An in-depth assessment on the decline of HMV, and a hypothesis on its return
On the 15th January 2013 HMV went into administration. Many called this an inevitable end to an outdated sales model; with competition from online distributors stealing a lot of the market share that HMV once held. Others said (typically) that it was the rampant culture of pirating that crippled the chain. Regardless of the camp you sit in, the undeniable truth is that HMV has been struggling for years, and does appear to be on its final decent into oblivion.
However, one could argue that this iconic high street chain needn’t become living memory, like Jessops, Woolworths or JJB. This article aims to firstly analyse how it was that HMV ended up in this dire situation, considering factors such as the aforementioned piracy and online distribution methods, as well as their internal structuring, attitudes towards consumer demand and their diversification of products. From here it will question how it’s closure would affect the arts sector, and whether the ‘brick and mortar’ presence has relevance in today’s creative industry. Finally it will look into what assets HMV has, and then suggest potential scenarios that could rescue it from closure. Obviously I am not a business guru, and I do not possess all the facts, so this will be largely conjecture, but I feel it imperative that the discussion is had, for the high street looks desolate enough already.
The first HMV (known then as His Masters Voice) opened on Oxford Street, London, in 1921. Owned by The Gramophone Company, and opened by composer Edward Elgar, the store sold gramophones and radios, and some recorded music. In March 1931, The Gramophone Company completed a horizontal merger with Columbia Gramophone Company to create a new company, Electric and Musical Industries Ltd. Yes that is the record label EMI. In fact, the HMV Oxford Street had a recording studio, where Cliff Richard first recorded a demo, which secured his contract with EMI. You may be thinking ‘Cliff Richard, so what?’, but regardless of your opinion on him, his influence in chart music, and continued hits demonstrates that he is capable at producing popular music. More importantly though, it shows the contribution to music HMV and EMI made.
The level of success meant HMV continued to grow exponentially in the 1960’s with new music from the Beatles, Rolling Stones and The Kinks causing a whole new generation of people to rush out and buy records. In response to this growing demand, EMI started to push the expansion of HMV stores throughout London, and into other major cities. The continued demand for singles grew, and in the 1970’s, UK single sales hit 500m for the first time. By 1976, HMV had 35 stores across the country and were the leading retailers in music.
The real ‘big bang’ came with the introduction of a new format for music, the Compact Disc. The first CD to sell over 1m copies was the Dire Straits’ ‘Brother in Arms’ (a really good album if you’re wondering), and HMV started selling them in 1984. Sale of singles spiked to 640m and Band Aid’s ‘Do They Know It’s Christmas?’ sold 3m alone.
In 1990 the company expanded abroad, entering Japan, America, and later into Australia, Singapore and Hong Kong. This level of global expansion is indicative of the success HMV was having, and in 1997 the company opened its 100th Store. So by all accounts HMV was going to be entering the millennium incredibly strong.
How then, when a company was soaring so high in the hearts and minds of the public, does it end up in administration? People herald the iPod, and the later introduced iTunes as the beginning of the end for HMV. But my question is, why was this allowed to be the case? The iPod launched in September 2001, with much fanfare (obviously, it’s Apple right?!), and the idea of fitting 1,000 songs in your pocket was an incredible concept. iTunes, a digital marketplace for songs, didn’t launch until 2003. That is a 2-year gap where HMV, and new parent company HMV Media Group (EMI had gone into partnership with Advent Investors to form the subsidiary) should have jumped on the download scene. Indeed, they even got e-commerce up and running before Apple by a whole 4 years, launching in 1999 to experiment with online ordering and downloading.
This trial of new technologies before the turn of the century clearly shows that the company wasn’t lacking in vision, but they never utilised their market position to really push through a whole new content distribution system. Instead, it took a company like Apple to bring together the record labels in offering their content in one store. Perhaps it was EMI’s stake in HMV that meant such an arrangement could never be made. They were one of the smaller record labels of the time, and seeing how incredibly obstinate the record labels are as a whole (see my rant on this here) it was unlikely they would ever work together to create a unified platform on their own.
At any rate, HMV Media was being kept afloat by the diversification into both DVD’s, which by then had become affordable and available to the masses, and through sales of books, having purchased Waterstones in 1998. Perhaps then it was contempt that prevented this company from seizing new opportunities?
