Is the music over for HMV?

Times are tough for the embattled entertainment retailer, with terrible half-year results raising concerns over its future. James Thompson reports

There has been plenty of feverish talk of troubled retailers, from the outdoor specialist Blacks Leisure to the lingerie chain La Senza. But there had not been a statement from HMV, the embattled entertainment retailer, since it revealed on 9 September that its first-quarter sales had fallen by 15.1 per cent.

But all that changed yesterday when the 258-store group unveiled grisly half-year results, which raised fresh concerns over its future, as its sales, losses and debt all headed in the wrong direction. Indeed, the retailer has been forced to conduct a strategic review of HMV Live, following an 8 per cent rise in the group's debt burden to £163.7m over the half-year to 29 October.

This is likely to lead to a sale of the operator of 13 concert venues, which more than doubled its operating profit to £3.4m over the first half.

Simon Fox, the chief executive of HMV, said he did not regret buying the music operator Mama for £46m in early 2010. But the timing of a potential sale of HMV Live – which may attract the interest of Universal Music – in a trough for buy-outs could hardly be worse.

Mr Fox said: "As we look at the level of our leverage – which is still high – it is one of the options we have open to reduce the level of our borrowings."

HMV sold its Waterstone's book business to the Russian oligarch Alexander Mamut for £53m as recently as June.

But the knives came out after HMV's pre-tax losses widened to £45.7m over the half year and its underlying sales tumbled by 11.9 per cent.

Neil Saunders, the managing director of Conlumino, said: "These results are dire and, unfortunately, they reflect the fact that HMV no longer has a viable business model. Well over half of all music and film sales are now made via digital downloads and with each passing year sales through physical stores dwindle still further. It is a tide that HMV can't stem and it means that the economics of its store-based model increasingly fail to stack up."

HMV's shares tumbled by 0.97p, or 25 per cent, to 2.90p yesterday, valuing its equity at just £12.2m.

Worse still, while HMV said it had "adequate resources" to continue for the foreseeable future, it said tough trading conditions "create material uncertainties which may cast significant doubt" on its ability to continue as a going concern.

John Stevenson, an analyst at Peel Hunt, said: "They are not in a Woolworths imminent demise position, but the business still needs to deliver significant change in order to continue."

Certainly HMV was bullish about its shift to selling more technology products, as it reduces its reliance on CDs and DVDs. It boasted a 42 per cent rise in technology sales at the 144 stores it has refitted with an expanded range, including headphones and speaker docks. HMV envisages technology will account for a third of total sales by 2014, up from a meagre 12 per cent today.

But the technology market is already overcrowded with the likes of Currys, Comet, Argos and the big supermarkets, as well as Amazon online.

Mr Stevenson says: "Technology is low margin and you have competition across the high street and on the net. While HMV is often the first place you think of to buy a [physical] CD or DVD, it is not necessarily the first place when you want to buy some headphones."

While HMV's £220m facility with its banks runs until September 2013, it is structured to incentivise early repayment in terms of rising interest rates.

Overall, as investors are unlikely to back a cash call, HMV appears to be running out of long-term options.

A defiant Mr Fox said he remained committed to maintaining a 240-plus stores. He added: "We are optimistic we will find a route through these difficult conditions. I think we have a positive future – we are a very important part of the film and music industry."

But after HMV's retail sales fell by 13.2 per cent in the seven weeks to 17 December, his optimism is not widely shared.

Off tune: tech drive

HMV's move to grow technology sales is the latest of its efforts to combat the long-term decline in sales of CDs and DVDs.

In 1998, it acquired the book chain Waterstone's for £300m and then paid £62.8m for Ottakar's in 2006. But HMV got out of books by selling Waterstone's for £53m in June.

It has also tried in-store smoothie bars, art-house cinemas and fashion – all of which have either been canned or hugely scaled back. For instance, as part of a joint venture with Curzon, it is still has a cinema in Wimbledon, London.

HMV now appears set to end its foray into live music venues after it paid £46m for Mama Group in 2010.

