COLUMBIA HOUSE BACK ON THE BLOCK; TALKS WITH BERTIE BEGIN
This time, however, the co-owners have again opted to negotiate with competitor Bertelsmann, parent of Columbia House’s main rival, BMG Direct, The Wall Street Journal reports today (6/13).
If completed, the deal would combine the top two music clubs in the U.S., potentially creating a direct-marketing powerhouse, the paper says.
The Journal claims that under one scenario being discussed, Bertelsmann would pay cash for about 80% of Columbia House. One of the two Columbia House partners, probably AOLTW, would likely retain about 20% of the company so that Bertelsmann can be guaranteed a supply of video and music product, people familiar with the situation told the paper.
Insiders said the price for the stake could be $500-$600 million, although it isn't clear if negotiations have reached that stage yet.
The latest round of discussions, which follows a couple of other attempts to sell Columbia House to Bertelsmann and others over the past 18 months, could once again end without a deal.
Obviously, the proposed pact would have to gain regulatory approval, a huge hurdle in the current climate of raised consciousness among antitrust officials.
Representatives for all those involved declined to comment.
If a deal were made, Bertelsmann’s purchase of Columbia House would strengthen the German media conglomerate's growing presence in direct marketing. Aside from BMG Direct, Bertelsmann owns CDNow, an online music retailer. (Bertelsmann recently created a new umbrella in its eCommerce Group called BeMusic, which includes BMG Direct and CDNow.)
Even so, the music-club business has been in decline for years due mainly to competition from online retailers like CDNow and Amazon. But there has been light at the end of the tunnel thanks to strong DVD sales. BMG Direct isn't in the DVD and videocassette business.
It seems in order for these mail-order businesses to prosper, new formats must be introduced. When the CD came into its own, BMG and Columbia House both saw a sales surge as consumers replaced their existing LPs and cassettes with CDs.
The Wall Street Journal says BMG Direct has revenue of about $750 million and about 10 million members, while Columbia House has revenue of around $1 billion and about 14 million members.
