Sounds silenced by $20m debt

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Sounds, the biggest national chain of music stores, has shut its doors after its parent company collapsed, owing its bank and other creditors almost $20 million.

The company blamed a weak retail market and illegal downloading of music on the Internet.

Other retailers pointed the finger at The Warehouse's cheap CDs and DVDs and said the sector was under pressure from rising rents, higher wages and falling prices for music and videos.

The Sounds failure leaves hundreds of staff with an uncertain future weeks before Christmas, though the shops may be able to trade their way out of trouble.

Sounds is based in Auckland and is one of two big national music store chains. It has 13 stores in the lower North Island, including five in Wellington, which were closed yesterday. Nationally, the chain has about 50 stores and, in the past, it accounted for about a quarter of music sales in New Zealand.

Icon Digital Entertainment, which runs Sounds, the Games Plus video game stores and seven Blockbuster video stores in Auckland and Rotorua, was put into the hands of administrators, accounting firm BDO Spicers, yesterday.

Blockbuster stores outside Auckland were not affected by yesterday's failure.

Icon chief executive Steve Dods blamed the collapse on a "soft retail market". He also said "factors such as illegal downloading and piracy have not helped".

Many people now get their music for nothing from the Internet, and even legal websites charge a fraction of the cost of a CD in a store. Music store sales have slumped from more than $50 a person each year in 2000 to $34 a head last year. Total music sales topped $200 million in 2001, but were down to $147 million last year.

Other retailers blamed reduced prices at The Warehouse, which sells CDs for at least $5 less than prices in music chain stores.

Auckland-based Real Groovy music store manager Chris Hart said competition from The Warehouse was "huge", the discount chain selling CDs for about $22 when the full markup price for a music store was about $35.

Blockbuster is the fourth largest chain in the movie rental market, after market leader Video Ezy, United and Civic.

Video Ezy International joint managing director Russell Clark said last night the DVD rental and retail market was "extremely strong", with rapidly growing sales of DVDs adding to the rental business.

BDO Spicers was called in by Icon directors under a new system called voluntary administration, which is like receivership, but all creditors have to approve the proposal. Creditors will meet on Friday, November 30.

Icon owes Westpac bank about $13 million and 125 others almost $6 million, according to High Court documents.

The documents show Icon Digital "is or may be insolvent", according to its directors, with more debts than assets, and so they called in administrators.

Icon said it "urgently needs ongoing funding from Westpac to continue to trade", according to a judgment from Associate Judge David Abbott in the High Court at Auckland.

- © Fairfax NZ News