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The Federal Communications Commission says Best Buy and other retailers must pay more than $3 million in fines for selling analog TVs without labels that explain the sets won't work after the digital TV switchover next February.

In a 41-page legal document filed last week (and dug up by Ars Technica), Best Buy essentially says, "Oh yeah? Make us."

There have been many bumps along the way to the February 2009 switch to all-digital TV in the U.S. The FCC is spearheading the transition and has established deadlines to help it along. Best Buy alone was fined $280,000 after FCC enforcement agents found analog TVs for sale in the store without this label, which the commission had previously decreed should be attached to all TVs without a digital tuner:

This television receiver has only an analog broadcast tuner and will require a converter box after February 17, 2009, to receive over-the-air broadcasts with an antenna because of the nation's transition to digital broadcasting. Analog-only TVs should continue to work as before with cable and satellite TV services, gaming consoles, VCRs, DVD players, and similar products. For more information, call the Federal Communications Commission at 1-888-225-5322 (TTY: 1-888-835-5322) or visit the Commission's digital television Web site at: www.dtv.gov.

Best Buy and other retailers like Sears, Wal-Mart Stores, and CompUSA were found to be in violation of these rules. But were the rules enforceable in the first place? That's where it gets a bit sticky.

Instead of paying the measly fine, Best Buy responded in meticulous detail to the FCC's Notice of Apparent Liability, issued last month. Here's a summary of the retailer's five main points on why it believes it doesn't have to pay a cent.

1. You can't make us label anything
Best Buy's attorneys point out that never before has the commission had jurisdiction over retailers, and twice before when it tried to, an appellate court invalidated it.

2. We didn't do it on purpose
The FCC accused Best Buy of purposely selling analog TVs without labels. Best Buy says that's not true, details its efforts to comply, and says the burden should be on the FCC to prove the intention of the retailer.

3. We tried our best
Best Buy details the steps it took to ensure the right boxes were labeled, but admits that it was difficult to determine which boxes needed them. Products with similar model numbers sometimes made it hard to figure out which had just an analog tuner and which had an analog and a digital tuner.

4. Your agents messed up
The retailer points out that some violations pointed out by FCC enforcement agents were just wrong. It does so to point out to the FCC that it's not accusing the commission of purposely making errors, so the FCC shouldn't accuse Best Buy of the same. Also, Best Buy is trying to show how difficult the process is of determining which boxes need labels.

5. You didn't go about this the right way
Best Buy quibbles with the process with which the Notice of Apparent Liability was carried out. It says that it didn't get public comment on the retail Labeling Rule, and also calls the NAL "procedurally invalid" because it wasn't give enough notice of its violation or time to respond.

The amount of money ($280,000) is so small that the retailer is likely not concerned about the fine. Rather, it's trying to make a point about the reach of the FCC's arm in handling the DTV transition.

The outcome will turn on what an appellate court has to say about this. And though Best Buy has a fairly good case, it's a tough call as to how it will turn out, according to Barbara Esbin, senior fellow and director of The Center for Communications and Competition Policy at the Progress and Freedom Foundation.

"There is no law that says the FCC had jurisdiction to promulgate and enforce a labeling rule," she said in an interview. "But the FCC doesn't claim it has express authorization."

What the agency relies on to regulate labeling by retailers is the same as used in the regulation of cable television services back in the 1960s.

"The FCC relied on this doctrine that it has some regulatory authority that is not expressly given, but is in the subject matter of the authority it has over wire and radio communication devices and reasonably ancillary to its express jurisdiction over that entity and its equipment," according to Esbin.

Indeed, when asked to cite the statute giving it authority to regulate retailers' labeling, an FCC spokeswoman pointed to the Code of Federal Regulations that govern the FCC, but are not laws.

"I can't say Best Buy has a slam dunk argument, but they have reasonably good claims," said Esbin. "The labeling rule imposed on retailers rather than on manufacturers are not reasonably ancillary to express jurisdiction."

Besides that, Best Buy (along with other retailers) appears to have gone way out of its way to comply with the FCC on the transition. Best Buy, for instance, was the first retailer to stop selling analog TVs last fall--and from a look at its argument, like a straight-A student who gets criticized by overly demanding parents for getting a B in math, it just wants a break, and maybe, the benefit of the doubt.

Despite that, the FCC probably isn't going to let this one go, so stay tuned.

Best Buy, the largest consumer electronics retailer in the U.S., is getting into the European cell phone market by taking a stake in retailer Carphone Warehouse.

Best Buy, which operates 900 stores across the U.S., will pay $2.1 billion for half interest in Carphone Warehouse, the largest cell phone retailer in Europe.

