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Report says City still cautious about HMV future

By | Published on Wednesday 3 February 2010

The continued growth of digital entertainment products over the physical will present a challenge for high street entertainment retailers like HMV and Game.

Or so says a report from a KPMG-backed think tank, and thank God for that, because there was the rest of us thinking it was going to be all smooth sailing for CD, book and game sellers from this point on.

To be fair, I think the point that the think tank is trying to make is that those pie-guzzling City types remain unconvinced that HMV, Game and their like are yet sufficiently equipped to deal with the continued shift of entertainment consumption from the high street to the internet.

And I suppose the growth of streaming and on-demand entertainment services will mean that even attempts by the traditional retailers to move into the mail-order CD/DVD/game and a-la-carte download domain – even if you ignore the fact that move hasn’t been entirely successful – won’t be enough to maintain market share.

The report is perhaps most interesting in that it seems to suggest City types still view HMV in the context of its traditional high street presence – so the HMV and Waterstones shops – rather than its recent efforts to reinvent itself as an all round entertainment provider, through its 50% stake in digital download store 7Digital, its partnership with cinema people Curzon, and its existing JV with and pending acquisition of the MAMA Group, one of the UK music business’ biggest success stories of recent years.

The report says: “The stock market has decided that the structural decline of the physical market for games, books and music caused by digital downloading will very quickly overwhelm the efforts of both companies to adapt and prosper. The severe derating of Game and HMV seems harsh, but the stock market tends to get these things right, so both companies will have to work very hard to get both consumers and investors more on their side this year”.

All in all, HMV could probably do with reviewing and simplifying its product portfolio and then overhauling its corporate brand, in a bid to convince consumers and investors alike that His Masters Voice is now an all round entertainment powerhouse, and not just a record shop with an awful lot of side projects on the go.

Elsewhere in the think tank’s report, some more general doom and gloom for the entire non-food retail sector. Despite the government’s recent announcement that the British economy had stopped receding, this think tank doesn’t see any reason for retailers to feel any optimism, especially now the Christmas spend-a-thon is over.

KPMG’s Helen Dickinson: “Because retail is so heavily dependent on consumer sentiment and individual consumers’ personal financial situations, which, in turn, rely on the economy, the sector is affected very quickly by economic events. Unfortunately the current situation is more of a bumping along the bottom of the recession cycle than real recovery from it and the delicate confidence that has recently returned could very easily be shattered”.