THE NEW MUSICAL BOX

HMV SOLUTION IMMINENT?

As many had hoped, it does look as if there's a gathering wave of good will towards HMV right now. My previous blog on 15th January outlined the reasons why HMV had found itself in administration and expressed the hope that a combination of the music industry and some White Knight financier would see it survive, somehow. What had been a couple of "straws in the wind" seem to be firming up and we need to check these out.   

Today, HMV's adminsistrators Deloittes have confirmed that after looking at the company's finances, the stores can now start honouring gift vouchers once more. HMV took a lot of flak from customers for the refusal to accept them, particularly as there were many more of them in circulation than usual following the festive season. But that in essence was part of the issue. The gift voucher money had already been paid to HMV and taken into account when they called in the administrators. Deloittes wouldn't accept a position whereby stock would flow out of the stores for which no further income would be received. Whether this is an acceptable or moral course of action is open to debate, but it has been the pattern with many other high street stores that have taken the administration route.

Interestingly enough, there doesn't seem to be any hint of HMV store disposals yet and the planned January "25% off sale" went ahead and still continues. 

Salvation?    

Record buyers with longer memories will recall that when both Borders and Zavvi closed their stores, one of the communities that suffered the most were the indie record labels. They relied on their wares featuring in-store and with distribution channels closed off, it set their financial alarm bells ringing too. It was almost a double blow for some of them - reduced distribution and stock tied up in the stores with little or no hope of financial redress.  

HMV poses an even bigger threat as it is the last national chain and had, until recently, an admirable policy of supporting genre music and small labels alongside the big international firms such as Sony. Ironically, several of them - such as The World Music Network - had seen increased sales and profits via HMV. But, there's a clear danger that with little or no distribution, many smaller labels will also cease trading. Behind the scenes, intense lobbying has been taking place to ensure that these factors were also taken into account in determining HMV's future. The knock-on effect would be felt beyond those labels as it would reduce the number of publishing outlets for aspiring bands - and although many can take a DIY approach, it's not as simple or *lucrative* as many might think.

The big groups themselves are also keen to keep HMV intact: despite their size, they too need distribution and they have rostas of bands and artists who have deep back catalogues which need to be promoted. They also have big interests in films and associated DVD sales and it's not at all surprising to see Warner Brothers, Universal and 20th Century Fox trying to protect those *assets* by supporting an appropriate outcome. 

  

HMV Vancouver

It now looks as if what is quaintly known as a "restructuring specialist" Hilco has emerged as a front-runner to buy HMV. It's a company that buys "distressed businesses" where they believe there's some hope of turning them round as a going concern. They have history in this area having bought HMV (Canada)  a couple of years ago for the paltry sum of £2m and already, some of the largest flagship stores such as that in Vancouver have been closed. They have, though, opened smaller, more specialist outlets in city suburbs and it'll be very interesting to see where this policy takes them in the longer term. Importantly for the UK, the major record and DVD companies seem to be uniting behind the Hilco bid - which (apparently) is one of some 50 expressions of interest shown in the chain. It also seems that record and DVD suppliers see Hilco as a positive option and may well be prepared to support them on any acquisition - and ensure that decent credit lines are provided, credit lines which are the life-blood in this sort of business. There are even hints that prices charged to HMV might be reduced.

Hilco have made no comment so far - and there are some conflicting reports about what the major record companies are actually doing (if anything) to resolve this crisis for HMV. 

Brand New Record Store in
Bournemouth, Dorset

Let's not forget, HMV may not be the best record stores around - there are still some very good independent record stores in the UK - but they do have a presence in 230 or so towns and cities around the UK. Of course it would be nice - in the event of HMV's finally collapsing - that more indies spring up. Some might, but the there will be huge challenges to overcome: firstly, the high cost of location and rent and secondly, the attractiveness of the deal they'll get from record companies for supplying stock. A lone store doesn't have the buying or bargaining power of HMV and will need to fight and overcome these issues to succeed and make a profit.

It is true (of course) that on-line sales are increasing dramatically both in terms of on-line ordering of CDs and music downloads. But with no HMV -  and despite a sprinkling of very good independent stores - I don't think the UK is yet ready for there to be no record-buying outlets at all in many towns and cities. Habits die hard, ordinary folks don't embrace new technology as quickly as early adopters - and there is still nothing to beat the tactile qualities of an LP or CD.  

The next few days, then, will be crucial.

Alan 

21st January 2013