium to the stock's closing price Friday of $1.36 per share.

According to its most recently quarterly filing, Napster had about 47.9 million shares outstanding as of June 30, implying a price of $126.8 million. In a statement, Best Buy valued the deal at $121 million -- or $54 million after netting about $67 million in Napster's cash and short-term investments.

The takeover is expected to close in the fourth quarter. The deal includes Napster's 700,000 subscribers, its Web-based customer-service platform and mobile capabilities.

Napster Chief Executive Chris Gorog and other senior management will continue in those roles. The Los Angeles-based company has about 140 staffers and Best Buy said it does not plan to relocate the headquarters or make "significant" changes in personnel.

Napster said it will postpone its annual meeting of stockholders, scheduled for Thursday, due to the acquisition agreement.

Guns N' Roses in talks for exclusive album release

http://www.reuters.com/article/entertainmentNews/idUSN1529368720080816?feedType=RSS&feedName=entertainmentNews&rpc=22&sp=true

Guns N' Roses in talks for exclusive album release
Sat Aug 16, 2008T
By Ed Christman

NEW YORK (Billboard) - The June leak of nine allegedly "mastered, finished" tracks from Guns N' Roses' long-delayed "Chinese Democracy" spurred a renewed round of speculation about whether the Axl Rose-led band will finally release the 14-years-in-the-making album.

But some concrete signs are finally emerging that the album's release could be imminent. That's because, according to sources, negotiations are under way for "Chinese Democracy" to come out as an exclusive at one of the big-box retailers -- either Wal-Mart or Best Buy.

Negotiations are also ongoing for conventional record company distribution, another source said.

Guns N' Roses is now managed by Irving Azoff's Front Line Management, and Azoff is a well-known proponent of issuing albums exclusively through retailers. He released the Eagles' "Long Road Out of Eden" through Wal-Mart, much to the chagrin of other merchants.

It's unclear who initiated the Guns N' Roses exclusive negotiations -- Front Line or Interscope, the band's label.

Representatives at Front Line and Interscope with knowledge of the situation couldn't be reached for comment. A Wal-Mart representative said the chain couldn't confirm this fall's exclusive album offerings. Best Buy representatives couldn't be reached for comment.

When will iTunes replace Wal-Mart as No. 1?

http://www.news.com/8301-10784_3-9880001-7.html

February 26, 2008
When will iTunes replace Wal-Mart as No. 1 music retailer?
Posted by Greg Sandoval

Apple's iTunes will likely whip past Wal-Mart Stores to become the largest U.S. music retailer sometime this year.

The NPD Group issued a report Tuesday that said Apple had outpaced Best Buy and Target to become the No. 2 U.S. music retailer. Unless the downward trend in CD sales suddenly reverses, Apple will be No. 1, said Russ Crupnick, the NPD Group's president of Music.

"Digital sales were up close to 50 percent and CD sales were down 20 percent last year," Crupnick said. "Even at half that growth rate in digital sales, Apple will in all likelihood catch Wal-Mart this year."

Anybody in their teens or early 20s is going to ask, "So what else is new?" To them, digital downloads has been part of their lives for years. It's only natural that a download store emerge as the top seller.

But anybody older is going to remember that it wasn't too long ago when music buying meant flipping through CD racks at the former retail powerhouses, Sam Goody and Tower Records.

"That's the question that the music industry has to answer soon: How do we get young people to start paying for music again? They've got to make it easier for teens to buy online."
--Russ Crupnick, analyst

Tower no longer operates retail stores, and Sam Goody's owner is renaming whatever locations it hasn't closed. "Yeah, it's astonishing--just in the post-Napster era--to see what's happened to the retail-sales environment," Crupnick said.

Apparently, the transition from offline to digital sales is occurring faster than most people expected. (Remember how record executives used to whip out statements like: "Discs are still how most people listen to music."

They may have been right then, but perhaps that won't be the case much longer.

Consider that the music industry is seeing pressure on CD sales from multiple fronts. In the offline world, there is a sort of death spiral going on, Crupnick said. As CD sales continue to slide, retailers like Wal-Mart, Best Buy, and Target devote less and less floor space to discs--which of course serves to erode sales even further.

