Perhaps the greater surprise is how long UK high street media retailer HMV has been able to hang on rather than the fact HMV today formally announced it was calling in the administrators. HMV of course has been on borrowed time, with suppliers having come to its aid a year ago, pumping in cash and taking an equity stake in return. HMV’s group revenues have been in decline since 2009 but its music sales have been tumbling since long before that. And despite belated revenue diversification strategies such as moving into the live sector, taking a smart strategic investment in 7 Digital, and some other recent smart initiatives, HMV has been unable to halt the inevitable.
Of course HMV’s problems are far from unique. Retailers across the globe have struggled to come to terms with the transition from the distribution era of selling physical units of stuff to the consumption age in which consumers value access to digital experiences. Even the most innovative retailers have found it difficult: just look at the travails of France’s Virgin Mega, arguably the single most innovative and ambitious of high street retailers couldn’t make it work. But for every Virgin Mega who tried to seize the digital bull by the horn there are ten Fnac’s (the other leading French media retailer) who did far too little too late. In fact, somewhat depressingly, one could argue that if the end result is the same, why bother expending all that strategic effort trying to change?
But what brought HMV and other retailers to their collective knees was a fatal combination of irresistible momentum and strategic error. Piracy, tumbling CD sales, and competition from new competitors (supermarkets, online retailing and Apple) all played their part. But even collectively they need not have added up to an HMV death sentence in 2013. Don’t get me wrong, I am not arguing that there is a long-term vibrant role for high street music retailing, but there could be at least a few good years left.
Despite Apple having been in the market for a decade, the CD remains the bedrock of music sales, and a very significant share of music buyers still buy music offline. For HMV, if it survives in some guise, perhaps half of its 230 odd stores will be able to eke out a solid enough business for another couple of years. The problem though is that those stores will be serving the lowest value part of the music buying population. HMV used to be the destination of the music aficionado now it is the last refuse of the mass market, tech-wary passive music buyer. These consumers are numerous but incredibly low value: the bottom 60% of UK music buyers account for just 18% of total UK music spending. But nonetheless it is a customer base there for someone to serve.
Unable to Kick the High Street CD Habit
Of course, HMV should never have let itself get into the position of relying on bottom feeder revenue. HMV reacted too slowly to the rise of digital, and in doing so was little different from most other music retailers. HMV did not recognize the seriousness of the threat of Amazon and Apple until it was too late. The irony of the piece is that there was a growing strategic awareness of the Apple threat but strategic paralysis prevented HMV from doing anything. While HMV busied itself rolling out ill fated digital stores and services it was unable to play the ace in its pack: deep integration with CD retailing in the high street. But because HMV’s digital revenues were a miniscule share of the total business, the digital team never won the argument against the main retail business who would have effectively been signing away their core proven revenues to an unproven internal upstart. HMV was deeply addicted to high street CD revenue and it was simply unable to kick the habit.
The Missed Digital Opportunity
Back in the mid-2000’s this could have helped transition a very meaningful share of still-physical-but-soon-to-be-digital customers to HMV digital rather than to iTunes. Of course HMV would have needed MP3 catalogue at this stage too, but they were strong enough to get this years before it actually happened, if only they’d been willing to expend political capital getting the licenses from the majors. MP3 mattered but simply wasn’t a big enough deal for HMV in 2005.
The dominant influence of the high street retail business had another unfortunate effect: just when HMV should have been battening down the hatches against Apple, it instead gave Apple a free pass to steal its customers by stocking iPod accessories and iTunes gift cards in its stores. Of course this all made absolute short-term revenue sense, but it was long-term strategic idiocy.
If HMV had acted early enough – i.e. 1999 /2000 – and used its political weight to get the right deals out of the labels and partnered with a good device manufacturer, then we might have been looking at a digital success story now. Even if HMV had missed that strategic-visionary boat, and had instead fought a proper rear guard action from the mid-2000’s then it would have a meaningful digital business by now. Instead HMV’s fortunes remain inextricably tied to the slow, painful demise of the CD.
Regrets, it’s had a few and, unfortunately, it did it its way.
If you are a journalist and would like to talk about this story please email me at mulligan_mark AT hotmail DOT COM