UK media retailer has just announced that it will buy 14 retail stores from its struggling competitor Zaavi, which is currently in administration, following the collapse of media distributor EUK, which went into administration following the collapse of its parent company Woolworths which was also a key music retailer. Domino effect anyone? OK, things might not be as bad in many markets as they are in the UK, but a) the UK isn’t the worst hit b) other markets should look to the UK for what may be coming.
The overriding problem of course is that not enough people are buying music anymore and of those that are, many of them are shifting lots of their spending away from the high street retailers to online CD stores and to digital download stores. The harsh fact is that no high street music retailer has become a leading digital download store. Some have done better than others, but measure against the success of Apple’s iTunes Music Store, all have failed. They’re not helped by the fact that most digital download stores are an artifact of iPod sales. So selling in MP3 will help them (i.e. being able to sell to iPod owners), but they’ll still be hindered by their biggest problem: integration. No high street retailer has bitten the bullet and fully integrated their digital offerings with in store retail. The level of integration required should be so complete that it seriously threatens near term in store retail sales. Which is of course why it hasn’t happened yet. But if they don’t pursue such strategies soon, they’ll lose that revenue to other outlets rather than to their digital divisions. Meanwhile Amazon is setting the standard for integration. They could still go further, and they should, but they’re much further along this road than most of their bricks and mortar peers.
CD sales are in terminal decline. It’ll be a long prolonged death, so there’s still plenty of business in it, but succession and transition strategies need to be built around that basic tenet. The fact that music retailers are now media retailers (i.e. they sell DVDs, games, electronics etc) is indicative of the realization of where the future is. But aggressive digital strategies are key to retailers can slowing the music revenue share decline and turn it into channel shift rather than revenue loss.
Even though HMV’s revamped digital strategy isn’t as bold as it should be (yet anyway) another announcement shows their ambition: they’ve launched a joint venture that gives them a portfolio of live music venues. This is HMV trying to safeguard their future in the post-CD music business. Such a move isn’t available nor appropriate for all media retailers, but the basic assumption of ‘diversify or die’ is.
Hot on the heels of leading distributor EUK going into administration, Pinnacle follows, supplier of CDs, DVDs and games to the likes of HMV, Amazon and WHSmith. Could this squeeze on physical distribution be a boon for digital sales? The music retailers are certainly covering their bets: Zavvi announced the planned rapid launch of a new download store, HMV just revamped their store and Amazon’s sudden launch of their MP3 store makes more sense in the light of the Pinnacle problems.
But unfortunately much of the Christmas present custom is more likely to shift to other media rather than to digital music. The download stores of the retailers will pick up some slack, but not enough to ‘save the day’. Physical distribution needs fixing, fast. What may benefit though, are Comes With Music handset sales. Mum out shopping for her teenage kids might just be swayed towards a 5310 instead of another handset if she was planning on buying some music as well.
Ok, it’s tenuous. And that’s just the problem. When it comes to gifting consumers are pretty fickle customers: if they can’t find the CD they want they’ll get a book or DVD instead.
So the most likely net result is accelerated overall decline rather than accelerated digital sales.
UK high street music retailer Zaavi (formerly Virgin Megastores) has suspended trading on its online store due to the collapse of Woolworth’s, which owned Zaavi’s distributor EUK. Negotiations are underway to secure a buyer for EUK. The UK music industry has got to hope that happens soon. Don’t underestimate how important a quarter this is for the music industry. Sales have of course been declining for years in in major markets, but the credit-crunch driven recession we’re entering could be a make or break for music sales.
There is a decent chance that the credit crunch will be a fillip for music sales. This is because many people will have less money to spend over Christmas, or will opt to spend less because of fears of financial insecurity in 2009. Thus many people could chose to buy cheaper presents such as CDs, DVDs and books rather than higher consideration items such as consumer electronics. But for this to work, consumers need to be encouraged to buy, they need the special offers to drawn them in and most importantly the retail channels for them to go to. In the UK we currently have one of the key mass market retailers out of the equation (Woolworths) and now the online presence of one of the high street stores out of action. The odds are Tesco will turn this to their advantage but the net impact would be overall lost UK opportunity, even if Tesco increase their market share.
But “what about digital?” you might ask. Firstly, digital is a long way from meeting the needs and wants of most CD buyers, particularly those who typically buy infrequently and largely in the Christmas period. Gifting an iTunes gift card just isn’t the same as wrapping a CD to put under the tree. Aunt Mable isn’t going to buy Tom an iTunes voucher, she can’t be expected to understand what format works with what device. She’ll go for a book or a DVD instead.
So the music industry needs this Christmas to be big. And in the UK it needs all the retail outlets it can get.