TORONTO — The future for big music and DVD retailers looked increasingly grim Monday with the announcement that HMV Canada, the country’s biggest record-store chain, had been sold to Hilco UK, a British retail restructuring specialist, for $3.23-million.
Industry experts say the announcement in conjunction with the bankruptcy protection of Blockbuster Canada this month is a signal that digital media has won the format war, and the era of buying and renting CDs and DVDs at retail megastores is over.
Hilco will give HMV Canada $25-million to fund the “continued evolution” of its 121-store business as it expands into more digital and streamed content, the company said.
Paul McGowan, chief executive of Hilco UK, said HMV Canada will introduce new products to sustain sales during the transition into the digital realm. Officials at HMV Canada, a unit of British entertainment conglomerate HMV Group PLC, were not available for further comment, saying they will discuss future plans in coming weeks.
It’s not clear how well HMV’s brand would fare as a relative neophyte in the digital realm, a field dominated by established players such as iTunes, Netflix and on-demand television and movies from cable and satellite providers.
“The HMV that will exist in a couple of years, if it exists at all, will look very different from the HMV of today,” said Rick Broadhead, an author and technology analyst.
“It is a bleak future for their traditional business if they go digital. How are they going to compete with iTunes, which seems to have established itself as the de facto model?”
Buying digital music at a store is counterintuitive to the now-established practice of downloading at home or on mobile devices, he said, and breaking into new areas may be a challenge given that HMV’s brand is associated with products that are on the decline.
Three years ago, HMV Canada heavily promoted a new “store of the future” concept that attempted to woo more digitally savvy consumers with added video games and electronics.
Some locations featured in-store computers for consumers to download digital material or conduct research.
“To get into the e-reader market or the tablet market, for example, is already pretty saturated,” Mr. Broadhead said. “To most consumers [HMV] is seen as a declining brand with nowhere near the status that Apple holds in the market.”
Joseph D’Cruz, a professor of strategic management at the University of Toronto’s Rotman School of Management, called the announcement tantamount to “the obituary for HMV. The stores will eventually be picked up by other retailers.”
After rumours of a possible sale circulated earlier this year, HMV’s 35,000-square-foot Canadian flagship store on Yonge Street in Toronto downsized back to its original 25,000-square-foot space as other locations trimmed square footage.
For the year ended April 24, 2010, HMV Canada generated sales of $360-million, an operating profit of $3.7-million, and counted gross assets of $75-million.
HMV’s news follows a long slide for traditional music retailers in Canada. HMV took over the Virgin retail store business in Canada in 2005 and iconic Canadian music chain Sam the Record Man closed its last store in 2007. Popular Western Canadian chain A&B Sound shut down in 2008.
The decline of CD and DVD sales in the exploding digital era has been complicated further by a downturn in overall music sales due to worldwide digital piracy.
The top 50 debut album unit sales fell 77% between 2003 and 2010, according to the London-based International Federation of the Phonographic Industry. In Canada, which IFPI decried in 2009 for having “some of the world’s weakest legal defences against piracy,” it said music sales fell 50.5% between 1999 and 2009.
HMV Canada’s first store opened in 1986 and expanded after buying the struggling Mister Sound chain two years later.
HMV never developed significantly in the United States, where it opened some stores in the eastern part of the country that were overseen by HMV Canada until they closed in 2004.
Source: National Post
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