Floated on the stock exchange in 2002, and changing their name to HMV Group, bought with it an injection of revenue, which was put to use in 2004 with the opening of more Waterstone stores, then the purchasing of Ottakars in 2006, and taking over all 130 of their stores and merging with the Waterstones brand. The spending continued with the purchasing of select Fopp stores in 2007, and some of the Zavvi outlets (formally competitor Virgin Megastore) in 2008. Although immediate figures are not available, one has to question the sensibility of such rapid expansion. I refuse to accept HMV were so blind at to see that brick and mortar stores, despite their appeal, were on the decline, especially as the recession had hit by then. Equally, iTunes was growing ever popular, challenging DVD sales with its TV and film purchasing, and Amazon released the first Kindle in 2007, serving a threat to Waterstones sales model.
Something that shocked me while doing this research was how HMV had actually experimented with social networking and music sharing back in 2008. This bizarre hybrid, called Get Closer, allowed you to upload metadata from your music collection to create a digital locker, so to speak. This would have been an absolute killer if ever released, especially when paired with 7digital, the music download company HMV purchased a 50% stake in. It is similar to what Google Music is, or iTunes scan and match, showing once again how HMV were ahead of the curve but never capitalised on it, killing it off the next year.
News got worse for HMV when in 2010, Apple announced that iTunes had become the largest distributer of music, with 1 billion song downloads. It also purports to be the most popular online music, TV, and movie store. This could have and possibly should have been HMV, had they seized the initiative early on, but their download methods were clunky, and never offered the simplicity as digital downloads from iTunes, or the online ordering ease of Amazon. In 2012, the sales of CD’s and other physical music formats were overtaken by digital downloads, and it would seem to have been the proverbial nail in HMV’s coffin. Obviously, the outcome of this was administration.
THE POTENTIAL CONSEQUENCES
So, having covered the rise and fall of the company, what are the probable affects? Without wanting to be flippant, I wish to look past the (admittedly awful) redundancies, which are expected to go way into the hundreds, and instead examine the social aspects to it. How will the music/entertainment scene be affected by this loss, and will our attitudes towards these mediums be affected?
The short answer is yes. It is irrefutable that the loss of what was such a culturally dominant force is going to cause changes. I think that the whole industry will now become a little less personal.
It happened less, evident through the administration, but there was always something gratifying about going into a store with friends, or on your own, and just browsing through the shelves, getting recommendations from peers, strangers and staff, and sharing your music tastes, knowledge and experiences with others. Sure, things like Spotify, and Google Music with G+ are attempting to make things more “social”, but that physical element of actually talking to somebody, hearing what they think and physically holding that item is not at all comparable to having a virtual thumbs up on a cold computer monitor. The loss of human interaction is a sad reality of the closure, in a society formed completely with constantly connected, socially inept individuals who prefer tweeting to talking. I myself am guilty of this, so am aware of the hypocrisy, but it is still worrying to think that what was once such a huge part of every teenagers life will soon be relegated to memory, and replaced with pixels and broadband, and “shares” on websites. That personal edge will never be replicated in the same way. I will argue that every child born before 1998 will have bought their first album in a store, and not online. I remember that sense of joy and ‘grow up-ness’ when I purchased my first album, although that was in Woolworth’s – Alien Ant Farm – ‘Anthology’, as you asked.
What too, some have asked, will happen to the local independent musicians? Well, statistics were hard to find on this, but from what I understand, HMV was not actually particularly friendly towards the selling of independent albums within their stores. I think the most they did was advertise local upcoming gigs, but that is still a service which is now relegated to the likes of Facebook, and word of mouth.
The industry has obviously moved on from HMV, and no longer values brick and mortar stores in the same way. This is due to both through public demand and the ease of distribution. Incidentally, costs haven’t really lowered to reflect this shift to the digital platform, so one has to question whether or not the consumer is honestly getting a good deal from this shift. A browse on iTunes sees individual film prices mirroring that of DVD and Blu-Ray sales, despite there being no physical costs of distribution. Album prices are similar in a lot of instances. Couple this with the loss of ownership associated with digital purchases (read the terms and conditions!) and you suddenly begin to feel that the industry could potentially be taking a turn for the worse. Add this to the pitiful royalties paid for streaming sites like Spotify (again, covered my other article) and the digital future does not look promising for artists or consumers.