Carphone Warehouse's 2,400 U.S. and European stores will be included in the new joint venture. Also included in the deal are Carphone Warehouse's Web, insurance, and airtime reselling businesses. But the company will retain full ownership of its traditional landline phone business in the U.K. and France.

The companies have already worked together on developing Best Buy Mobile, a joint venture launched in 2006 with retail stores focused on selling mobile phones. Best Buy Mobile now has 200 mobile outlets, mostly in existing Best Buy stores.

Best Buy and Carphone Warehouse have also collaborated on bringing the Geek Squad, a 24-hour computer support team, to Europe.

Still reeling from the recently concluded format war?

Lucky for some early adopters, the number of retailers lining up to ease your pain is growing: first Best Buy, then Wal-Mart, and now Amazon. The online retail giant is currently offering a $50 credit for every HD DVD player purchased on its site. The offer is good until April 9, 2009, for HD DVD players bought before February 23, when Toshiba said it would stop making the devices.

Amazon gives $50 credit to early HD DVD adopters.

(Credit: Toshiba)

Gizmodo has posted the e-mail sent to some Amazon customers on Tuesday. I've excerpted the best parts:

"New technologies don't always work out as planned. We at Amazon.com value our customer relationships more than anything and would like to support customers who purchased these players by offering a credit good for $50 off any products sold by Amazon.com...In addition, we'd like to share some of our top offers on Blu-ray discs, HDTVs and other high-def technology..."

This is surely a smart way to build goodwill with your existing customers when a technology becomes obsolete. And what better way to lessen the sting of money lost than by offering the cool salve of the opportunity to spend more money?

Best Buy launched a similar program last month, rewarding $50 to customers who purchased the doomed devices. Wal-Mart said Tuesday it is extending its return policy from 90 days to 6 months on HD DVD players.

All of them, it should be noted, still sell HD DVD players and/or movie titles.

Best Buy reported its fourth-quarter earnings Wednesday and the results were surprisingly good.

The largest consumer electronics retailer in the U.S. posted earnings of $737 million, which comes out to $1.71 per share. Analysts were expecting $1.65 per share. Fourth-quarter earnings per share were also significantly better than the $1.55 posted the same quarter a year ago.

For the fiscal year, revenue was also up 11 percent over a year earlier to reach $40 billion, which Best Buy said was aided by the opening of 137 new retail outlets worldwide.

Wednesday's results sent Best Buy shares up 8 percent in pre-market trading, but they fell back down the same day that Federal Reserve Chairman Ben Bernanke said a U.S. recession "is possible." But for CE makers and analysts watching consumer spending habits, Best Buy's earnings must be somewhat comforting since it appears, at least through the end of March, that people are still shopping for what are essentially luxury goods--TVs, GPS systems, cameras, phones, and notebook PCs.

But it's only a slight comfort because Best Buy's chief competitors aren't handling the current situation nearly as gracefully. Circuit City is having a rough time of it, and CompUSA was killed off late last year, only to be resurrected in January by Systemax.

Best Buy does have some things going for it that its rivals don't. For one, it's cornered the market as the place to shop for a PC at retail. It's the only big-box retailer that offers every single major PC brand--Hewlett-Packard, Dell, Lenovo, Apple, Sony, Toshiba, and Acer.

Feel like a sucker for buying an HD DVD player? Well, if you happen to have bought it at Best Buy, you're in line to get a $50 gift card from the retail giant as part of its pity program for HD DVD owners. OK, I'm kidding about the pity program, but the $50 gift certificate is real, and you don't have to give up your HD DVD player to get one.

According the official release, Best Buy is giving $50 gift cards to "Customers who purchased an HD DVD player or HD DVD attachment from its U.S. stores before February 23, 2008." And owners of multiple HD DVD players can receive a gift card for each player or HD DVD attachment they purchased. Best Buy says it plans to distribute more than $10 million in gift cards.

The release goes on to say that, "Best Buy will proactively mail cards to all customers that the company can identify as having purchased an HD DVD player. Members of the Best Buy Reward Zone program, customers who purchased Performance Service Plans (PSPs), or who made their purchase on BestBuy.com should look for their gift cards in the mail by May 1. Other customers who may not be easily identified can call (888) BEST-BUY to receive their gift cards with proof of purchase through a credit card or their Best Buy receipt."

There's another little tidbit in the release that's also worth mentioning. If you just want to get rid of your HD DVD player, Best Buy is opening its Online Trade-In Center on March 21 to HD DVD owners (this deal is open to any HD DVD owner regardless of where you bought your player). "Visitors to the site will receive instant estimates of the value of their HD DVD players and movies," the release says. "Those who agree with the estimates can then ship their goods to the Trade-In Center free of charge by downloading a prepaid shipping label and will receive an additional gift card as payment for their trade-in."

