A PR NIGHTMARE FOR SBMG AND VENDORS ALIKE

Despite Sony BMG’s vendor letter urging retailers to immediately take XCP copy-protected product off of their shelves and send it back, it is still unclear how many retailers are actually going to go without hot-selling titles such as Neil Diamond until new product arrives. The XCP coded CDs have fallen under a hailstorm of criticism over the past week when it was discovered that they installed a hidden “rootkit” Trojan horse in operating systems that left computers vulnerable to potential viruses and hacking. Removing the kit without proper instructions can permanantly damage computers.

We know for a fact that Virgin Entertainment Group is divesting themselves of all 52 offending titles and that Tower Records will most likely follow suit sometime today. Nevertheless, most retailers are reluctant to comment on what has quickly become a PR nightmare. The publicity departments at the major CD outlets have not been returning media phone calls.

Many insiders are opining that retailers that knowingly sell product with the rootkit software could be opening themselves up for the same kinds of class-action lawsuits that are now hitting Sony BMG.

The XCP encoded titles sold some 210k units last week. That means that retailers nationwide could lose as much as 30k a day in unit sales. Of course, 92k of those 210k units were Neil Diamond CDs. His latest Rick Rubin-produced album, 12 Songs, debuted at #4 on this week’s chart. Although many of the affected titles are catalog, other major releases include Bette Midler and Switchfoot.