Amazon.com, the e-tailer that used to be synonymous with ordering CDs off the Internet, has opened a music-download store to challenge iTunes.

Then there is the teen market that is abandoning CDs in droves. According to the report issued by NPD on Tuesday, nearly half of all U.S. teens (48 percent) did not purchase a CD last year. That is up from 2006, when about 38 percent of teens made no CD purchases.

Older music fans are transitioning at a slower rate but it's happening there too. In total, NPD Group said that the music industry waved bye-bye to about 1 million CD buyers last year.

Music remains popular, according to report, which found the amount of music acquired by consumers went up 6 percent. The trouble is that less of it is being paid for. Spending among Internet users fell from about $44 per capita to $40.

It must also be said that not all of Apple's success is due to the growing digital demand. Apple has flat out done a better job of retailing than competitors, Crupnick said.

For example, the music industry should follow Apple's lead and direct their attention to teenagers, Crupnick said.

Teens lack credit cards and this often prevents them from buying at almost everywhere but iTunes, Crupnick said. Apple avoids credit cards by pushing the gift cards, which teens can pay for at retail locations and then use them to purchase songs online by keying in a code. No credit cards needed.

"That's the question that the music industry has to answer soon," Crupnick said. "How do we get young people to start paying for music again? They've got to make it easier for teens to buy online. Apple CEO Steve Jobs has done a wonderful job of this. Teens have a way to do commerce with iTunes."

Tags:Apple, iTunes, Wal-Mart, Best Buy, Tower Records

iTunes No. 2 music seller in US

http://www.businessweek.com/ap/financialnews/D8V23V300.htm

The Associated Press
February 26, 2008
NPD: iTunes No. 2 music seller in US
By RACHEL METZ

Apple Inc.'s online iTunes music store is now the number-two music retailer in the U.S. behind Wal-Mart Stores Inc. as measured by unit volume, market researcher NPD Group said Tuesday.

NPD said that iTunes moved into second place due to the amount of music it sold during 2007, which was based on a 12-track CD equivalency for song downloads.

The market researcher began tracking music sold stateside during the middle of 2006. In the fourth quarter of that year, Best Buy Co. took second place behind Wal-Mart, while Target Corp. took third place and Apple's iTunes store fourth place, NPD analyst Russ Crupnick said.

For the full year 2007, Best Buy came in third and Target fourth, he said.

Crupnick called Apple's move to the number-two spot "fairly understandable given the pressure that's been on CDs and the almost 50-percent growth in digital downloading in the past year."

About 10 percent of music acquired in the U.S. was through legal downloads in 2007, and consumers who bought digital music legally through pay-to-download Web sites grew by 5 million to 29 million in 2007, NPD said Tuesday.

Meanwhile, an estimated 1 million consumers did not buy CDs in 2007, and 48 percent of U.S. teenagers didn't buy any CDs during the year, up from 38 percent in the year before, according to NPD data.

"It wouldn't surprise me if we see the same things continuing into 2008 because what our research is showing is that teens are continuing to check out on the CD," Crupnick said.

NPD also said that the amount of music consumers bought in the U.S. rose 6 percent in 2007, though the decline in CD sales and increase in legal digital download sales still led to a 10 percent overall decrease in music spending.

Apple shares fell $2.55, or 2.1 percent, to $117.19 in morning trading, while Wal-Mart shares rose 80 cents to $51.13.

DVD FORMATS

http://www.theglobeandmail.com/servlet/story/LAC.20080220.RBLURAY20/TPStory/?query=Toshiba

DVD FORMATS: HOW SONY'S BLU-RAY TRIUMPHED OVER TOSHIBA'S HD
Stringer makes his mark
Sony's CEO led his company to victory in the high-definition sweepstakes by convincing the major studios to come aboard
BARRIE MCKENNA AND MATT HARTLEY
February 20, 2008

WASHINGTON, TORONTO -- Howard Stringer made history in 2005 for being the first non-Japanese executive to take the helm at Sony Corp. But he may be better remembered as the one who won the high-definition war, erasing the stain on the electronics firm's image ever since it lost the videotape war two decades earlier.

