Entertainment distributor Handleman is going to get out of the music business. Getting out of music will result in downsizing the company by about 260 employees. Handleman is one of two, along with Anderson Merchandising, that supplies Wal-Mart with CDs. Handleman will sell its inventory and other music-related assets to Anderson.

In March, Handleman posted Q3 revenues of $346.9 million, down nearly 29%% from $485 million the year before.

Unlike the closing of other distributors, there should be little to no effect on sales in this case since there is only one account. By now, Handleman has provided to Anderson a file of new release and catalog orders to each Wal-Mart ship-to address (as detailed in this asset purchase agreement).

In an SEC filing, Handleman revealed that Anderson will buy a maximum of $21.5 million in inventory and will pay $3.6 million for the Handleman's Wal-Mart retail fixtures. (The money will be returned to shareholders instead of being invested elsewhere.) In addition, Handleman plans to identify 200 field full-time Handleman employees and 40 field part-time employees to which is may offer employment.

The news doesn't surprise me, but not for the typical "the music business is dead" reasons. As I wrote at the beginning of this year, changes in music and technology and wreaked havoc on the supply chain. It has been at the wholesale distributor level -- not at the record label level -- where some of the greatest changes have taken place. One-stop distributors like Handleman have a low-margin, high-volume business model that is built almost singularly upon one format, the compact disc. Record labels, while certainly struggling, have an advantage over distributors because they can sell music in multiple formats (CD, LP, download, ringtone, etc).