But how does HMV make a comeback? They are essentially without funds, and need a radical change in market approach to even begin a fight back. All of this needs to be achieved while maintaining payments on existing and future overhead costs, even though the administrators have requested building leases be lowered to aid this process. This whole section is purely a exercise in creativity, offering up some ideas that I would like to see become a reality
Become an independent media store
Obviously this will be fraught with opposition from the existing independent stores, but think about it for a second… HMV, with its huge distribution network, and existing premises, dedicating itself to unsigned, independent and local artists. This doesn’t have to just be music, independent films could also be sold through the stores, creating the whole sub culture of art discovery again, and possibly making it mainstream. At the same time, they are giving massive exposure and aid to artists who might otherwise go unnoticed. Questions of logistics will obviously be raised, such as how do independent artists afford to mass produce their work to be distributed around the country. For that, I have no answer, but as a premise I think it would be great to see happen.
Become a purely online distributor
This would potentially work in HMV’s favour in more than one way. Firstly, it would reduce their operating costs exponentially, through the closing down of their physical premises, and the associated costs with it. Secondly, it would bring them ‘up to date’ with the demands of the new customers, once again making them a competitive force in the entertainment industry. Thirdly, it could be integrated with the idea of an independent media store, providing a genuine easy to use platform for independent artists to distribute their work. Adopting the iTunes method of taking a cut in sales, HMV suddenly has the potential to become the portal to a whole host of undiscovered talent. Create a solid platform with mobile support for ALL mobile devices, and create an API so other app developers can plug into your network, then in theory, the legwork is done by others. The drawbacks include the loss of most of the hard working, loyal workforce, and the significant investment cost associated. There is also plenty of competition out there within this sphere, but nobody has yet perfected it in my opinion.
Yes, I know this sounds mad considering it was the continued entering into new markets that caused their astronomical overheads but bear with me. They saw a reasonable increase in sales when they opened up ‘pop up’ technology areas, dedicated to selling headphones, speakers and other hardware such as iPods and tablets. Why not continue this trend, and become the number one place for the purchasing of entertainment hardware. It would almost be a return to their roots, only more suited to the modern age. By selling hardware, and the intangible benefits that come with it (customer service, warranty etc.), HMV could resurge in the provision of specialist knowledge to the everyday consumer. Those who are unsure about technology, or like to try before they buy will always prefer to buy from a physical shop, where they can get the advice and see the product working will love this. Better yet, why stop there?! Imagine if HMV, with the knowledge they have of the industry, and the connections elsewhere, where to build their own hardware. It could take on the likes of the Nexus 7, or the Kindle Fire HD, and merely be a hub for content purchased through their online store. This would require significant R&D, and perhaps a more beefed up online catalogue, but Amazon have proved that this model can be successful.
HMV previously dabbled in this, with the HMV Hammersmith Apollo, but had to sell it off to reduce overhead costs. However, what if they stripped the store of all shelving, and refurbished it to become a live music venue. Obviously some stores would be more suited to this than others, but imagine the good it would bring to the local economies and creative sectors if there was this venue in every town and city which was purpose built for live events and art displays. FIlm nights, live music, art installations, comedy clubs, HMV could become the name for live entertainment. It would have to make a pledge to support local artists who wish to use the facilities, making it affordable, and could call use its contacts in the industry to generate sponsorship money for competitions, and get talent scouts down to judge people, or offer opportunities to advance their skills further. I would personally love this to happen, I think it would allow HMV to connect with the public in an incredible way. Only being open some of the time would reduce operating costs, or they could possibly have it running as a cafe during the day – I don’t know, but it would be so cool.
It is obvious that HMV is on the brink, it fought off this situation for so long, but there was going to be a time where their current, rather antiquated model was going to fail. Therefore, there must be changes to their strategy to survive.
But what are these strategies? How will they be implemented on a shoe-string budget? Is it too little too late? These are all questions that nobody seems to have a definitive answer to at this moment in time. The administrators are culling down the workforce, and selling stores off to other supermarkets like Morrisons to create convenience stores from. This serves to lower overheads but also dismantles literal decades of public support and staff morale, and leaves HMV with even less assets to work with. Blame evidently lies largely with management, who mis-spent, and buried their heads in the sand in regards to the digital revolution. The result, like other revolutions in history, resulted in the once leaders heads being severed from their bodies and tossed in the bargain basket, forgotten and irrelevant. I would love to see the resurge, and maintain an iconic British company in the high street, but it is easy to be an armchair commentator, ignorant of the whole picture. It also depends on consumers, if they don’t buy, HMV will die, it’s that simple.
Maybe it is time HMV admitted defeat, called it a day, and let go of the belief that it will make an Apple-esque comeback. Perhaps a change in management is all that’s required, and this seems to be the direction administrators are currently pushing for. I don’t have the answers, but if the leader wants to save the company then he needs to be a bloody good surgeon to reattach the severed head of this once king.