Although celebrated yesterday, the victory was sealed last month when Sony swayed Warner Bros. to back Sony's Blu-ray technology and quit producing movies using Toshiba Corp.'s rival HD DVD format.

What remains a mystery is just how big a push Warner needed to pick sides. Analysts say Sony only prevailed following a heated bidding war against Toshiba, with the reward reaching as much as $400-million (U.S.). Neither side has confirmed the size of any bids or payments.

It was supposed to be the technology equivalent of First World War trench warfare: A prolonged battle to the death between Toshiba and Sony for global domination in high-definition DVDs.

In the end, the denouement was more like Germany's swift 1940 end run of the Maginot line.

Less than two years after its first HD DVD player hit the market, Toshiba president Atsutoshi Nishida raised the white flag, declaring yesterday that it would stop making and selling the devices altogether within a month.

Toshiba's unconditional surrender leaves the spoils to Sony, maker of the rival Blu-ray disc player - a technologically superior format that had the backing of virtually all the major movie studies and retailers.

"We simply had no chance to win," Mr. Nishida acknowledged bluntly.

The final straw, he said, was Warner's decision last month to exclusively release movies in Blu-ray. The decision by Warner, with about 20 per cent of the movie market, put a critical mass of the industry in the Blu-ray camp.

With billions of dollars in global sales at stake, experts had predicted the Toshiba-Sony battle would go on for years - not unlike the 1980s battle of videotape formats between VHS (Matsushita) and Betamax (Sony). That war lasted a decade, leaving Sony battered and humiliated.

So how did this epic battle come to such an abrupt end?

The answer lies in part with the bruising Sony experienced with Betamax, which, like Blu-ray, was also the better product on paper.

For more that 20 years, Sony has been "haunted by Betamax" and was fiercely determined not to let history repeat itself, explained Xavier Drèze, a marketing professor at the University of Pennsylvania's Wharton business school.

"Sony was much smarter," Prof. Drèze said. "They understood this time they couldn't do it alone. They understood that they needed strategic partnerships with industry players."

The war was over when Sony managed to line up a critical mass of partners - in Hollywood, Silicon Valley and on Main Street.

The tipping point was Warner Bros. But Sony Pictures, Walt Disney Co. and News Corp.'s Twentieth Century Fox Film Corp. had already done the same - signing exclusive sealed deals with presumably rich royalty arrangements.

"This was heavy hitters in a back room talking about what the royalty structure was going to be and how much money they were willing to put on the table to be exclusive with one camp or the other. That was the determining factor here," concluded Van Baker, an analyst with market research firm Gartner Inc.

Until last month, Warner had been backing both technologies.

Last Friday, Wal-Mart Stores Inc. announced it would sell only Blu-ray DVDs. Officials said "customer feedback" prompted its decision.

Netflix Inc., Best Buy Co. Inc., Blockbuster Inc. and Target Corp. had earlier done the same.

"Everyone was tired of the format war, the retailers were tired of it, the consumer electronics vendors were tired of it and they just wanted this thing to get settled," Mr. Baker said.

"Consumers and the industry learned the hard way with Beta and VHS that a prolonged format war was disastrous. There was a lot of motivation to get one or the other to win and the only thing that protracted it was the amount of money flying around."

The groundwork for Sony's stunning victory, however, came months, even years ago. Prof. Drèze said Blu-ray had several things going for it that helped it to build loyalty with consumers and the industry.

Six years ago yesterday - and years before the first Blu-ray disc or player was sold - Sony had lined up most of the other computer and electronics makers, including LG Electronics, Panasonic, Samsung, Apple and Dell.

Sony also owned a major movie studio. So it could push its own technology.

Third, the company sold Blu-ray to rival movie studios with the promise of superior digital copyright protection.

Sony also used its PlayStation video game console, which also works as a Blu-ray player, as a sort of "Trojan horse," Prof. Drèze said.

