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Starbucks steps back from music business Print-ready version

April 24, 2008

LOS ANGELES (Reuters) - Starbucks Corp (SBUX.O:) on Thursday took a major step back from its music and book business by handing over day-to-day management of its year-old music label to Concord Music Group, as it strives to contain costs and rejuvenate its coffee shop business.

The restructuring of Starbucks Entertainment, the small but profitable unit that oversees the chain's music and book sales, comes a little more than a year after the company unveiled its Hear Music label with great fanfare.

Paul McCartney was the first artist to release an album under the Hear Music label, which has since also released CDs by Joni Mitchell and James Taylor, among others.

Ken Lombard, who oversaw Starbucks' music unit for much of its existence, is also leaving the company.

Starbucks' influence as a music retail outlet has grown rapidly in recent years, posting perhaps its biggest hit with the Ray Charles album "Genius Loves Company," which it co-produced with Concord Records.

Concord Music Group, based in Cleveland, Ohio, was formed in 2004 with the merger of Concord Records and Fantasy Records. Besides the Hear Music joint venture with Starbucks, its projects include a revival of the classic Stax label for rhythm n' blues and soul music.

Most recently, Starbucks reached a deal with Apple Inc (AAPL.O) to allow customers to buy songs wirelessly from the Apple iTunes music store without paying WiFi connection fees when they are in Starbucks stores. Starbucks said on Thursday that it will maintain its relationship with Apple.

Starbucks Entertainment has also had its failures. In 2006, the company promoted a movie, "Akeelah and the Bee," which turned out to be a box office flop. It also scrapped a plan to allow customers to create customized CDs in its stores.

In recent months, however, the chain's overall fortunes have soured due to a sharp downturn in U.S. consumer spending.

On Wednesday, the company blamed hard-hit housing markets in California and Florida for slowing sales and warned that its quarterly and 2008 profits would be below expectations.

"We are committed to examining all aspects of our business that are not directly related to our core," Chief Executive Howard Schultz said in a statement.

Chris Bruzzo, Starbucks' chief technology officer, will assume responsibility for the entertainment division, the company said.

William Morris Agency will continue to work with the company on potential book and other opportunities in entertainment.

"There are people who can handle it better," Bob Goldin of industry research firm Technomic said of Starbucks' music business. He added that it was not a big contributor to the company's results.

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Added to Library on April 25, 2008. (903)


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