RIP, CD: Best Buy to Cut CDs, DVDs as Google, Apple Prep for Music War

CD ya later!

Retail giant Best Buy (BBY) is set to slash the store space it allocates to compact discs and DVDs this holiday season, in a tacit acknowledgment that those products are going the way of the buggy whip. The electronics chain said it will replace the space with video games and consumer electronics like netbooks and tablet PCs.

It's the latest blow for the beleaguered compact disc, increasingly viewed as a throwback to a former era, especially as Web search giant Google (GOOG) prepares to do battle with current champion Apple (AAPL) over digital music.

The simple fact is that CD sales have been declining for years, and Best Buy is changing with the times.

Bought a CD Lately?

"Best Buy has recognized for quite awhile that CDs and DVDs are going away, and they have huge chunks of the stores devoted to them," Andy Hargreaves, who covers Best Buy for Pacific Crest Securities, told DailyFinance. "What do you do to make that space productive?"

Best Buy Chief Executive Brian Dunn announced the move during a conference call with analysts to discuss the company's most recent quarter, when it reported a 60% increase in profits. Best Buy shares jumped 6% on the results.

"We'll have another store reset before the holidays, which will include an increase in the space for higher-growth and, in the aggregate, higher-margin categories, like Best Buy Mobile, e-readers and gaming, with a heavy emphasis on new gaming platforms and pre-owned game titles," Dunn said in comments cited by Click, IBD's tech blog.

"This will be enabled by our reorganization of the DVD and CD sections," Dunn said. "The CD section in particular will shrink in space allotment." The company's business is increasingly shifting toward cell phones, electronic appliances and laptops -- as well as video games, which now rival Hollywood blockbusters in revenue for the top titles like Halo.

Video Games, 3D TVs and Tablet PCs

For Best Buy, it really is a matter of space. Traditionally, 20% of the stores have been devoted to CDs and DVDs, according to industry estimates. For some of the larger stores, that could amount to as much as 10,000 square feet -- a lot of space to fill. "They tried selling guitars in that space when Rock Band and Guitar Hero were hot," Hargreaves says.

"Best Buy can better use that space," music industry analyst Bob Lefsetz told DailyFinance. "They used to use the CDs as a loss leader, but they can't do that anymore. If you look at the music business, they killed the cassette and vinyl, and this is killing CDs, irrelevant of the demand. If they don't stock them in stores, it will kill the CD."

"The labels have kept the CD alive longer than we ever thought possible," Lefsetz says. "If you can have CDs at Whole Foods you could have CDs everywhere, in any box store."

Moving forward, the company will reorganize its stores to display motion-based gaming systems by Microsoft (MSFT) and Sony (SNE) which require space for demonstrations. The chain will also increase the space for Amazon's (AMZN) Kindle and Apple's iPad tablet.

Hargreaves describes Best Buy as the "the best house on a bad block," referring to the brutal competition in retail electronics that eviscerated Best Buy's erstwhile rival Circuit City.

"They are no doubt the best operators in the business, which is why they're the only ones left," Hargreaves says. "But retail itself is hard, and when your product prices are dropping, it's even harder. Best Buy needs a new product cycle. Maybe it's motion-based gaming, maybe it is 3D TVs or tablets, but they need a new product."

Google, Apple Prepare for Digital Music Showdown

As CD sales decline, Web giant Google is preparing to take on Apple, which has become the undisputed champ of digital music with its iTunes music store. Google is reportedly talking to the major labels about a service that would include both a download store and a subscription-style, cloud-based music locker where consumers could store their music.

Google has proposed charging users $25 per year for access to their music locker, from which they could stream music to mobile devices like smartphones and tablets, according to Billboard. Google is also pushing to allow users to listen to any song in its catalog for free once, a feature the record labels may balk at.

"The only way the recorded music industry is going to survive is through some sort of subscription model," Lefsetz says flatly. "The bottom line is the handset controlling your life, so you'll have a subscription on your handset. The apps already exist, so whoever gets there first wins."

Lefsetz says that one of these days Apple may "wake up" to the idea of a subscription service, but at any rate, the major labels aren't eager to see Steve Jobs and Co. gain more power over their industry. Lefsetz suggests that's why they might be eager to talk to Google, and use the search giant as a lever against Apple.

However the digital music wars shape up, now may be the time to stock up on CDs before they're gone from retail shelves -- although they may not have much value as rare antiques in the future. Maybe you can use them as coasters.

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Travis Burton Aker

I personally myself I am a CD man I think the sound quality quite frankly are horrible from mp3's. Yes there are whole entire albums that I do like,obviously if you just buying a cd with just one good song then your probably more likely going to be buying stuff off of Amazon,and itunes I personally I like to hold things in my hand. The only way I would go all digital is unless they lower the price of IPODS and Zunes, other wise computers are very unreliable especially the money you have to spend to back up your music is ridiculous,you have to pay for a subscription to keep your music safe,screw that.

