The January 14 announcement that HMV, the U.K.’s leading entertainment retailer, had entered administration was not unexpected -- having long struggled with year-on-year declines in sales and mounting debts -- but its fallout still has serious ramifications for the U.K. and global music industry. HMV, which has 223 U.K. stores (including nine Fopp outlets), accounts for just approximately a third of all entertainment (music, games and video) sales in the United Kingdom, according to the Entertainment Retailers Association (in contrast, market research firm Kantar Worldpanel reports its U.K. marketshare as being just over 16%).
More significantly, it is the U.K.’s last major bricks and mortar entertainment chain, following the closure of Woolworths and Zavvi (formerly Virgin Megastore) in 2009. However, there are positive signs that HMV could avoid the same fate.
On Jan. 22, it was reported that Hilco U.K., a retail restructuring firm that purchased HMV’s Canada business in 2011, had bought out HMV Group’s underlying debt, effectively gaining control of the stricken retailer. At press time, Hilco U.K. was working alongside HMV’s administrators, Deloitte LLP, to assess and review the company’s on-going operations.
In light of on-going developments, Billboard spoke to a number of U.K. music executives to discuss the company’s future, what it needs to do differently going forward and whether there remains a viable marketplace for physical music product. Representatives of major labels Sony Music, Universal Music and Warner Music -- who are understood to have previously negotiated generous credit terms with HMV -- all declined to participate.
Mike Chadwick, managing director, Essential Music & Marketing
How important for the U.K. music business is the continued survival of HMV?
If HMV can remain on the High Street with a smaller, stronger range of stores that would be a real bonus for us. However, I don't believe that the music business is reliant on physical sales for survival in the future.
What would be the potential ramifications if HMV was to disappear from the U.K. High Street?
I think in the short term there will be a readjustment between physical online sales and downloads/streaming. In the long term, music sales should get back to close to where they are today, but the pop album market may suffer from lack of the impulse buyer. If the U.K. were to follow the Scandinavian markets then maybe we could even see growth thanks to the growth of subscription models.
What changes must HMV make to survive in the modern marketplace?
I'm not sure they will need to change that much. More emphasis on music would be great, but the High Street [bricks and mortar] model may be doomed by ever rising rents and rates.
Is there a future for physical music sales?
Absolutely. Even as the population ages more people are starting to re-enjoy the benefits of vinyl and the market for Direct to Consumer luxury packages won't disappear. Even the humble CD still has a place in the market.
Will Hope, director of label relations, Spotify U.K.
Do digital services such as iTunes and Spotify render mass market bricks and mortar record stores an outdated model?
I don’t think the two are really competing. We certainly wouldn’t view it as that. We’re helping artists and labels drive a fan base and helping people discover new music. I think if anything they will have a more direct relationship. When things are working well on streaming services you’ll see physical sales go up as well, and that’s what we saw recently with Mumford and Sons. I think for a physical collector that person is probably going to discover music online, so I think if anything we’re be driving it rather than competing with it.
Is there still a strong future for physical product?
I think so, yes. People always want to collect. Obviously, the way that they buy that physical music changes and I think how artists approach it will change as well. But we’ve seen vinyl sales going up in recent years. I think real fans are always going to want a physical representation of the artists that they love, so I think there is a future for physical music.
What do you consider the key factors behind the growing consumer migration from physical sales to digital?
The accessibility and adoption of the new technologies more than anything, and this goes across all content driven media. Obviously, there are certain advantages that digital music brings: streaming has no barriers for entry; you can find the artist you want to, stream it immediately, put it on your phone, share it easily with friends. So I think more than anything the mass market for digital music consumption has arrived.
HMV’s slow entry into the digital market space is seen as a major contributor to its current financial troubles. Going forward, does it need to place a greater emphasis on the digital market and would you welcome such a move?
We welcome any music service that encourages people to consume music legally. The vast majority of digital music consumption still happens through non-licensed platforms, so I think there is plenty of room to grow and I don’t think streaming is going to be the only form of consumption as well. There is room for different types of digital and physical music consumption, so I think we’ll see more innovation and more services coming around.
Adam Velasco, managing director, Cherry Red Records
What was your initial reaction to the news that HMV had entered administration?
As the last high street record retail chain out there, of course it’s sad news to hear that they are in trouble, but it wasn’t a complete surprise. We knew that it was going to come. It was just a matter of when, not if.
What impact would the disappearance of HMV from the U.K. High Street have on Cherry Red’s revenue and sales?
We would be sad to see it go. That would be the main thing. But we would survive because we’re a niche company. We have a strong relationship with the independents and the mail-order companies, and also we have a very strong international network, so we don’t rely on those HMV sales. But it would be a blow to lose them.
As an indie label specializing in rock, alternative and folk music, how important is HMV to your business?
They have become less important over the years, but in the past year we did a consignment deal in return for them taking more of our range and, to be fair, business had been better. They took more of our range and we did see that resulting in more sales, so ironically the last year had been a lot better [in terms of] our business with them.
Historically, where did HMV go wrong?
They were too slow. In regimes past by, I guess there was an arrogance and they looked down on the digital revolution. They had an opportunity to take on Amazon and they could have been first in the [digital] marketplace, as they had the brand name. Not investing in that first was a big mistake. Also, to be honest, the stores are not as interesting as they could be. I used to love going in the Oxford Street [London] store, but in the last few years, it’s just been boxes piled up everywhere and not a great shopping experience.
What changes must any new owners of HMV make to ensure its long-term survival?
They have to make it fun to go in there again. With the good independent record stores you go in there and you want to browse around, you want to buy something. The last few years at HMV you haven’t had that experience. They have to make it interesting and exciting again.
Do you believe that there remains a future for physical music sales?
Definitely. People still like physical product. At Cherry Red we try and make our packaging important, make it collectable, as well as do limited edition releases. It’s just trying to be smart with it. For us, digital is under 10% of our business. The vast majority is physical, but we do appeal to an older fan base. Our genres are still very much physical product driven and we believe that they will be for a long time to come.