Found this, enjoy! POWER LUNCH - Valley Media - CEO - Interview
CNBC/DOW JONES BUSINESS VIDEO, June 1, 1999
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT
BE IN ITS FINAL FORM AND MAY BE UPDATED.
BILL GRIFFETH, CNBC POWER LUNCH ANCHOR: It's time for our "By Request"
segment. Today's guest is one of the leading wholesale distributors of
music and video products. Valley Media Inc. <Company: Valley Media Inc.;
Ticker: VMIX; URL: valley-media.com; delivers CD's, and
videocassettes, and DVD's to over 6,000 stores ranging from Toys 'R' Us
to Sears <Company: Sears Roebuck & Company; Ticker: S; URL:
sears.com. And now, the number of its Internet retail
customers has been rising steadily, driving profits 79 percent in the
fourth quarter. Joining us to talk about his company, you asked for this,
Robert Cain, president and CEO of Valley Media. Joining us today from
Sacramento, California. Mr. Cain, thank you for joining us.
ROBERT CAIN, PRESIDENT & CEO, VALLEY MEDIA: Thanks, Bill.
GRIFFETH: Must be music to your ears every time another on-line retailer
says they're going broaden out to music and video and DVD. I mean, you're
sitting in a pretty good position right now, huh?
CAIN: Yeah. We have a lot of new interest in the space every day.
GRIFFETH: How much of it has been the on-line? I mean, you've been feeding
Sears and Toys "R" Us and Warehouse Entertainment (ph) and so forth for a
number of years, but what about the on-line? How much of an impact is that
having right now on your business?
CAIN: Well, a couple years ago, roughly, it was less than 5 percent of our
business. And we finished the fourth quarter that ended March 31st with
just under 30 percent of our sales going to our online customers.
GRIFFETH: And do you expect that to continue to grow?
CAIN: Yes, we do, but we're also growing the other part of our segment,
which is full-line distribution supporting brick and mortar retail sales.
We've been growing faster than the industry there as well.
GRIFFETH: The reason I ask, I mean, you know, everybody's watching this
phenomenon, the online retail business continue to grow. And there's this,
almost like this land rush, a scramble among the retailers to find new
products that they can sell, but you know, the "Barron's" article over the
weekend points out they're just another retailer. There's no real magic to
being an online retailer if you're profits are not all that great right
now. Do you think that we'll see a contraction at some point in the online
retail business?
CAIN: Perhaps, but there's a lot of new entrants in the marketplace. I
think what you're going to see is more of the brick and mortar people
supporting their store sites with an Internet site as well.
GRIFFETH: Does that risk necessarily though increase your business if it's
the same customer just, you know, changing its distribution model?
CAIN: Well, we support brick and mortar retail stores as well as the
Internet sites for stores like Hastings Entertainment <Company: Hastings
Entertainment Inc.; Ticker: HAST; URL: hastings-ent.com; as
well as Trans World Entertainment <Company: Trans World Entertainment
Corporation; Ticker: TWMC; URL: twec.com; as well. So, we
support both their online efforts as well as their brick and mortar stores.
GRIFFETH: But the point is; yes, they're changing their distribution model,
but you know it's still the same number of customers that are out there. We
haven't increased the number of Americans out there or people around the
world who are buying these things. It's just a shift in distribution. So,
do you make that much more money, necessarily?
CAIN: Yes, we do. Actually our margin on our online sales, our new media
business, is a couple points better than our existing brick and mortar.
GRIFFETH: So, you're making it up there in the profits from the online.
What about online -- you know, MP3 phenomenon where people can download
music bypassing retailers? That's got to put a crimp in your style, I would
think, to some degree.
CAIN: Yes, you're not the first person that's asked me that question. We
see it initially it's probably going to help physical product from a
standpoint it's going to be used to promote sales of physical product. It
will be replacing the singles format that, quite frankly, as a wholesaler
we don't have that much business in. So, it will be promoting online or
physical sales. (OFF-MIKE) Ultimately, we are also an independent
distributor of record labels product, for instance, Fantasy Records. And we
will be supporting their sales, whether it be physical product or digital
downloading. We will also be selling the digital downloading product for
those independent record labels.
GRIFFETH: So, you're going to try and go in that direction, to some degree.
CAIN: Oh, yes.
GRIFFETH: And you think that this is the wave of future for the music
business, MP3? I mean, we're using that term, but you know what I'm
talking about.
CAIN: Yeah. I think we need to wait seen what's going happen from a
commercial viability standpoint. People need to start making money on it,
and it's got to be controlled, but I think one that decision's been made,
then the market will roll out. We've seen numbers on it that says perhaps
upwards of a billion dollars of digital downloading business by the year
2003. We'll see where it goes.
GRIFFETH: All right. Good luck. Thanks for joining us appreciate it.
CAIN: Thanks, Bill.
GRIFFETH: Robert Cain, President and CEO of Valley Media joining us from
Sacramento today. And you asked for it, we get a lot of e-mails from people
asking about the CEO interviews, there was one of them right there.
END
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