As CD sales fall, HMV is turning to live music

Let’s go live: Alex Kapranos, lead singer of Franz Ferdinand, playing at Heaven on Tuesday evening

11 April 2012

On Sunday night, New Kids on the Block will become the first band to take to the stage at the newly christened HMV Apollo, formerly the Hammersmith Apollo. It is perhaps not the illustrious start the new part-owners of the famous west London venue might have wanted. After all, The Beatles, The Clash and Johnny Cash all played packed-out gigs there. But it will mark an important moment for HMV.

The re-branding is the result of a joint venture unveiled last week between the entertainment retailer and Mama Group, the UK's second biggest concert venue owner. The new company will operate 11 sites across the UK, including eight in London.

HMV is tuning in to the live music scene as store sales take a battering on three fronts: from illegal downloads, online streaming technology and the consumer spending slump.

"Live music is the booming part of the entire industry, so it's logical for us to try to tap into it, harnessing the customer base we already have and also attracting younger consumers," HMV's chief executive Simon Fox explains. "In this market, we need to adapt."

Fox tries to be bullish, noting that the chain still managed to sell 8 million CDs over Christmas, but the sector is in dire straits. It is a dying industry. Two of HMV's biggest competitors on the High Street, Zavvi and Woolworths, have already shut up shop.

Their demise is good news for HMV, but it also underlines the similar struggle it faces. Although it has been swift to revamp its product range and to expand online, total CD sales are falling by around 10% every year, as more consumers switch to downloading their music either legally, on sites such as iTunes, or illegally.

Downloading is usually cheaper - and sometimes free - and shoppers get access to their music faster and without having to leave their homes.

"The outlook for High Street music retail isn't at all good," David Stoddart, a retail analyst at Altium Securities concludes.

Another leading City analyst says he would not be surprised if HMV retreats entirely from selling CDs within the next decade.

Small wonder, then, that Fox is looking to an area which is still expanding: the £1 billion UK live music market.

Deutsche Bank's Jamie Isenwater highlights the profitability of the venues, with margins of around 20%, as a major attraction. And analysts at Goldman Sachs predict the move will bring in additional earnings each year for the company of between £3.1 million and £5.3 million before tax.

"This is one of those deals where you wonder why didn't they do it before," Pali International's retail guru Nick Bubb says. "Apparently the two companies have been talking for years. It offers a lot of opportunities for cross-merchandising".

Under the deal, the first part of a three-year plan to expand into live music, three other venues will also carry the HMV name, including the Forum in Kentish Town. The retailer plans to set up small concessions in the larger venues, while HMV loyalty card holders will be able to earn VIP access to gigs as a reward for spending in store. Mama runs 10 festivals, including the Lovebox Weekender in Victoria Park, and HMV says it is hoping to become a ticket agent for these. HMV is also teaming up with Seatem to sell tickets to a large number of gigs in store.

But why is live music flourishing when a large part of the sector is floundering? Mama Group's co-chief executive Dean James says: "Demand for live music is booming because people are consuming more music than ever - they hear it on TV shows, in computer games and so on, they're just not buying as many CDs.

"The badge of honour when you love a band now is to go and see them play live whereas before it was to buy the album."

As the number of regular gig-goers swells, the sector has begun to shake off its association with dingy venues, broken glass and sweaty dancefloors. "There has definitely been a professionalisation of the live music industry. Punters get a better experience now," James adds.

HMV is not the only company seeking to gain from the booming trade. Record labels have also tried to tap into the sector. Meanwhile, O2, which took over the Millennium Dome, announced this month that it was pairing up with the Brixton Academy owner Academy Music Group to rebrand 11 venues under the phone giant's name.

But concerns remain over HMV. Altium's Stoddart believes that it paid a full price for its stake in the joint venture and that it is no quick fix: "It doesn't solve the problem of the retail estate, it just helps offset it slightly for the time being."

Simon Fox will be praying it is enough to keep HMV top dog.

MORE ABOUT

Brand Marketing

As CD sales fall, HMV is turning to live music

Read More