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Music Ends For US Virgin MegaStores

It's the end of the era in which music is sold in shrink-wrapped packages.

What better punctuates the end of the CD age then Virgin Megastores shutting down its North America locations. The chain, which now has six locations in North America, down from 23, is shuttering its Times Square flagship store, its Union Square and its San Francisco stores. The remaining Hollywood, Denver and Orlando stores are expected to be closed by the end of the summer.

The music retail business is certainly in decline, but it's actually the high value of the stores' real estate that's precipitating this decision, ironic considering the role real estate played in the recession. A year and a half ago two real estate companies, Vornado Realty Trust and Related Cos. bought Virgin Megastore from Richard Branson's Virgin Entertainment.

The company realized that it would be more profitable to sell the lease on the Times Square location than to continue running the store. (Thewrap.com, which first broke the news of these closures reports that the company's rent in Times Square is $54 per square foot, while the real estate could sell for more like $700 per foot). Without its Times Square property, the company wouldn't be profitable. So that led to the decision to sell the whole company.

This is really no surprise -- Tower Records shut down in December 2006 and CD sales have been suffering a steady decline. The music labels are hurting, having failed to replace their CD revenue with digital music sales. Despite the growth in this area, the volume and the margins are much smaller. Warner Music Group stock is down almost 70 percent over the past year.

Questions? Comments? MediaMoney@cnbc.com

  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.