Columbia House to Stay Open While Looking for Buyer

Article originally published by Tom Corrigan, Dow Jones & Company, Inc., August 11, 2015. Full article can be found here.

The owner of the once hugely popular mail-order music brand Columbia House will keep its doors open while it pursues a bankruptcy court-supervised sale of the brand and its remaining DVD business.

Filmed Entertainment Inc. made its first appearance in a New York bankruptcy court Tuesday, winning Judge Shelley Chapman's permission to continue accessing its bank accounts, honor obligations to customers and otherwise maintain normal operations.

FEI also won permission to use its existing cash to stay afloat until it can finalize a sale, the proceeds of which will ultimately be distributed to the its creditors.

During the hearing Tuesday, Scott Griffin, a lawyer for FEI, said he hoped to pursue an expedited sale process, since the company and its financial adviser began trying to identify potential purchasers almost a year ago.

According to court papers, those efforts turned up about 20 potential purchasers, and FEI remains in active discussions with at least one of them.

FEI's creditors will gather for a meeting next week, according to Andrea Schwartz, a lawyer for the government agency tasked with forming a committee to represent unsecured creditors.

Judge Chapman said an accelerated sale timeline was reasonable, but she noted that many potential purchasers and their professionals may take vacation in August, potentially slowing down the process by several weeks.

Historically, Columbia House was most active in the music industry, offering stacks of CDs, vinyl, 8-track and cassette tapes for as little as a penny. But the company ended that business in 2010, leaving only its DVD club business.

Columbia House has licensing agreements with major film studios as well as smaller independent studios. Those licenses, however, are restricted to physical DVDs and don't cover digital formats.

The DVD club currently has about 110,000 members, according to court papers.

During Tuesday's hearing, a day after the company field for chapter 11 protection, Judge Chapman summarized the company's demise in just two words: "the Internet."

Digital music formats, most notably MP3s, began disrupting the market for CDs in the late 1990s. Digital formats were easier to copy and share over the Internet, making them readily available to illegally download, gutting the value of recorded music.

Similar trends driven by the growth of digital media have also significantly eroded Columbia House's DVD sales.

Apple Inc ., Inc ., Netflix Inc ., big box retailers and cable providers were all mentioned Tuesday as having either fundamentally changed the music and film industries or directly usurped business from Columbia House.