Best Buy isn't the first store to offer relief to HD DVD buyers. Circuit City has apparently been allowing customers who bought players within 90 days of HD DVD officially going belly up to return them for store credit.

As for for those $50 gift cards, you can buy whatever you want with them, but if you're cynical, you're probably thinking what I'm thinking: Perhaps Best Buy is hoping to entice current HD DVD owners to buy up its remaining stock of HD DVD movies, which are already being significantly discounted.

Any HD DVD owners care to comment on what they plan on doing with their $50 gift card?

Hey techies, don't bother putting money down on whether the Celtics are the future NBA champions. Not when you can place a bet on Steve Jobs.

A gaming company called Bodog is taking wagers on when Apple's iTunes Store will surpass Wal-Mart as the top U.S. music retailer.

CNET News.com reported on Tuesday that research firm NPD Group is predicting that Apple will emerge as the largest U.S. music retailer sometime in 2008. NPD also reported that Apple has recently leapfrogged over Best Buy and Target in music sales.

It should be noted that neither CNET nor I promote gambling--but what's the Bodog line, you ask? Well, for the sake of disseminating information to the gamblers out there who would actually understand:

Yes -240 (5/12) and No +165 (18-11).

Not surprisingly, Bodog is based in Antigua, and executives were reluctant to do phone interviews. Take that however you will.

According to the Bodoglife site, the company also operates a record label (Bodog Music). It has a TV production division that produces reality TV series such as Bodog Fight.

Rules for wagering are as follows: "If it is not officially announced by December 31, 2008, that iTunes has surpassed Wal-Mart as the No. 1 U.S. music retailer," according to the wagering board on Bodog's Web site, "all 'No' wagers will be graded the winner. Max. $50."

Apple's iTunes will likely whip past Wal-Mart Stores to become the largest U.S. music retailer sometime this year.

The NPD Group issued a report Tuesday that said Apple had outpaced Best Buy and Target to become the No. 2 U.S. music retailer. Unless the downward trend in CD sales suddenly reverses, Apple will be No. 1, said Russ Crupnick, the NPD Group's president of Music.

"Digital sales were up close to 50 percent and CD sales were down 20 percent last year," Crupnick said. "Even at half that growth rate in digital sales, Apple will in all likelihood catch Wal-Mart this year."

Anybody in their teens or early 20s is going to ask, "So what else is new?" To them, digital downloads has been part of their lives for years. It's only natural that a download store emerge as the top seller.

But anybody older is going to remember that it wasn't too long ago when music buying meant flipping through CD racks at the former retail powerhouses, Sam Goody and Tower Records.

Tower no longer operates retail stores, and Sam Goody's owner is renaming whatever locations it hasn't closed. "Yeah, it's astonishing--just in the post-Napster era--to see what's happened to the retail-sales environment," Crupnick said.

Apparently, the transition from offline to digital sales is occurring faster than most people expected. (Remember how record executives used to whip out statements like: "Discs are still how most people listen to music."

They may have been right then, but perhaps that won't be the case much longer.

Consider that the music industry is seeing pressure on CD sales from multiple fronts. In the offline world, there is a sort of death spiral going on, Crupnick said. As CD sales continue to slide, retailers like Wal-Mart, Best Buy, and Target devote less and less floor space to discs--which of course serves to erode sales even further.

Amazon.com, the e-tailer that used to be synonymous with ordering CDs off the Internet, has opened a music-download store to challenge iTunes.

Then there is the teen market that is abandoning CDs in droves. According to the report issued by NPD on Tuesday, nearly half of all U.S. teens (48 percent) did not purchase a CD last year. That is up from 2006, when about 38 percent of teens made no CD purchases.

Older music fans are transitioning at a slower rate but it's happening there too. In total, NPD Group said that the music industry waved bye-bye to about 1 million CD buyers last year.

Music remains popular, according to report, which found the amount of music acquired by consumers went up 6 percent. The trouble is that less of it is being paid for. Spending among Internet users fell from about $44 per capita to $40.

It must also be said that not all of Apple's success is due to the growing digital demand. Apple has flat out done a better job of retailing than competitors, Crupnick said.

For example, the music industry should follow Apple's lead and direct their attention to teenagers, Crupnick said.

Teens lack credit cards and this often prevents them from buying at almost everywhere but iTunes, Crupnick said. Apple avoids credit cards by pushing the gift cards, which teens can pay for at retail locations and then use them to purchase songs online by keying in a code. No credit cards needed.

