Circuit City: Please Pay Recording Industry $15,799,754

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The now-bankrupt Circuit City has a long list of IOUs, mostly notably within the computer, gaming, and consumer electronics categories.

That includes Hewlett-Packard, owed $118.8 million, and Samsung Electronics, owed $115.9 million.  Others left standing in line include Sony Computer Entertainment ($60 million); Zenith Electronics ($41.1 million); and Toshiba ($17.9 million).

The list of casualties also includes the recording industry, thanks to a Circuit City offering that includes CDs, DVDs, and other entertainment products.  According to filings obtained from the United States Bankruptcy Court for the Eastern District of Virginia, Circuit City owes one-stop music distributor Alliance Entertainment a massive $15,799,754, the six-largest debt on the books.  The Coral Springs, Florida-based Alliance distributes to various chains – including Circuit City – for the major labels, as well as a range of independents.

The debts are undoubtedly serious, though under Chapter 11 of the United States Bankruptcy Code, Circuit City gains protection against its creditors while it reorganizes and rehabilitates.  But depending on the ultimate outcome, many of those debts could remain unpaid.

If the worst does occur, labels will saddle a lot of unpaid product, though the debt is split among various Alliance clients.  And according to a pair of sources close to the matter, majors are less concerned about the immediate fallout.  “We’ve insulated ourselves pretty well against this,” one major label executive told Digital Music News.

That could shift the burden onto Alliance, a company already on the front lines of a losing battle.  “Alliance is going to have to bear the brunt of the problem, if and when Circuit City gets shut down,” another executive close to the one-stop explained.  “The distributors may get dinged because of Circuit City’s problems, but most have had both Circuit City and Alliance on a short leash for quite some time.”

Independent labels are probably less protected from the fallout, though the greatest damage remains forthcoming.  Ahead of the bankruptcy filing, Circuit City announced a shutdown of 155 stores, part of an ever-shrinking retail footprint.  Elsewhere, Wal-Mart executives pointed to continued reductions in CD shelf space, a possible culprit for accelerating sales declines in September and October.

Smaller shelf space reduces sales opportunities, though another headwind could prove lethal this Christmas.  The normally confident American consumer is now lowering spending, or simply staying home because of diminished disposable income.  “Since mid-September, rapid, seismic changes in consumer behavior have created the most difficult climate we’ve ever seen,” Best Buy chief executive Brad Anderson said on Wednesday, part of a broader dial-down in sales expectations.  The sagging confidence threatens to thin traffic levels everywhere, and lessen impulsive purchases – like CDs – in the process.

Alliance is owned by Source Interlink Companies, Inc.

Report by publisher Paul Resnikoff.