Major Music Retailers Announce the Formation of Echo, the Industry’s First Retailer-Driven Digital Music Consortium

Six major music retailers have teamed up to develop the “first retailer-driven digital music consortium committed to bridging the gap between brick and mortar and digital music distribution.”

More plainly, they mean they’re starting up another online distribution system to sell legal music downloads to consumers.

The new group calls itself Echo. The retail partners in Echo are Best Buy, Hastings Entertainment, Tower Records, Trans World Entertainment Corporation (FYE Stores, Planet Music, Strawberries, etc.), Virgin Entertainment Group, and Wherehouse Music. Collectively, the 6 Echo founders can boast of more than 3,000 retail locations, $20 billion in annual sales, and over 800 million customer transactions per year.

The retailers believe they can create a successful alternative to existing label-backed initiatives such as MusicNet (AOL Music, RealOne Music) and pressplay (Yahoo!, MSN Music), by building on their experience selling music to consumers, building customer relationships, marketing music and breaking new artists.

Echo’s first challenge will be to obtain competitive licenses to distribute music recordings online, especially from the big-5 major music companies. It will be interesting to see how the majors, all of them participating to some degree in each of the various existing label-backed digital music services, will respond to a new competitor in the online space.

Echo may be anticipating a tough negotiation over licenses. The launch announcement plays up the role of Alan Malasky (Porter Wright Morris & Arthur), Echo’s Washington, D.C.-based antitrust counsel: “Each retailer participant will independently market and price the digital entertainment products it offers, in the manner that will best serve its consumers. This will, for the first time, bring real competition to the digital music marketplace,” says Malasky.

This could be construed as a pre-emptive stance to defuse potential criticism of Echo on grounds of price-fixing. Or it could be construed as a veiled threat to the major music companies that they had better offer distribution licenses, or else.

Once the group gets over the licensing hurdle, the plan is for each partner to deliver a variety of digital music products and services through individually branded, or Echo co-branded offerings. The consortium says it will “build upon the in-store marketing capabilities of its retail partners to drive consumer awareness of digital music offerings, and will help drive adoption of new, advanced digital music services as they evolve.”

In Their Own Words

Scott Young, Vice President of Digital Entertainment at Best Buy: “Best Buy is focused on creating consumer-based solutions to digital entertainment services. As part of the retail consortium, we will be better able to articulate our message to consumers, to content owners and to those involved in setting standards and legislation regarding this evolving business.”

John Marmaduke, CEO of Hastings Entertainment: “The message of music retail is simple: we have always excelled at selling music to consumers, and we plan to extend our consumer relationships from the physical world into the digital world.”

Kevin Ertell, Senior VP, Online Operations at Tower Records: “For over forty years Tower Records has held a deep commitment to providing consumers with a breadth of entertainment choices. The formation of a digital retail platform reflects Tower’s continuing commitment to serving our customers.”

John Sullivan, CFO of Trans World Entertainment: “We have closely monitored the evolution of digital music in recent years and we feel that the timing is finally right for building a business around it. Moreover, we feel the Echo consortium is uniquely positioned to drive adoption and, ultimately, success.” (Trans World owns the FYE – For Your Entertainment, Coconuts, Strawberries, Specs and Planet Music brands)

Glen Ward, CEO of Virgin Entertainment Group: “Virgin has built its brand and its business on providing great value to consumers. In the digital world, we will do the same.”

Jerry Comstock, CEO of Wherehouse Music: “Retail has always been about more than simply selling CDs,” added “We are in the customer relationship business.”

Dan Hart, CEO of Echo: “The Echo consortium was established to create a viable business strategy that combines physical and digital music distribution,” says Mr. Hart. “With competitive licenses, music retailers can utilize their long history and expertise to provide a digital music experience that truly serves the consumer.”

Best Buy, Hastings, Tower, Trans World, Virgin, and Wherehouse each own equity in Echo and the retail founders collectively own a controlling majority of Echo. Echo board members will include Arnie Bernstein, former President of the National Association of Recording Merchandisers, and Strauss Zelnick, former CEO of BMG Entertainment and an investor in Echo through ZelnickMedia.

Echo Web Site

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