"That's the question that the music industry has to answer soon," Crupnick said. "How do we get young people to start paying for music again? They've got to make it easier for teens to buy online. Apple CEO Steve Jobs has done a wonderful job of this. Teens have a way to do commerce with iTunes."

Advanced Micro Devices may have been demoted on Dell's Web site (though three AMD-based notebook models are still listed). But its chips aren't collector's items yet.

A quick inventory of Best Buy, the largest U.S. electronics retailer, is telling. A search on the reseller's Web site greets you with a page full of AMD-based notebooks. Ten to be exact. Some are fairly attractive too. Many are models in Dell's svelte Inspiron line. (Correction: not Dell's XPS line). Granted, Best Buy may not have the turnover of Dell's Web site but it's not Radio Shack either.

HP dv9715

(Credit: Best Buy, AMD)

Then there's Hewlett-Packard. If the perception is that AMD is fading at Dell, that's not the case (at least not yet) at the largest PC supplier in the world. "AMD represents a good value from a price/performance ratio," an HP spokesperson said.

In addition to the AMD-based notebooks available on HP's home-and-small-office site, a crush of systems is listed on Best Buy. If you're keeping score: AMD 9, Intel 4. Go to Staples online, and it's nothin' but AMD in HP.

And let's not forget Toshiba. In addition to listing seven AMD-based notebook on its Web site, almost half the Toshiba notebooks at Best Buy use AMD chips.

What about the brick-and-mortar Best Buy? At a Southern California Best Buy (just south of Orange County), there were 34 notebooks on display. Exactly half (17) of these used AMD chips (mostly dual-core Turion processors). And most of the AMD systems were placed at the front where people browse. But here's the catch. The salesman was pitching Intel. He volunteered that Intel's Core 2 beats AMD's dual core. "Intel runs cooler too," he said. And he had nothing positive to say about AMD. That's a problem.

Which brings us to another problem AMD may face. Last fall, Intel CEO Paul Otellini said in a conference call that his company has "walked" away from "a lot of low-end business" in mobile and desktop because it's not profitable. This is a real danger for AMD: getting relegated to the budget bin where profit margins are typically thin. (Many of the AMD systems are below $900.) But that story--whether AMD's profit margins are in fact razor thin or not--will be told in upcoming earnings statements.

The bigger problem may be Intel's Silverthorne and its low-cost x86 derivatives. These chips are designed specifically to compete at the very low-end--and make money there--unlike current Intel processors. Though nobody knows at this point whether Silverthorne will be competitive or not, its mantra is worth noting: low cost is good. "Because they are so small, literally thousands of them can be cut from 300mm wafers at 45nm. Thus, their economics are incredibly good," said Roger Kay, an analyst at Endpoint Technologies Associates.

And Otellini said more or less the same thing during Intel's fourth-quarter conference call. "We're embracing this trend with Silverthorne and will take the pricing down even lower...A tailored product for ultralow cost notebooks is a new thing for us," he said.

HD DVD's coffin gets another nail.

Word was out this morning that Netflix was giving up on HD DVD, but now Netflix is getting personal about it. I just received the following e-mail:

Dear David,

You're receiving this e-mail because you have asked to receive high-definition movies in the HD DVD format. As you may have heard, most of the major movie studios have recently decided to release their high-definition movies exclusively in the Blu-ray format. In order to provide the best selection of high-definition titles for our members, we have decided to go exclusively with Blu-ray as well.

While we will continue to make our current selection of HD DVD titles available to you for the next several months, we will not be adding additional HD DVD titles or reordering replacements.

Toward the end of February, HD DVDs in your Saved Queue will automatically be changed to standard definition DVDs. Then toward the end of this year, all HD DVDs in your Queue will be changed to standard definition DVDs. Don't worry, we will contact you before this happens.

You can click here to change your format preferences.

We're sorry for any inconvenience. If you have any questions or need further assistance, please call us at 1 (888) 638-3549.

-The Netflix Team

While I'm often accused of being a Blu-ray supporter (I think this e-mail proves I'm not as one-sided as some people might think), the note actually makes me kind of sad. The fact is I'm much more of a renter than a buyer. I always thought (naively) that if I got a hankering to watch an HD DVD on my XBox 360 HD DVD player, I would be able to rent it from Netflix--even if HD DVD went down. Not so much anymore.

Is this the final nail in the coffin? Well, couple this Netflix announcement with Best Buy's announcement that it "will recommend Blu-ray as the preferred format" and the end looks very near. Of course, HD DVD fans can remain in denial.