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Starbucks Making Lattes, But Cutting Back On The Entertainment

Oliver P. Quillia for

Starbucks CEO Howard Schultz is trying to get Starbucks focused on coffee--which means the entertainment business it's been building up over the past four years is now due to be pared down.

Late Wednesday, Starbucks unveiled weaker-than-expected estimates for its fiscal second quarter and year--sending shares down a whopping ten percent Thursday.

After the market close, the company announced it will no longer be managing its Hear Music record label, which launched just over a year ago with Paul McCartney on board. Now its partner in the label, Concord Music Group, will take over day-to-day operations.

Schultz is also shaking up the entertainment division's management -- Ken Lombard, an SVP and president of Starbucks Entertainment "has left the company," which to me is code for "pushed out." Now the division will be run by Chris Bruzzo, Starbucks' Chief Technology Officer, indicating the division the direction is moving towards-- digital downloads, and away from old fashioned CD sales.

Last year Starbucks made a deal to offer access to Apple's iTunes music store, in 600 plus of its stores through WiFi networks, and just last week it announced that it'll be handing out cards to allow customers to access songs and music videos online-- for free.

Starbucks isn't getting rid of this division. It just doesn't want to be in the business of producing music--which is a tough one, and particularly tough if you're only releasing a few albums a year. It'll keep selling music in stores, though it's unclear if the company will change the style or variety of music it sells. Lombard notably brought Starbucks music style away from jazz and more traditional sounds, to more contemporary artists. Will there now be a shift back?

Starbucks Shakeup

The company is trying to learn from its mistakes. It has no more plans to market movies again as the two films it promoted in-store had quite disappointing box office performance, so there doesn't seem to be incentive on either end.

But Starbucks will continue selling books in stores and working with William Morris Agency to find projects they think will sell. And Starbucks is powerful in the publishing industry--almost like when Oprah picks a book, getting chosen to be sold by Starbucks register almost always guarantees that a book becomes a best-seller.

Questions?  Comments?