Why Focusing on Digital Sales Won’t Save HMV

January 16, 2013 – In The News

On January 15, the British electronics retailer, HMV, announced that is has entered a form of bankruptcy referred to as administration. Shares of its stock, which have fallen more than 99% from their value at the company’s $1.6 billion IPO in 2002, have been suspended from trading on the London Stock Exchange.

HMV was founded 92 years ago and has managed to stand the test of time surviving shifts from vinyl to tape to CD. However, the recent focus on digital downloads will not be enough to save the company.

According to Nielsen’s year-end report on the music industry, 2012 marked the first year that more albums were sold by digital music stores than by any other kind of retailer – including mass merchants like Best Buy. Even if HMV were somehow able to involve itself in Apples’ digital download market share or Amazon’s physical product empire, it would soon face the obstacle of shifting to streaming music.

If HMV wants to compete long-term on the digital side, it has to contend with large companies like Best Buy as well as streaming giants like Spotify, Pandora and IHeartRadio. Unfortunately, obtaining licenses needed to launch this service can take years and that is time that HMV doesn’t have.

“I don’t think that there is any future in the near term for stores like HMV, but I do think that we’ll continue to see fans buying physical music products as time goes on,” says Lori Landew, an entertainment attorney with the firm Fox Rothschild. “I believe that there is and always will be a generation of music lovers who will want to experience selecting and buying music differently than what they’ve grown up with online.

That trend is apparent in the recent success of vinyl, which has continued to increase in sales for the fifth year in a row.

While HMV’s historical classical records and unique recordings could appeal to the turntable crowd, Landew believes that won’t be enough to save the company.

“The sheer overhead that companies like HMV must handle makes it difficult for them to stay afloat in the current market.”