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Wherehouse, in $40 million deal

The music retailing giant is planning to announce a $40 million deal with the Internet firm run by Hollywood power broker Michael Ovitz, making it the chain's exclusive Net partner.

Wherehouse Music is planning to announce a $40 million deal tomorrow with Hollywood power broker Michael Ovitz's, making it the exclusive Internet partner for the retailing giant.

As part of the agreement, is to be included in all Wherehouse Music marketing initiatives and will be "integrated" with its 600 retail stores across the nation. is expected to become starting tomorrow.

Neither company would comment on the deal, which was outlined in a press release errantly sent to news organizations, not all of which had agreed to delay coverage until the deal was announced.

see related story: Microsoft bets on RadioShack The arrangement is a high-profile example of a major brick-and-mortar chain turning to a Net company to handle its e-commerce operations, a trend that has acquired increasing momentum this year as established retail companies continue to struggle with their online presence.

The deal also reflects the growth of one of the first online ventures by a key figure from the entertainment industry, which has been criticized as being slow in adopting the Internet and leveraging its properties online. will be featured in all Wherehouse stores in Southern California by this holiday season and nationally in later months, according to the companies' statement. The outlets will house kiosks devoted to the Web site, which will be included in the music retailer's television, radio and print advertising.

An e-commerce and entertainment site, was formed in May by Ovitz and Richard Wolpert, a partner for the Yucaipa Companies and former president of Disney Online.

"The partnership gives an offline presence with a leading entertainment retailer and access to Wherehouse Music's several million customers per month, which we see as a key differentiation for our branding and customer acquisition strategy," Wolpert said in the statement.

Under founder Ron Burkle, the Yucaipa Companies has grown to become one of the nation's largest supermarket chains, and it has been expanding its Internet presence--much like investment firm CMGI. Burkle and Ovitz have partnered before, in an unsuccessful bid to bring an NFL football franchise to Los Angeles., based in Beverly Hills, California, sells music, videos and DVDs on the Internet. It also provides video and audio streaming, reviews and chats. The company has struck partnerships with Entertainment Boulevard, a streaming media provider; Talk City, a community site; and, a search and digital media guide for audio and video on the Net.

Wherehouse Music, which recently bought music stores from video giant Blockbuster, has outlets in 33 states and a large distribution center near its headquarters in Torrance, California. Its Web site lets customers listen to and buy music, as well as videos and DVDs.

The deal underscores the rising need of retail chains to respond to the threat of online rivals as more consumers become comfortable with shopping online.

Just last week, Microsoft formed an e-commerce alliance with RadioShack. Under the five-year deal, the two companies will form a Microsoft "store within a store" in as many as 7,000 RadioShack locations nationwide. Microsoft also made a $100 million investment in a newly launched site called that is being featured on Microsoft's MSN Web portal.

This week, Wall Street analysts speculated that America Online might strike a similar deal with large retailers such as Wal-Mart or Circuit City.

"We believe Wal-Mart is in discussions with AOL regarding a potential strategic alliance possibly along the lines of the Tandy/Microsoft agreement," wrote Donaldson Lufkin & Jenrette's Gary Balter. "By putting AOL kiosks in each store and by linking with AOL, Wal-Mart will instantly transfer its Internet operations from also-ran to leadership."

Regardless of whether AOL in discussions with Circuit City, Merrill Lynch's Peter Caruso said the Internet company should consider the retailer as a "second alternative" to RadioShack.