Sony has already sold 10.5 million of its PS3 consoles, compared with roughly one million HD DVD players. PlayStation buyers, he said, unwittingly embraced Blu-ray and undermined HD DVD.

Ultimately, the technology is superior. Blu-ray can hold up to three times more data (200 gigabytes versus 60) and offers higher resolution.

In the end, it could be a pyrrhic victory for Sony. The age of hard copy discs is already giving way to digital downloads, stored and played from PCs, iPods and other portable devices.

"I don't think the heyday of DVD is going to return," said Mr. Baker, the analyst. "For most consumers, digital downloads are going to be very appealing."

How Sony lost Betamax

1 QUALITY OVER

QUANTITY Despite better picture quality, Sony's original Betamax tapes could record only one hour of video, while rival VHS tapes could store double that.

2 SECRET RECIPE

Sony initially failed to license its Betamax technology to a sufficient number of manufacturers, thinking it could go it alone. This led to a situation where VHS players competed against one another for share, driving down prices and making the format more attractive to consumers.

3 BUYING V. RENTING When both systems arrived in the United States in the mid-1970s, VHS machines were less expensive to rent. When consumers began to purchase rather than rent their video players, they tended to go with VHS machines. 4PORN CONUNDRUM Sony refused to license the Betamax technology to adult film companies, who turned to VHS tapes and ended up creating a multibillion-dollar industry.

How Sony won Blu-ray

1 BIGGER IS BETTER

Sony's Blu-ray discs can store upward of 50 gigabytes of data on a single disc, while HD DVDs hold about 30 gigs.

2 PLAYSTATION 3

By including a Blu-ray drive in its next-generation video game console, Sony was able to drive sales of both the PS3 and its new DVD format.

3 SOLID PARTNERSHIPS Not wanting to duplicate the Betamax mistake, Sony took the initiative to license its Blu-ray technology with as many partners as possible. When Blu-ray was first announced in 2002, Sony had already signed up eight partner companies committed to producing players.

4 CONTENT IS KING

By signing exclusive deals with more studios and content providers than Toshiba, Sony was able to squeeze its competitor to the sidelines. Warner's defection to Blu-ray was the fatal blow.

Matt Hartley

Dead technologies

Media formats we have used, loved and discarded for the next best thing

The cassette tape

A Walkman and roller skates, anyone? Tapes were the original portable format and made music pirates of us all. (Can I tape your Fleetwood Mac Rumors?) But they were hated by record companies. The sound quality tended to go tinny after a few dozen plays, and many tapes wound up melting in a car on a sunny day.

Eight tracks

Developed by plane maker Bill Lear, eight-track tapes were large and couldn't be rewound. And because of their high tape speed, didn't sound great. Nevertheless, they were popular in the 1970s, thanks to the auto industry, which installed thousands of eight-track players. When sales slipped, companies eager to pare formats quickly dropped the eight track. Vinyl

Cumbersome to play and easily damaged, albums faded out in the late 1980s. But album covers managed to become a genuine art form and another way to grab music buyers' attention. Lately, albums have a enjoyed a comeback, thanks to collectors, club DJs and scratching (ask your kids).
Compact discs

CDs are dead? They will be soon. Who needs all those plastic cases and discs when you can fill your hard drive and iPod with thousands of songs? Using a credit card, of course. Downloading music for free is wrong, isn't it?

Wii to Displace Xbox 360 by End of 2008

http://www.pcworld.com/article/id,142531-c,gameconsoles/article.html

Wii to Displace Xbox 360 by End of 2008
Nintendo's Wii game console will displace Microsoft's Xbox 360 as the new-generation game machine, according to market research firm iSuppli.
Dan Nystedt, IDG News Service
Friday, February 15, 2008

Nintendo's popular Wii game console will displace Microsoft's Xbox 360 as the new-generation game machine, iSuppli said Thursday.

The market researcher forecasted that the global installed base of Wii game consoles will rise to 30.2 million units in 2008, up from 18 million in 2007, putting it ahead of the Xbox 360's projected 25.7 million units.

