Dog Without a Horn
How one music giant has been offering the worst of both worlds.
HMV remains a victim of its own failure to change, says Chris Middleton. The Strategist offers it – and the music industry – some answers.
In 2013, music, film and games retailer HMV confirmed 930 layoffs and the closure of 66 stores across the UK. Little has changed since that blood-letting: in 2014, other closures have followed, in Oxford* and even Oxford Street. So it’s tempting to imagine what a more innovative and sustainable music retailer might look like. Let’s explore that idea.
OPINION: HMV has a noble heritage in music. Yet its recent decline is surely no surprise: how can stocking warehouse-style shops with mainstream product at above-warehouse prices succeed, when it offers buyers neither the enthusiasm and knowledge of a specialist (an aficionado) nor the mass-market bargains available online?
If HMV can’t compete on price – which it can if it wants to – then it needs to offer something different. It needs to stop being a fan of itself (unless it can reconnect with its heritage) and start being a fan of music again. And that doesn’t mean selling mass-produced t-shirts. HMV should shout its love for music and film from the rooftops and be active within the local community around each store. That’s where music lives.
The accepted wisdom
The accepted wisdom is that downloads and streaming have undermined HMV and its like. But the truth is that no organisation as massive in retail and as influential in distribution and racking can be a helpless victim of the digital economy. HMV – like much of the music industry – has had nearly 20 years to position itself convincingly for downloads and streaming. It has reacted too passively and too slowly.
It was 2010 before HMV dipped its toe into the downloads market with hmvdigital. There, HMV’s pricing policy has remained a mystery since its opening offer of ‘the top 40 songs for 40p each’ petered out. Some tracks are on sale for 30p more than on iTunes, for example.
This tells us that HMV lacked the courage to go in hard on price and stay there, forcing others to react. Perhaps it thought it could use its name to sell music at a premium, or perhaps it didn’t want to be seen to treat music as a commodity – a stance that musicians would sympathise with. However, its physical stores say ‘commodity’ to customers.
But either way, customers are clever; they know that selling music online strips away the expense of manufacturing, packaging and distribution. They want those savings passed onto them.
Smoke and mirrors: the music industry
Artists also want more from the digital economy. They want to be paid more per download or per stream, rather than be locked into label deals that were designed for the 1970s. Some streaming services pay out less than one per cent of a single download’s cost, meaning that some artists may, ultimately, only receive 0.1 per cent of one per cent per play. Not that this is HMV’s fault.
But collectively, the music industry spent years blaming CD sales’ initial decline on piracy and illegal file-sharing, while hiding the fact that major labels had seized an opportunity to dump stock inventory and sweep niche artists off their books – the real explanation for that first drop-off in the figures. At that point, the online music market was minuscule.
The music industry’s millennial response to the rise of the internet, therefore, was collectively to offer listeners less choice, drive up the profits from what remained, and hope that online distribution would buckle under the threat of global litigation. This gifted the online market to Napster, Apple, and the rest – who saved the music industry billions of dollars by proving the file-sharing and downloading concepts.
But for most of its customers, the music ‘industry’ has never been about formats, but simply about listening to great music, sharing it with their friends, seeing live shows, and enjoying a collective experience. And so trying to cajole, bully or litigate customers into subsiding an analog publishing model that left many artists in debt was always going to be a short-term strategy for major labels. Today, the most profitable parts of the industry are in staging live events.
Trouble in store
HMV’s in-store strategy has long been baffling. It’s sold iPads opposite Apple Stores, but minus the Genius Bar and one-to-one service. It’s sold consumer electronics at premium prices against the cheaper outlets next door. It’s sold games at up to £10 more per disc than specialist retailers, such as GAME, in the same shopping centres. And it’s sold mainstream DVDs at offer prices that barely compete with prices elsewhere.
