Circuit City owes studios more than $35 million
Video Business
By Danny King -- Video Business, 11/11/2008 2:14:00 PM
Circuit City, which filed for Chapter 11 protection yesterday, owes movie studios more than $35 million for unpaid DVDs and likely several times that figure to electronics components makers that make DVD players and flat-screen TVs.
Circuit City owes Paramount Home Entertainment and Warner Home Video more than $10 million each, and owes 20th Century Fox Home Entertainment, Walt Disney Studios Home Entertainment and Sony Pictures Home Entertainment more than $13 million combined, according to Circuit City's 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.
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, DVD revenue fell 2.4% from a year earlier to $14.25 billion, according to VB and Rentrak, as more Blu-ray disc sales have failed to offset the overall spending pullback.
"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 yesterday.
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.
A Sony Electronics spokesman said, "Circuit City has been a good partner of Sony's over the years, and they have a plan to continue to go to market. We will continue to support them in their reorganization efforts. Most importantly, based on their revenue numbers, it is important to note that many customers continue to shop at Circuit City for value and choice. We believe that will continue in the future."
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. That month, Circuit City, which also withdrew its fiscal 2009 forecast, replaced CEO Philip Schoonover with board member, ex-Hollywood Entertainment executive and acting CEO James Marcum in an effort to improve its turnaround efforts.
In July, U.S. movie rental chain leader Blockbuster dropped its four-month-old bid worth as much as $1.32 billion to buy Circuit City, which in May hired Goldman Sachs to explore strategic alternatives.
Marcum said on a Sept. 29 earnings conference call that although market conditions forced Circuit City to direct efforts away from strategic alternatives toward its operations, "frankly, all options are on the table."