The Wii is already riding a wave of popularity that saw it win the greatest growth among new game consoles last year, according to iSuppli figures. There were only 3.2 million units in people's homes at the end of 2006, jumping to 18 million at the end of last year. The Xbox 360 retained its lead as the console in most homes last year by edging out the Wii with 18.2 million units, while the PlayStation 3 lagged rivals with 10.3 million, up from 1.8 million per year earlier.

iSuppli did not include older game consoles or handhelds in their report.

The market researcher chalks up Nintendo's success to a strategy of offering a lower-cost game console targeted at everyday people, rather than an expensive console with the latest graphics aimed at video game lovers. The main difference between the Wii and its rivals is the wireless controller and sensors that detect hand motion and speed. The innovation puts motion into gaming, because users swing the Wii controller to hit virtual baseballs and golf balls on their TV screens, go bowling and fight in boxing.

The Wii currently sells for $249.99 in the U.S., according to electronic retailer Best Buy's Web site, while the Xbox 360 costs $349.99 and the PlayStation 3 $399.99.

Wal-Mart dumps HD DVDs to back Blu-ray

http://news.yahoo.com/s/nm/20080215/tc_nm/walmart_dvd_dc

Wal-Mart dumps HD DVDs to back Blu-ray
By Franklin Paul
2-15-8

Wal-Mart Stores Inc (WMT.N) has decided to exclusively sell high-definition DVDs in the Blu-Ray format, dealing what could be a crippling blow to the rival HD DVD technology backed by Toshiba Corp (6502.T).

The move by the world's largest retailer, announced on Friday, caps a disappointing week for HD DVD supporters, who also saw consumer electronics chain Best Buy Co Inc (BBY.N) and online video rental company Netflix Inc (NFLX.O) defect to the Blu-ray camp.

In a statement on its Web site, Wal-Mart said that over the next few months it will phase out sales of HD DVD systems and discs. By June, it will sell only products in the Blu-ray format which was developed by Sony Corp (6758.T).

"We've listened to our customers, who are showing a clear preference toward Blu-ray products and movies with their purchases," said Gary Severson, a Wal-Mart senior vice president.

The move affects 4,000 Wal-Mart and Sam's Club stores in the United States, as well as related online sites. The stores will continue to sell traditional DVD players and movies.

The so-called format war between HD DVD and Blu-ray has been a thorn in the side of retailers, which have had to commit shelf space to devices from both camps even as they field complaints from frustrated and confused customers.

Next-generation DVDs and players, boasting better picture quality and more capacity, were expected to help revive the $24 billion global home DVD market. But Hollywood studios had initially split their alliances between the two camps, meaning only certain films would play on a consumer's DVD machine.

Like the Betamax-VHS battle in the 1980s, having two DVD standards has dampened sales of both and put retailers in a conundrum of having to either choose sides or sell products that have a chance of becoming obsolete very quickly.

The balance of power, however, tipped toward the Sony camp in January after Time Warner Inc's (TWX.N) Warner Bros studio said it would only release high-definition DVDs in Blu-ray format. With that, studios behind some three-quarters of DVDs are backing Blu-ray, although some release in both formats.

Blu-ray also has support from News Corp's (NWSa.N) 20th Century Fox, Walt Disney Co (DIS.N) and Lions Gate Entertainment Corp (LGF.N). Sony's PlayStation 3 game console can also play Blu-ray films.

"So if you bought the HD player like me, I'd retire it to the bedroom, kid's playroom, or give it to your parents to play their John Wayne standard def movies, and make space for a BD player for your awesome Hi Def experience," Wal-Mart's movie and gaming blogger, Susan Chronister, wrote in a posting.

To be sure, Toshiba has secured agreements with studios including NBC Universal's Universal Pictures, Viacom Inc's(VIAb.N) Paramount Pictures and DreamWorks Animation SKG Inc (DWA.N).

Microsoft Corp's (MSFT.O) Xbox 360 also currently works only with HD DVD. However, Microsoft said in January it could consider supporting Blu-ray technology at consumers' behest.

Toshiba could not be reached to comment on Wal-Mart's move.

Earlier on Friday, the Hollywood Reporter quoted unidentified industry sources as saying Toshiba was widely expected to pull the plug on HD DVD in the coming weeks.

