Last Updated Sep 17, 2010 8:10 PM EDT
In a wise move, Best Buy says it will begin to cut back on its CD and DVD collection to make room for other digital media. It has made a good chunk of its revenue from media sales, but even the traditional big box store realizes that future money won't be from music and movie content, but from music and movie devices.
CD and DVD sales aren't what they used to be. According to the NYT's Ben Sisario, 2009 CD sales were less than half what they were in the year 2000. The fact that Best Buy and comparable stores actually sell Apple (APPL) iTunes gift certificates (with $9.99 albums) next to $16.99 CDs shows that the big box stores realize the shift, too.
On the movie side, DVD sales are down and Blu-Ray isn't jumpstarting the physical media industry as expected. As I reported in an earlier BNET Gadget Watch post, the average Blu-Ray device owner buys only 1.5 Blu-Ray movies. Meanwhile, DVD sales drops are comparable to CDs, with many customers opting for digital instead of physical media.
Not all physical multimedia sales are down. GameStop has been making a mint on used video games (note, not on new games, but on trade-ins and resales). It seems to be the only physical content area both Best Buy and competitor Target (TGT) are aggressively going after. Best Buy contends that some of the reclaimed CD/DVD space will be for used game sales. Even this is a short-term solution, however, as game services like OnLive and digital deliverers like Apple TV will make physical video games obsolete in a few years. For now, however, the used game market is booming.
So what should Best Buy do? Continue to focus on the platforms instead of the content. While CD and DVD sales have gone limp, media device sales have gone through the roof. The Apple iPad has sold about 4 million units since April, and Best Buy, one of the few iPad distributors outside of Cupertino, says it has cannibalized about 50 percent of laptop sales. (While customers opting for a $500 device instead of a $1,500 one sounds bad for Best Buy's bottom line, we can imagine that they would just purchase iPads from one of its competitors instead.) Furthermore, Best Buy's recent profit jump is being attributed to the other popular media consumption category: cellphones.
The more Netflix, Hulu and other media deliverers penetrate portables, the more demand there will be for cellphones, tablets and other platforms. While Best Buy dabbled in the digital movie download game, it now is wisely focusing on selling the delivery devices -- which may keep it around much longer than its deceased competitor Circuit City.