Most traditional music retailers have smartly diversified into related areas like DVDs, games, books, consumer electronics, merchandise, and even cafes.  But a sharp and continued dive in CDs, a long-lasting recession, and sudden declines in once-stable areas like games and DVDs are making profitability a challenge.

The latest to post losses is Hastings Entertainment (HAST), whose recent quarter produced a rather modest $396,000 loss amidst revenues of $117.2 million.  That represents a swing into the red from comparable, year-ago quarterly profits of $700,000 (for the same three-month period ending July 31st).  It also follows modest profits during the fiscal first half, part of a steady and broader decline in earnings.

Diversification helped this retailer weather earlier, music-related losses, though the recession is causing many consumers to reconsider their spending habits.  A detailed breakdown shows serious music declines (down 15.6 percent year-over-year), but a sharper decline in games (down 20.9 percent).

Elsewhere, DVDs slipped 8.1 percent, across both purchasing and rentals.  “The recession continued to negatively impact consumer spending through the second quarter,” chief executive and chairman John Marmaduke relayed. “Our core customer base remains stable; however, customer purchase behavior has shifted toward value-priced merchandise.”