Owner Of Columbia House DVD Service Files For Bankruptcy

Article originally published by Jonathan Randles, Law 360, August 10, 2015. Full article can be found here.

The owner of DVD mail-order service Columbia House filed for bankruptcy Monday in New York federal court, saying the business's revenue has steadily declined over two decades as customers have switched to digital media.

Filmed Entertainment Inc.'s Chapter 11 petition says it believes selling Columbia House through a bankruptcy auction is “the best course forward” for maximizing the value of the business in light of the continued decline in demand for physical DVDs.

A once-popular music club that offered members vinyl, cassettes and compact discs, Columbia House left the music business in 2010 to focus on DVDs and video games. But the switch only delayed Columbia House's decline, overtaken by movie and television streaming services offered by Netflix Inc., Amazon Inc., HBO and others.

“Because Amazon.com, eBay and Netflix essentially provided direct-to-home distribution and a discount-based consumer value proposition, their rapid growth in DVDs materially eroded the competitive positioning of Columbia House’s 'club model,'" FEI independent director Glenn Langberg said in an affidavit.

Columbia House's revenues peaked in 1996 around $1.4 billion but have declined “in almost every year since then,” Langberg said. The company's net revenues in 2014 were $17 million, he said. In court papers, FEI listed Columbia House's legacy liabilities alone at about $56 million.

FEI said Columbia House will continue its operations “throughout the process” and will continue services to its members and selling DVDs. The company's financial and restructuring adviser PricewaterhouseCoopers has been shopping Columbia House to potential purchasers and investors since late 2014, FEI said.

Langberg said the company has significantly reduced its overhead over the last several years by cutting its IT costs, downsizing its offices and reducing personnel expenses and outsourcing its administrative, operational and customer service to third party vendors. As a result, Columbia reduced its overhead expenses from $24 million in 2012 to $5 million during 2015, he said.

“These efforts have allowed the debtor to continue operating while its revenue continues to decline,” Langberg said.

A first-day bankruptcy hearing is scheduled for Tuesday in Manhattan.

Columbia House was founded in 1955 as a division of CBS Inc. The company began selling videotapes in 1982.

FEI is represented by Scott A. Griffin of Griffin Hamersky PC.

The case is Filmed Entertainment Inc., case number 15-12244, in the U.S. Bankruptcy Court for the Southern District of New York.