Last year saw HMV Group hit the headlines time and time again for all of the wrong reasons. Should it really be selling its live music arm?
Scanning Wednesday’s headlines I happened across a subject that never fails to catch my eye; the fate of British icon HMV. It’s a sad tale filled with “jaw dropping statistics” (thanks Robert Peston), the jettisoning of much loved brands (goodbye formerly-HMV-owned Waterstones) and baying hyenas waiting for the scraps of HMV’s crumbled pillars (enter the VCs).
So what’s new? Bidders have started to line up, ready to battle it out for the ownership of HMV’s live music arm, HMV Live.
The events group Festival Republic (of Leeds Festival, Reading Festival and Latitude fame) have apparently expressed interest, as have investment groups Oakley Capital and Pacific Capital.
This got me to thinkin’.
Isn’t live music flourishing in the face of an ailing music industry!? I can’t remember the last time I walked into HMV to buy a CD or DVD but I am going to the HMV Forum next month to watch one of my favourite bands.
Why is the music giant selling off its increasingly profit-making arm in an attempt to save its already very sick brother?
Last year HMV Live, which has built up its portfolio of 13 venues and two successful festivals (Lovebox and Global Gathering) had a good year. It enjoyed a buoyant festival season with attendances up by more than 20 per cent and spend per head at its live venues was up 10 per cent. HMV Live made £3.4m profit in the 26 weeks to October 2011, up from £1.5m during the same period in 2010.
Meanwhile like-for-like retail sales at HMV as a whole fell 13.2 per cent in the seven weeks to December 17. The share price for HMV currently stands at a woeful 3.5p. Just to put this into perspective – it was £1.30 in 2007.
Back in May the decision was made to sell-off book chain Waterstone’s. A lamentable decision no doubt, but given the steady decline of book stores (just look at Borders), perhaps it was a good call.
And yet the decision has been made to hold onto HMV retail stores, which are haemorrhaging money at an unmerciful rate. As the BBC’sPeston pointed out last year, there are no equivalents to the HMV store left in America.
Saying this – the HMV store plan has altered. The decision had been made to refit the stores to accommodate the sale of technology products such as iPods and tablets.
This should in theory support the digital arm of the business – HMV Group has 50 per cent ownership of a digital downloads business called 7digital. But the success of 7digital, and the share in income from downloads that HMV is set to receive, do not require bricks and mortar.
If I am going to buy a tablet or some form of music playing device, I won’t be doing it in my local HMV store. Is this really the way to save the business?
I desperately hope that I am wrong and that HMV has a bright future. With that in mind, I’ve decided to ask some experts. Here’s what they have to say:
“Live music is stong…but HMV needs to look for a media product that everyone has in their houses where the ‘physical’ product still has legs”
Spencer Hyman, former COO at Last.fm and founder and CEO of Artfinder:
“I agree that live music is strong and has a tonne of interesting advantages versus the recorded music business. Live music has its own challenges though.
“How much longer are the kids who grew up with the Police, Genesis etc. going to be up for (trying) to bop?
“More seriously though, there are a couple of large heavyweights in this business already such as LiveNation, TicketMaster, ATG, CTS in Germany.
“And the large show and festival markets look well saturated – so they too are looking at the smaller venues.
“More importantly, check out what is happening on the secondary ticketing market for some acts – these tickets from day one are already selling at a discount to face value, combine this with the burnout rate for most bands and you can see that whilst “Live” a nice big market, it’s not without its challenges.
“I suspect that the answer to your question as to which bit should they sell (assuming that they have to sell something) is more a question of who would buy the stores and at what price? In revenue / turnover terms the stores are where the money is – but as you infer, it’s hard to see how to generate growth or revenues or margin here.
“They’ve tried gaming – but gaming isn’t as great as it was, and when we launched Amazon’s Gaming offering in 2000 we “won” the day of release market too. Movies and TV are hanging on – but like music, the writing is on the wall for where the streaming versus purchase battle will end.
“So given that they need cash, it’s hard to see who would buy the physical stores, the question is what do they have left to sell? Answer – live music. As to where that leaves them, good question.
“They should have been able to do something in music streaming (e.g., buy Last.fm or Spotify) – but it’s a bit late now. Ditto movies but Lovefilm and Netflix have sewn this up.
“In books, the one chance that the group had was to try and do what Barnes and Noble are trying to do with the Nook, their version of the Kindle. And Simon Fox did try this – but with the sale of Waterstones, HMV’s book-related social networking site aNobii struggled.
“So that just leaves games and how to you play versus XboxLive and PlayStation (or Zynga) as a bricks and mortar play?
“So my suggestion would be that HMV look for a media product that everyone has in their houses where the “physical” product still has legs. Wonder what that is? Try Art! (And please, please don’t say “merchandise” – Tshirts sell at gigs and slippers are the preserve of M&S and Peacocks).”
“Digital is where it’s at at the moment…now is not the time to sell real estate”
Gregory Kris, CEO, Decibel Music Systems Limited:
“HMV’s stock price has been in rapid decline and this seems like a quick fix that could stop the nose dive. It’s a big impact sell that could pull its stock back up and keep shareholders happy. As far as I am aware HMV is remaining fully invested in their digital music offering 7digital. Digital music is the place to be at the moment so I think that’s the right decision.
“I know that HMV’s retail venues are losing money at a high rate but its retail arm is valuable in terms of real estate and now is definitely not the time to be selling properties.
“HMV seems to be focusing on technology instead of the live side of its business – focusing on selling the hardware needed to use its digital offering. iPods, tablets, laptops seem to be a big part of its new strategy.
“There are two areas making money in music at the moment – digital and live. Live is making more than digital at the moment but HMV has its stores in prime locations up and down the country and its digital product – so I think selling the live arm is the best chance of making a bang for its buck.
“I think whether or not the live arm is bought by venture capitalists or the interested events company – it will end up in the hands of live festival organisers and they are in the best place to make the most out of the products.”
“It’s a shortsighted move on HMV’s part”
James Booth, CEO, Rockabox Media
“This is an interesting one. The traditional music store is significantly challenged with digital downloads being as they are; it’s certainly a case of reinvent or suffer.
“Live music will always be important and the advent of social media has given much more energy to sharing experiences.
“More recently major brands have become drawn to live music as a vehicle for reaching a broad audience and penetrating social groups.
“I think it is a shortsighted move on HMV’s part; there are new models to explore around live music and the merchandise potential can’t be ignored.”
“HMV would definitely hold on to the Live music arm…if they had any choice in the matter”
Jonny Woolf, co-founder, Fairsharemusic.com
“HMV are sitting on a debt mountain of £164m which they need to reduce, they are closing shops and concentrating on selling assets to reduce their debt burden.
“Selling HMV live is a fairly logical step in a period of contraction and I don’t think it can be avoided.
“Their live music arm has clear synergies with HMV’s other operations and live music is holding up fairly well in terms of overall leisure spending.
“In terms of the market itself, live music has seen incredible growth in the past decade growing from about £500m in 2003 to around £1.4bn currently and recorded music has fallen from about £2bn in 2003 to around a £1bn.
“So if they had any choice in the matter I think they’d hold onto HMV Live which is likely to be a strong asset for any potential purchaser.”