HMV Reinvention or Bust?

HMV had sales of more than £2bn, in it’s last year of trading. It currently has 600 stores in the UK and employs 13,000 people. It is also responsible for more than a third of all music CD sales here and more than a quarter of all DVD sales.

HMV stores are the only remaining chain of recorded music stores in this country of any size, and its Waterstone’s chain is the dominant force in specialist book retailing!

On the face of it, HMV is an important employer and it is pretty important to our creative industries. Smaller record companies, for example, find it hard to shift their back catalogues at a profit anywhere else.

Here is the jaw-dropping statistic. At last night’s closing share price of 11p, HMV has a stock market value of just £47.65m – down from £650m less than two years ago.

What’s going on?

Well HMV is about to breach the terms on a £240m borrowing facility provided by eight banks, led by those semi-nationalised giants, Royal Bank of Scotland and Lloyds.

That means the banks have the right and ability to demand all their money back.
But, of course, HMV can’t possibly repay in an instant the £130m it has actually borrowed out of that £240m.

So HMV needs to reach an agreement with the banks, otherwise the administrators would be called in by the directors.
HMV – a legendary name in the history of the recorded music industry – would be bust;
the shares would be worthless.

What’s going to happen?

Well early next week HMV will make a presentation to its banks – which are expected to be advised by the accountancy firm Deloitte – on how it intends to regenerate its business.
The banks are then expected to take couple months deciding what to do. The banks decision on HMV will be if they believe it has a survival plan in the current markets.

To put it another way, Apple – with its iPod and iPad – is the silent white assassin of HMV, because more and more of us are choosing to download music, games and films, rather than buying the hard copy ‘discs’. Likewise Waterstone’s is being squeezed as we opt to download books onto so-called tablets.

That said, HMV remains in profit, although profit is shrinking. And, unlike Woolworths – which disappeared at the end of 2008 – consumers have a pretty clear idea what the group’s two brands, “HMV” and “Waterstone’s”, represent; they know the kind of product they will find if they enter one of the stores.

The problem is that they don’t want as much of that product, in its traditional form, as they used to do.

So what is HMV’s cunning plan? Well part of it is to join them rather than beat them: it is aiming to refit 100 stores this year, to give 25% of selling space over to the sale of new digital devices, those beastly tablets and handheld devices that are killing sales of “hard” software (the CDs and DVDs).

Through its 50% ownership of a digital downloads business called 7digital, it plans to stay in the business of selling recorded music. 7digital has negotiated agreements with the likes of RIM so that the new Blackberry Playbook (a soon-to-be launched competitor to the iPad) will come with the 7digital download app already built in. Which means HMV should share in income from downloads on these devices.

HMV has other digital ideas too – such as trying to persuade publishers to provide hard copies of books that incorporate a right to download those books to a tablet.

The plan recognises that HMV can’t survive by simply doing what it has been doing for the past few years: it has to acquire a meaningful share of the digital cake.

Whatever happens, there will be quite a price for high streets and staff. But the highest social and cultural price – if not necessarily the maximum financial one – would presumably come from the business going under.

Which may or may not weigh on the minds of the two semi-nationalised banks, RBS and Lloyds, that are HMV’s most important creditors.

For the full story visit Can HMV reinvent itself on BBC News

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