January 15, 2013 8:22 pm

HMV loss will hurt industry, analysts say

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HMV’s disappearance from the high street would have an irreversible negative impact on the entertainment industry, analysts warn, with sales of CDs and DVDs already in terminal decline.

“If HMV were to close completely, we expect the entertainment market to lose over £300m – this is over 9 per cent of the total entertainment market value,” says Craig Armer, consumer analyst at Kantar Worldpanel. “Some shoppers will simply move to other retailers, but the value generated from browsing and buying on impulse will be lost.”

This explains why suppliers – from music labels to film companies – say they are keen to see HMV survive even if it is unclear how much more financial support they will give the retailer. In January last year film and music suppliers took a small equity stake in the retailer, preserving their biggest route to the high street.

Yet HMV may have already been living on borrowed time.

Following the closure of Woolworths in 2008, HMV’s market share of CD and DVD sales peaked the following year. Difficulties at rivals such as Zavvi and Game also helped to drive more customers to its stores.

“But HMV is now the last man standing,” says Neil Saunders, managing director of Conlumino, a retail consultancy. “It has no share it can steal, and the march online goes on.”

At the core of HMV’s troubles lie these dramatic shifts in UK consumer behaviour.

In 2002, counting both physical and downloaded content, just 6.5 per cent of film and music was purchased online, according to Conlumino. By last year that figure had risen to 73.4 per cent, and is predicted to surpass 90 per cent by 2015.

Music purchases clearly illustrate this trend. Bar a few thousand CD sales at Christmas, all single sales in the UK are now digital as buyers, dominated by younger fans, have migrated to services like Apple’s iTunes.

In albums, CDs have held up more strongly. They still account for 69 per cent of UK album sales, according to BPI, which represents the UK music industry. But the trends are clear: physical album sales were down 20 per cent last year, according to Strategy Analytics.

Amazon has grabbed market share, and supermarkets such as Asda and Tesco use low cost films and music to lure customers to their stores.

Despite all this, the UK’s dominant retailer for music and DVD is still HMV.

According to Verdict, HMV’s share of the combined music and DVD market, defined as physical and downloaded products bought on and offline, was 22.3 per cent last year. Amazon came in second position with a share of 17 per cent.

Analysts say the loss of such a major store chain would benefit the UK’s 295 independent music retailers.

But it could also hurt consumers. Without a deal to ensure the survival of HMV, the prices of CDs and DVDs could rise.

“The number of players in terms of distribution to the UK market has shrunk by one,” says Ed Barton, head of digital media analysis at Strategy Analytics. “The question is how low will Amazon and supermarket prices stay. And for how long?”

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