DVD Distributor Columbia House Files Chapter 11 Bankruptcy

The story of a company that went from $1.4 billion in annual revenue to $17 million as the entertainment industry transformed.
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Yet another coda on the era of physical entertainment product comes Monday in the Chapter 11 bankruptcy petition of Filmed Entertainment Inc., parent of Columbia House.

Columbia House was once famous for operating a mail-order business that enticed consumers with the prospect of cheap records and videotapes. Magazine advertisements touting "11 records or tapes for $1" briefly made the company a juggernaut.

Founded in 1955 as a division of CBS before being sold to Sony, Columbia House hit its peak in 1996 with about $1.4 billion in revenue. As the company transitioned to CDs and DVDs, it was passed along to new owners including the Blackstone Group and Bertelsmann, and as digital media savaged its business, it was passed along again to JMCK Corp. and, finally, Pride Tree Holdings. Last year, net revenues were just $17 million.

With $2 million in assets and $62 million in liabilities, Filmed Entertainment is now seeking bankruptcy relief for its direct-to-consumer DVD distribution business. (The company abandoned music in 2010.)

According to its petition, the debtor no longer has employees as it fired 320 employees in the last three years and had 200 more transferred to other affiliates. The operations were outsourced to third-party vendors.

While it would seem that nobody is buying physical entertainment anymore, that's not entirely true. The debtor reports that last year, it had 110,000 "members," still paying for mail-order DVDs, which Columbia House obtains through licensing agreements at favorable pricing terms with major and smaller film studios. Though not as favorable as in the 1980s and 1990s, when Columbia House was able to offer its members incredible deals by paying studios big "advances." In 2010, the company shifted to "pay-as-you-go" royalty deals with the studios.

Many of those studios are now creditors.

Universal is said to be owed more than $1 million, Warner Bros. is owed nearly $300,000 and Lionsgate is owed $167,000. Paramount, Anchor Bay, Sony, Summit and CBS are also among the top 20 unsecured creditors.

The debtor did make a late attempt to adapt — it launched a Netflix competitor called "yourmovies.com" in 2011 — but bankruptcy papers blame restricted licensing provisions for the failure. There was also discussion of re-entering the music business with a digital streaming service, but Apple, Spotify and Pandora were already in the market.

Filmed Entertainment now hopes that the Chapter 11 process will give it some respite from its debts so as to explore a sale. According to an affidavit by one of the company's directors, "The valuable assets owned by the Debtor include, for instance, the trade name which has much goodwill associated with it, the current member base, the list of prior members, content Licenses, and inventory of DVDs in the warehouse."

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