- The Washington Times - Monday, February 9, 2004

Tower Records is singing the blues.

Nearly a year after indicating it wanted to sell the business, the parent company of the struggling music retailer yesterday filed for Chapter 11 bankruptcy protection from creditors and filed a reorganization plan.

Tower fell under the weight of vigorous competition from online music sites and weak sales of compact discs, leaving California-based MTS Inc. unable to pay debt that exceeds $100 million, according to its filing yesterday with the U.S. Bankruptcy Court in Wilmington, Del.

The company filed a plan proposing to reduce that debt by $80 million.

Tower, which opened in 1960, plans to leave its 93 stores open during the restructuring. There are six stores in the Washington area.

“If we do close a store, it won’t be due to the bankruptcy,” Tower Records spokeswoman Anite-Marie Laurie said.

The company said its largest creditors have approved its reorganization plan, boosting confidence that Tower will emerge from bankruptcy within 60 days.

“Our issues are financial, not operational. We have already received the votes necessary to confirm the plan from … the bondholders and shareholders,” Tower Records Chief Executive E. Allen Rodriguez said in a statement.

Under the plan, the company’s $110 million in bond debt would be converted to $30 million of new senior notes and an 85 percent share of the company. Existing shareholders of the privately held company would own 15 percent of Tower Records.

Tower’s immediate problems can be blamed on a decline in retail music sales. The number of compact discs, albums and cassettes sold has fallen annually since 2000. Consumers bought 785.1 million CDs, albums and cassettes that year, and only 635.8 million last year, according to Nielsen SoundScan, which tracks entertainment industry sales.

In the four months ending April 30, music sales at Tower were 4.6 percent lower than the same period a year earlier, according to a regulatory filing.

The availability of digital music from a growing number of online sites like ITunes and Napster, which resurfaced last year as a legal music seller, have contributed to the decline of retail sales.

“It’s definitely part of the problem,” said Tom Adams, president of California-based entertainment media analysis firm Adams Media Research.

But Tower, like other retailers, hasn’t done enough to market music to adults, settling instead for marketing to teenagers, Mr. Adams said.

“Demographically, [adults] are being ignored. They can’t find stuff they like in stores because retailers are catering to kids,” he said.

Retailers also are continuing to grapple with competition from online sites such as Kazaa that provide file-sharing software to download music files without paying for the songs.

There are offline challenges, too. Discounters including Wal-Mart and Target are selling CDs for less than specialty music retailers such as Tower.

Tower isn’t alone among retailers struggling to sell music. Best Buy sold its Musicland unit last June after closing 107 stores. Musicland Group Inc. operates the Sam Goody retail stores. Music retailer Wherehouse Entertainment, based in California, filed for bankruptcy last year.

Tower laid off 125 workers during the three months ending April 30, according to a regulatory filing last June.

In the same filing with the Securities and Exchange Commission, Tower said it lost $39.7 million during the nine months ending April 30.

US Bank, the trustee representing bondholders, is Tower’s largest creditor with $110 mil to grapple with competition from online sites such as Kazaa that provide file-sharing software to download music files without paying for the songs.

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