Griffin Hamersky Selected As Lead Counsel To Guide The Columbia House Brand Through Chapter 11 Bankruptcy

Article originally published by Tom Corrigan , Wall Street Journal, August 10, 2015. Full article can be found here.

Fat Lady Sings for Columbia House
Former giant in mail-order music files for bankruptcy protection

The owner of onetime mail-order music giant Columbia House filed for chapter 11 bankruptcy protection Monday, seeking to sell what remains of its business after almost two decades of declining revenue.

Filmed Entertainment Inc. filed for chapter 11 at the U.S. Bankruptcy Court in Manhattan, citing the advent of digital music and dramatic changes in technology that are threatening to render CDs and DVDs obsolete.

Since peaking in 1996 at about $1.4 billion, revenue has declined almost every year since, according to FEI director Glenn Langberg. Last year, net revenue was just $17 million.

“This decline is directly attributable to a confluence of market factors that substantially altered the manner in which consumers purchase and listen to music, as well as the way consumers purchase and watch movies and television series at home,” Mr. Langberg said in court papers.

Columbia House was founded in 1955 as a division of CBS Inc. Historically, it was most active in the music industry, offering stacks of CDs or cassettes for as little as a penny. But Columbia House ended that business in 2010, leaving DVDs as its only remaining product line. Today, the DVD club has 110,000 members, according to court papers. Columbia House has licensing agreements with major film studios as well as smaller independent studios, court papers show. Those licenses, however, included only physical DVDs and not digital formats.

Now in bankruptcy, Columbia House’s parent has asked for bankruptcy judge’s permission to maintain its operations, supporting itself with existing cash. Currently, the company’s remaining DVD business has no employees and relies on third parties to carry out its operations.

The company listed total assets of about $2 million and total liabilities of about $63 million owed to more than 250 creditors. More than $30 million of that debt stems from long-term pension liabilities, and another $7 million is listed as unsecured trade debt and royalty payments due to film studios.

PricewaterhouseCoopers is serving as FEI’s financial adviser and has already begun the process of identifying potential purchasers. The company received interest from about 20 potential purchasers and is currently in active discussions with at least one of them, court papers show.

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. Apple Inc.’s introduction of the iPod in 2001 and the iTunes Store in 2003, through which consumers could buy single songs as opposed to whole albums, accelerated the decline in CD sales, Mr. Langberg said.

According to the Record Industry Association of America, the market for CDs in the U.S. peaked in 2000 at about $13 billion but declined to $1.85 billion in 2014.

Similar trends, driven by the growth of digital media as well as the arrival of Amazon.comInc. and Netflix Inc., eroded Columbia’s House’s DVD sales. According to SNL Kagan LC, the market for DVDs has been cut in half since 2006, down to $11 billion in 2013.

Columbia House has been something of a hot potato in the digital age, changing hands rapidly. Bertelsmann AG bought it in 2005, but sold it in 2008, along with Book-of-the-Month Club and other U.S. direct-marketing businesses, to Najafi Cos., a Phoenix-based investment company, for an undisclosed sum. FEI’s current owner, Pride Tree Holdings Inc., bought the business in 2012. Pride Tree, a New York-based media and consumer technology investor, didn’t seek bankruptcy protection Monday.

Columbia House joins other CD retailers that have closed down or sought bankruptcy protection over the past decade, including Tower Records, Sam Goody and Musicland in 2006, Circuit City in 2008 and Virgin Megastore US in 2009.

“The thing I remember most is their unwillingness to change with the times,” said Mark Rubenstein, a former art director at Columbia House. “The writing was on the wall,” he said. “They either didn’t see the writing or didn’t want to read it.”