Best Buy Faces The Music, Decides To Dump Musicland.(INTERNET & TECHNOLOGY)

Byline: PATRICK SEITZ

Consumer electronics retailer Best Buy Co. threw in the towel on its Musicland division Monday, announcing plans to sell the money-losing music and video chain. Many analysts have long complained that Best Buy's January 2001 acquisition of Musicland Stores Corp. was a mistake.

Musicland's problems, chiefly declining sales of music compact discs, have been dragging down Best Buy's overall performance since early last year. Best Buy has hired investment banker Goldman Sachs to help find a buyer for the unit. Minneapolis-based Best Buy paid $685 million for Musicland just over two years ago. Musicland operates 1,200 stores, including 736 Sam Goody music stores. It also runs Suncoast, Media Play and On Cue stores. Best Buy is clearly committed to exiting the Musicland business no matter what, but finding a buyer could be difficult, some analysts say. "The question you have to ask is, "Who'd be a likely buyer?' " said Richard Zimmerman, an analyst with Commerce Capital Markets. "And I don't know at this point. I don't think you need any more prerecorded-music stores." Other large music store chains are doing worse than Musicland. Wherehouse Entertainment Inc. filed for Chapter 11 bankruptcy protection in January and is closing 150 music stores, more than a third of its outlets.

Tower Records also is struggling with falling sales and a string of quarterly losses.

Online Threat

The music industry and retailers blame online music sharing services like Kazaa and home CD recording for hurting sales. They claim piracy is costing the industry billions of dollars in lost sales.

Global sales of CDs are expected to fall 6% in 2003, the fourth straight annual decline, according to industry trade group ...