Circuit City owes studios more than $56 million
Samsung, Sony are among retailer's largest creditors
By Danny King -- Video Business, 11/11/2008
NOV. 11 | UPDATE: Circuit City filed for Chapter 11 bankruptcy protection last week, owing movie studios and packaged-media distributors about $56 million for unpaid DVDs and likely several times that figure to electronics component makers that make DVD players and flat-screen TVs.
Circuit City owes the five largest studio DVD distributors a combined $37 million and is in debt to distributors Alliance Entertainment and Navarre Corp., for $15.8 million and $2.56 million, respectively, the retailer said in the bankruptcy filing in Virginia's eastern district court. The five studios accounted for about 70% of year-to-date U.S. spending on DVD sales and rentals through September, according to data compiled by Video Business and Rentrak.
Among the studios, Paramount Home Entertainment is owed the most, at $13.7 million, while Warner Home Video is owed $10.7 million. 20th Century Fox Home Entertainment is owed $5.8 million, and Walt Disney Studios Home Entertainment and Sony Pictures Home Entertainment are each owed $3.7 million.
The bankruptcy filing by the No. 2 U.S. electronics retailer behind Best Buy is likely to pose further challenges for studios looking to defy the U.S. economic downturn by selling more DVDs. Through September, consumer spending on DVD and Blu-ray purchases fell 3.5% to $8.6 billion, according to VB and Rentrak.
"Vendor concerns about the company's liquidity and ability to pay for its purchases in this difficult economic climate have escalated considerably since the company provided a liquidity update on Nov. 3, 2008, further impairing the company's ability to conduct business and provide service to its customers," Circuit City said in a statement.
Spokespeople for Sony, Warner and Disney declined to comment on the filing.
Circuit City's debt to DVD producers, however, is likely to be dwarfed by the amount it owes DVD player and TV makers. After Hewlett-Packard, Circuit City's next-largest creditors are Samsung and Sony, which both make DVD players and account for almost a third of the flat-screen TVs shipped to North America during the third quarter, according to NPD Group's DisplaySearch unit.
Circuit City, which listed $3.4 billion in assets and $2.32 billion in liabilities, owes Samsung $115.9 million and Sony $60 million, according to yesterday's filing. Zenith, Toshiba, Panasonic and Mitsubishi also are among companies owed more than $10 million.
Circuit City has struggled as Best Buy has lengthened its lead over the 59-year-old company, while Internet retailers such as Amazon.com have taken a progressively larger share of the DVD and consumer electronics market.
Last week, Circuit City said it would close about 20% of its approximately 700 U.S. stores, cutting 17% of its workforce in the process.
In September, the company said its fiscal second-quarter loss almost quadrupled as sales declines in rear-projection TVs, DVD players, DVDs and CDs more than offset a slight increase in revenue from flat-panel TVs. The company's results have suffered additionally from a consumer-spending pullback, which caused Best Buy this week to lower its fiscal 2009 earnings forecast to $2.90 a share from as much as $3.40 a share it forecast in September after its same-store sales dropped 7.6% last month.
