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"With this new agreement, our clients will have a single point of contact that will make it easier to do business with us."
——Barney Cohen, Valley Media
VALLEY & AMPLIFIED HAVE THE URGE TO UNMERGE
Valley Takes Back Physical Distribution, Amplified Retains Digital Delivery
Underlining the great divide that still exists between the distribution of physical product and the future that is digital delivery, Valley Media and Amplified have, for all intents and purposes, un-merged.

The two companies have signed a letter of intent to "restructure the agreement" they entered into last April, which merged the two companies' Internet businesses.

As part of the agreement, Valley will get back all of the Internet fulfillment business of physical product, that has for years been the jewel in their crown. Amplified retains all of the digital distribution business. And although they are now each other's "preferred customers," the relationship between the two companies is no longer exclusive and is now considered by many to be much more of a "strategic alliance."

Valley Media acquired a 50% share of Amplified's non-public stock earlier this year, making it more of an acquisition than a merger, but rumors have it that their stock participation will now be around half of that. Valley's Founder/Chairman/CEO Barney Cohen will continue to sit on Amplified's board.

Said Cohen: "With this new agreement, our clients will have a single point of contact that will make it easier to do business with us. At the same time, Amplified will focus on upgrading and maintaining the technology and infrastructure that will help us enhance our position as the leader in the direct-to-consmer fulfillment business."

The financial impact depends on whom you're talking to. The two largest accounts that Amplified inherited, Amazon and CDNow, were "skinny" margins, to say the least. Insiders say the deal Valley struck with CDNow to keep market share loses money on every CD sold. The deal struck with Amazon, while not quite that draconian, was still not a very profitable one. But the benefits of cash flow—those two accounts are far and away the largest in the industry—cannot be overlooked.

There is a huge upside for cash-strapped Valley in regaining the massive billing of their physical fulfillment, and further lowering overhead by bringing it back under their own umbrella. Amplified can now get out of the wholesale business, in which it's really been a fish out of water, and focus on its strengths in the digital domain. In fact, Amplified never "picked, packed and shipped" any of the physical product it was selling, relying on Valley for all of those services.

Are layoffs in the future because of the change in the paradigm? An estimated 50 or 60 Amplified employees who have been working in Valley's Woodland headquarters will now become Valley's concern. No official word is being given, but rumors abound that many of those jobs may well be in jeopardy.

Ultimately, the deal that seemed like a natural progression, incorporating both the physical and digital aspects of selling music over the Internet, reminds us there's still a huge gap between the two worlds.

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