May 28 2012 at 12:34 AM Report abuse rate up rate down Reply
Dave

I love Best Buy and am a rewardzone member. I also will not be part of the downloadable market. I only purchase things I can hold in my hands. I purchased several DVDs (from Best Buy, of course) a few years ago because they had, as a special feature, digital copies of the movies. When I tried to use them later, I was informed that the digital movie I had PAID FOR had "expired." (I was still able to watch the regular "hard copy" of my DVDs) I will never again pay for something that can be taken away for whatever reason. I will ONLY buy things that I can hold in my hand, walk out of the store with, and keep on my shelf to watch or listen to whenever I want. Down with downloads - HARD COPIES FOREVER!!! (If they are ever taken from me, I can call the police or my insurance company. What would the police or insurance agant say if you called them to report your "files" missing?)

September 22 2010 at 8:14 PM Report abuse rate up rate down Reply
danzingdog

I would not buy anything from Worst Buy anyway. Amazon has better deals, and their MP3 downloads are usually cheaper and the sound quality is also better than iTunes. Now if that stinky big box store would just go away......Just say no to Best Buy and Walmart too. I feel like I need a shower after leaving one of those stores. LOL.

September 17 2010 at 1:06 AM Report abuse -4 rate up rate down Reply
Vinny

Who but an idiot would pay over $14.00 for a CD weith MAYBE one good song or tune on it ? Best Buy and the recording industry have destroyed sales with their own GREED. We all know how cheap a blank CD is so how do they arrive at the $14.00 and up price they expect people to pay for an 'artist' who cannot even sing or hold a tune. I stopped buying CD's years ago and I will never buy another new CD. They can make frisbees out of all of them for all I care. Anyway, there are very few 'artists' that are worth listening to nowadays. Take 'country music' as an example. Pure unadultrated garbage by fake whining 'cowboys' and female singers with their fake 'breathless little girl' voices that promotes vandalism or destruction to ones radio or CD player. Whatever happened to the REAL artists of a few years back ? Guess it all went away when the Urban Cowboy appeared to whine away all the remaining country music fans.

September 16 2010 at 8:47 PM Report abuse -1 rate up rate down Reply
1 reply to Vinny's comment
Eric

Yes, I agree! There's no such thing as a "super group" in music anymore! Back in the 60's-70's you could buy an album which all or most all of the songs were worth listening to. The singer or group wouldn't produce an album until they had a collection of good songs to put on it. Now, the group or singer has one "somewhat" good song and they pile a bunch of crap around the one song and create an album (CD now) to make $$$$ with.

September 17 2010 at 12:57 PM Report abuse +1 rate up rate down Reply
deb3917

I buy my CDs and DVDs from Amazon.com anyway. I want a hard copy of my tv shows, music, and movies. I don't have much for Best Buy anyway, considering their lousy customer service policy.

September 16 2010 at 6:13 PM Report abuse +1 rate up rate down Reply
Clint

the only reason I go there is the cds,I buy my electronics and appliances at HH gregg better prices. THey will lose my business, but they probably dont care anyways..

September 16 2010 at 4:08 PM Report abuse +1 rate up rate down Reply
charles3252

Stores like BEST BUYS are headed the same way as CDs and DVDs! They offer you nothing, after the sale! On line buying is much more cheaper and convenient and assistance is just a "touch" away!

September 16 2010 at 4:04 PM Report abuse rate up rate down Reply
beemerboxer

A trip down memory lane. I remember the rush when I no longer had to use a bakelite record on a player with a steel needle. An electric record player and dang it, a small 45 rpm record made of that new fangled vinyl. Next the 33 rpm LP and real stereo, things could not be better. Until the Grundig TK tape deck which enabled one to record all the current songs on one, long reel. Cassettes came; for the car, a brick sized BETA. I could carry about four in the cockpit of my MGB Coupe. Little cassettes and even better equipment to play them on and video movies. Just when I thought this was it along coms the CD and then the DVD!. All the old favorites went away and my new car could not play the hundreds of cassettes I had. Now the CD and DVD are on the way out. In a life time that saw the first jet fighter and the D Day landings, had REAL milk in bottles and had no parking woes or highway speed limits, I am so glad to have seen it all!

September 16 2010 at 3:08 PM Report abuse +6 rate up rate down Reply
4 replies to beemerboxer's comment
draw984

Went to BB yesterday to purchase HDTV. Noticed they were putting DVD movies on sale on top of a table. Went up to take a look; prices were exhorbitantly expensive for unknown movies : $29.99 - $39.00. The future likes with on-line movies whenever they deicide to go full blast with it; meanwhile, stick with RedBox or NetFlix.

September 16 2010 at 3:02 PM Report abuse +1 rate up rate down Reply
Button

AT MY HOUSE WE CALL BEST BUY, "WORST BUY." WE BOUGHT A COMPUTER THERE ONCE AND I EMPHASIZE THE ONCE!! BROUGHT IT IN FOR A SMALL REPAIR (START BUTTON DID NOT WORK) AND WE NEVER SAW OUR COMPUTER OR WHAT WAS ON IT AGAIN!!! THEY LIED, CHEATED AND FINALLY LOST OUR COMPUTER. THEY WERE DUMBER THAN DIRT AND WE JUST DON'T SPEND OUR MONEY ON THIS KIND OF A PLACE. LOL

September 16 2010 at 2:22 PM Report abuse +5 rate up rate down Reply
1 reply to Button's comment
Judy

I took my latop in for some work to be done. I had to show the GEEK how to get the thing opened up to remove the hard drive. Oh Yeah, the GEEK SQUAD is really a great asset to that store.

September 16 2010 at 4:43 PM Report abuse +1 rate up rate down Reply