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Does HMV face insurmountable hurdles?

Posted in General, Branwell Johnson, Latest reporters' blogs July 20th, 2007 by Branwell Johnson

Who would be a packaged entertainment retail chain in this climate? As there are only really two national specialists now - HMV and Virgin Retail -  the question is really posed to them.

As a distribution channel for music – be it digital or tangible - these high street brands are increasingly being sidelined. Last weekend saw the Mail on Sunday give away the latest Prince album in a promotional deal believed to have netted the artist up to £300,000 while last month saw Starbucks launch the new Paul McCartney album with a global push after signing the former Beatle to its own music label.

This year has already seen two long established chains, in the form of Music Zone and Fopp, with presumably plenty of experience in the volatile world of music retailing, go into administration. American specialist Tower has also withdrawn from these shores.

While Virgin can cross-promote with other companies in the Virgin stable and can draw on deep pockets to sustain brand promotion exercises such as the annual V Festival, HMV seems to lack such energy and leverage.

In fact, HMV is even losing in the battle to be one of the foremost brands associated with music. A study by Entertainment Media Research looked at awareness of brands active in music and HMV was ranked fifth, down one per cent, behind iTunes, Virgin, NME and O2. The telecoms brands have seen the awareness of their link with music leap massively with O2 up 12 per cent, Vodafone up 20 per cent, Sony Ericsson up 26 per cent and T Mobile up 19 per cent.

The chain actually now draws a large share of its revenues from DVD sales but as deep discounting reaches ridiculous levels in this market and as the pay-to-download a movie model begins to take off, this apparent lifebelt must be quickly deflating.

Starbucks’s McCartney deal was not on an exclusive distribution basis but the chain is looking to provide a comfort zone for potential music buyers who want a more relaxing experience. And its growing number of outlets are providing a global footfall of 44 million people a week. Not many artists are going to argue with the exposure this traffic can provide.

And as to premium music giveaways such as the Prince album, HMV has to brace itself for more of the same. It’s thought that Madness is already talking about an exclusive with a newspaper for the band’s new album.

In fact, HMV was forced into a humiliating climb-down after CEO Simon Fox condemned the Mail on Sunday giveaway - the chain made a last minute decision to stock the newspaper. Is it now planning to go into competition with WH Smith and carry all newspapers with music cover mounts?

For the true music obsessive there will always be a place in their heart for a specialist retailer, witness the opening of the new giant Rough Trade store in London’s Brick Lane, but the days of more than one national bricks and mortar chain are beginning to look numbered.