*Toysmart Kills Customer List

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In what some said was the inevitable conclusion to the Toysmart.com customer database controversy, the failed e-tailer agreed last week in U.S. Bankruptcy Court in Boston to accept $50,000 from Disney subsidiary Buena Vista Internet Group in exchange for the destruction of its 250,000-name customer list.


The sale puts to rest an ongoing battle over the database that included a Federal Trade Commission lawsuit joined by 43 states as well as an outcry from privacy advocates and consumers.


"Consumers have every reason to expect that personal information will remain private when a Web site explicitly makes that promise," Massachusetts Attorney General Tom Reilly said in a statement.


Toysmart shut down in May and filed for Chapter 11 bankruptcy protection in June. It had sought permission from the bankruptcy court to sell all of its assets, including its customer database, which includes names, addresses and credit card numbers. Privacy advocates argued that selling the database would violate the company's privacy policy, which said it would "never" sell customer information.


Back in July, Toysmart refused the $50,000 offer from The Walt Disney Co. subsidiary -- which owned a majority stake in Toysmart -- with the intention of getting a better offer for its list.


However, a better offer did not materialize.


One traditional direct marketer claimed that Toysmart's lack of direct marketing knowledge was its undoing.


"Toysmart obviously shot themselves in the foot upfront because they were not knowledgeable of what kind of asset base the list might have been," said Roy Schwedelson, CEO of Worldata/WebConnect, Boca Raton, FL. "Because of their naiveté, they paid a huge price."


He added that Disney did the right thing by retiring the file.


Privacy advocate Jason Catlett said Toysmart's ties to Disney gave it a high profile and put it in the line of media fire, but he is unsure how much the debacle would impact other marketers.


"I'm dubious as to how other courts would look at this," said Catlett, president of Junkbusters Corp., Green Brook, NJ. "I'm not sure that it sets a precedent for similar cases."


He said the incident highlights the importance of marketers having well-conceived privacy policies now that companies are beginning to view customer lists as an asset.


"It's a rather chilling moment for a direct marketer to read in The Wall Street Journal that a list has negative value, that a company is paying good money to destroy a list," Catlett said.


Meanwhile, no one will ever know whether the Toysmart list had value, because no outside merchant ever mailed it. Offline lists are traded all the time and therefore can be assigned a value. They usually rent for $100 to $125 per thousand names. What's more, lists of postal addresses of known Internet buyers go for $200/M to $250/M. Under the Disney deal, Toysmart got $200/M for its list. It could have received much more in the traditional world, assuming the names had a buying history.


A defunct offline mailer usually sells its file to multiple companies for unlimited, nonexclusive usage. Generally, files are sold for two or three times the base price per thousand. An average apparel list with a base price of $100/M could command $300/M when purchased.


And at least one direct marketer said the Toysmart customer file might have had some life in it.


"Even up to a year or two after a list stops growing and becomes stagnant, from a list rental perspective, it still has a shelf life of at least a year or possibly two," said Andy Ostroy, chairman/CEO of direct mail list firm ALC of New York LLC.
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