So the conclusion is inescapable: HMV thinks it’s a prestige retailer where people will pay more for the privilege of shopping there. But it isn’t, because little about the HMV in-store experience says ‘prestige’ to its customers, beyond rare live appearances by bands. For most customers, ‘prestige’ equals personal service, exclusive products, and/or an aficionado culture.
So for HMV’s strategists, the question has to be: what’s to keep fans in the building once their favourite musicians have left? Being a fan of an artist isn’t the same as being a customer of HMV. This is why some independent music retailers are succeeding: they’ve found a way to make music-lovers into fans of their stores.
HMV should either sell more cheaper, or less better. But its strategists have left the company in a poorly differentiated middle ground, with no proposition other than being big, mainstream, and in every large shopping centre. Being a destination shop for day-trippers is not a mix that works anymore, unless you can do one of three things:
• Turn your distribution warehouses into stores and pass the savings to customers.
• Innovate in your market with exclusive products. Not just ‘steel book’ editions of movies, but also short-run live albums that tie in with local gigs; specialist or limited editions of albums; and releases made purely for one city, or which feature local artists.
• Become part of, and add value to, a local community – not just a town or city, but also a community of interest: local musicians, coders, games developers, and film makers. Be a host to all that creativity and offer it a route to market.
HMV likes to pile it high, but refuses to sell it cheap. So the more exciting future for HMV would be in a mix of the last two options: host local talent and deploy its manufacturing and distribution muscle to serve a vibrant music scene and, from time to time, make something rare, small and exciting, rather than always mass market and over priced.
Sadly, HMV has closed stores that have forged strong connections with the community – such as Oxford – and kept open others, such as Brighton, that stand apart from their equally thriving local scenes. (Brighton hosts several independent music shops, including Resident, Borderline, Cult Hero, and others, that have strong connections with local venues and bands.)
Recently, some HMV stores have added band-branded merchandise to their lines, but this ignores the fact that fans want excitement, enthusiasm and authenticity, not mass-market t-shirts. After all, many prefer to buy merchandise directly from artists, or to trawl eBay for rarities.
The return of vinyl
Some HMV stores have begun selling vinyl again – a growth market – but this pitches the ailing behemoth against the many small, independent music retailers that have kept people’s passion for music alive. Vinyl fans don’t want to buy it from HMV, despite the company’s heritage in vinyl and, before it, in shellac 78s. Vinyl buyers tend to support independent retailers.
The recent growth in vinyl sales, up by 70 per cent year on year after six years of steady increases, is far from counter-intuitive in the digital age; it’s indicative of a market being polarised and offering different buyers what they want, rather than dragging everyone towards the middle – like the groove of an old record.
Today, collectively, music retail bears witness to the same polarisation as other markets. Arguably, it’s an exciting time: buyers can now choose between ‘fast, low cost and convenient’ – free online jukeboxes, ad-funded streaming, and pay-per-track downloads – and the aficionado alternative of audiophile discs sold by experts in shops that offer in-store live performances and one-to-one service. Convenience, or craft? The buyer chooses.
Some buyers dip into both markets, enjoying the separate advantages of speed/convenience, and depth/exclusivity. But what if your company offers neither the speed, convenience and low cost of one strategy, nor the depth, passion and exclusivity of the other?
Aficionado retailers use the internet too, to build global communities around their local enthusiasm for music. Such retailers help put the joy of music back into the business, something that had been absent for too long. Some are starting their own labels to give a platform to performers they love.
That said, HMV’s smaller, more innovative rivals face many challenges, not least of which is the distribution channels that are still set up to favour companies like HMV. The former fat cats have, in some cases, squeezed out the potential for innovation in their competitors, only to then stifle it within themselves.
The music industry now needs to make a substitution: change its physical distribution terms to allow smaller retailers to flourish too. And, just as significantly, rethink artists’ contracts to better remunerate them for downloads and streaming. TS
*: The retailer has said in the Oxford local press that it plans to open at a different location.
The Strategist says
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