Toshiba spokeswoman Junko Furuta said none of what was reported in the magazine had been decided. She declined to comment further, saying: "We cannot comment on speculation."

(Reporting by Franklin Paul; additional reporting by Kiyoshi Takenaka in Tokyo; editing by Phil Berlowitz and Gerald E. McCormick)

Midnight openings grow, but not all retail on board

http://www.reuters.com/article/ousivMolt/idUSN0932353820071109

Midnight openings grow, but not all retail on board
By Nicole Maestri
Fri Nov 9, 2007

Mall operators are betting the early bird gets the worm during this year's Thanksgiving holiday shopping weekend.

More shopping malls plan to open at midnight on Thanksgiving night, holding events like "Merry Midnight Madness," to kick off the competitive three-day holiday shopping weekend.

In an extreme example, Fashion Outlets of Las Vegas said its 100 designer outlet stores will be open on Thanksgiving Day from 10 a.m. to 6 p.m.

But not everyone is jumping on the open-early bandwagon.

The Friday after Thanksgiving, Wal-Mart Stores Inc will open the doors at its discount stores that are not open 24 hours a day at 5 a.m. -- the same as last year.

Circuit City Stores Inc will also open its stores at 5 a.m., the same time as it did a year ago, while Best Buy will still open at 5 a.m. but close at 10 p.m. -- an hour earlier than last year.

"It's a long day by that time. Were we gaining enough by that last hour to justify keeping everybody there another hour?" a Best Buy spokesman said. "This year, we decided to try closing at 10 and let people go home and get some rest."

TRYING TO KICK-START SALES

The holiday season is crucial for retailers because it can account for between 25 percent and 40 percent of their annual sales. Black Friday, the day after Thanksgiving, is consider the official start of the holiday shopping season.

Retailers have started opening their doors ever earlier on Thanksgiving weekend and touting eye-popping deals to try to garner sales at the start of the holiday shopping season.

"There's this new level of frenzy associated with it, and it's turned into sport," said Candace Corlett, a principal with consulting firm WSL Strategic Retail.

This year Simon Property Group Inc will hold "Midnight Madness" events at 38 of its Chelsea Premium Outlet Centers, up from 26 a year ago. Tanger Factory Outlet Centers will also host midnight events at 22 of its shopping centers, compared with eight a year ago.

General Growth Properties will open 12 of its malls at midnight this year, up from seven a year ago.

Wally Brewster, senior vice president of marketing and communications for General Growth, said more malls and their stores are opening a midnight because it has been shown to boost sales over the three-day holiday weekend.

"It's a bit of a 'me-too"' phenomenon, said Linda Shea, global managing director of customer strategies at Opinion Research Corp.

But she said retailers need to make sure the investment pays off, and they are not filling their stores with tired employees, who would rather be sleeping than helping customers with their holiday purchases.

"In a market where the forecasts are not great for the holiday season, I suppose the hope is, 'Well, if we just start earlier, we just let them know earlier'," we'll win sales, she said. "But all of that costs money."

BETTER SALES? WE'LL SEE

The early openings come as retailers are on pins and needles, worried that the housing market meltdown, credit crunch, and higher food and fuel prices will crimp consumer spending this holiday.

Corlett said the early openings are retailers' attempts to try to grab shoppers' dollars before their wallets slam shut or they spend their limited budgets at a competitor's store.

"There's something very serious going on here and that is this panic among everyone in the business that shoppers are going to run out of money," Corlett said.

But she said the gimmicks will not necessarily convince shoppers, who may be facing higher mortgage payments or declining home values, to accumulate more debt than they were planning this holiday.

Instead, analysts expect Thanksgiving will only mark the start of what will be a highly promotional season, and the battle among retailers to ring up sales after a lackluster autumn and eke out holiday profits will extend until Christmas Eve.

"There is virtually no momentum coming out of September and October as we head into the thick of the holiday shopping season," Retail Metrics President Ken Perkins wrote in a note. "Retailers have their work cut out for them over the next 6-8 weeks."