News
Jennifer Lawrence was among the stars allegedly hacked
peopleActress and 100 others on 'master list' after massive hack
Sport
Radamel Falcao
footballManchester United agree loan deal for Monaco striker Falcao
Sport
Louis van Gaal, Radamel Falcao, Arturo Vidal, Mats Hummels and Javier Hernandez
footballFalcao, Hernandez, Welbeck and every deal live as it happens
Sport
footballFeaturing Bart Simpson
PROMOTED VIDEO
News
people'It can last and it's terrifying'
Voices
A man shoots at targets depicting a portrait of Russian President Vladimir Putin, in a shooting range in the center of the western Ukrainian city of Lviv
voicesIt's cowardice to pretend this is anything other than an invasion
News
i100
Arts and Entertainment
Alex Kapranos of Franz Ferdinand performs live
music Pro-independence show to take place four days before vote
Arts and Entertainment
booksNovelist takes aim at Orwell's rules for writing plain English
Arts and Entertainment
The eyes have it: Kate Bush
music
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Senior Asset Manager

£70000 - £75000 Per Annum: The Green Recruitment Company: Katie Robinson +44 (...

Application Support Analyst / Junior SQL Server DBA

£40000 - £45000 per annum: Ashdown Group: An established professional services...

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

Business Development Manager / Media Sales Exec

£28 - 32k + Uncapped Commission: Guru Careers: A Business Development Manager ...

Day In a Page

Alexander Fury: The designer names to look for at fashion week this season

The big names to look for this fashion week

This week, designers begin to show their spring 2015 collections in New York
Will Self: 'I like Orwell's writing as much as the next talented mediocrity'

'I like Orwell's writing as much as the next talented mediocrity'

Will Self takes aim at Orwell's rules for writing plain English
Meet Afghanistan's middle-class paint-ballers

Meet Afghanistan's middle-class paint-ballers

Toy guns proving a popular diversion in a country flooded with the real thing
Al Pacino wows Venice

Al Pacino wows Venice

Ham among the brilliance as actor premieres two films at festival
Neil Lawson Baker interview: ‘I’ve gained so much from art. It’s only right to give something back’.

Neil Lawson Baker interview

‘I’ve gained so much from art. It’s only right to give something back’.
The other Mugabe who is lining up for the Zimbabwean presidency

The other Mugabe who is lining up for the Zimbabwean presidency

Wife of President Robert Mugabe appears to have her sights set on succeeding her husband
The model of a gadget launch: Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed

The model for a gadget launch

Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed
Alice Roberts: She's done pretty well, for a boffin without a beard

She's done pretty well, for a boffin without a beard

Alice Roberts talks about her new book on evolution - and why her early TV work drew flak from (mostly male) colleagues
Get well soon, Joan Rivers - an inspiration, whether she likes it or not

Get well soon, Joan Rivers

She is awful. But she's also wonderful, not in spite of but because of the fact she's forever saying appalling things, argues Ellen E Jones
Doctor Who Into the Dalek review: A classic sci-fi adventure with all the spectacle of a blockbuster

A fresh take on an old foe

Doctor Who Into the Dalek more than compensated for last week's nonsensical offering
Fashion walks away from the celebrity runway show

Fashion walks away from the celebrity runway show

As the collections start, fashion editor Alexander Fury finds video and the internet are proving more attractive
Meet the stars of TV's Wolf Hall... and it's not the cast of the Tudor trilogy

Meet the stars of TV's Wolf Hall...

... and it's not the cast of the Tudor trilogy
Weekend at the Asylum: Europe's biggest steampunk convention heads to Lincoln

Europe's biggest steampunk convention

Jake Wallis Simons discovers how Victorian ray guns and the martial art of biscuit dunking are precisely what the 21st century needs
Don't swallow the tripe – a user's guide to weasel words

Don't swallow the tripe – a user's guide to weasel words

Lying is dangerous and unnecessary. A new book explains the strategies needed to avoid it. John Rentoul on the art of 'uncommunication'
Daddy, who was Richard Attenborough? Was the beloved thespian the last of the cross-generation stars?

Daddy, who was Richard Attenborough?

The atomisation of culture means that few of those we regard as stars are universally loved any more, says DJ Taylor