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New figures highlight the pace of the shift to streaming that hastened HMV’s demise

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HMV made 31% of the UK's music sales in 2018
HMV made 31% of the UK's music sales in 2018

Days after HMV went into administration for the second time in six years, new figures highlight the consumer shift towards streaming digital entertainment rather than buying, or even downloading, hard copy CDs, DVDs and games.

 

HMV’s board last week confirmed that administrators were now looking for potential buyers after weak Christmas footfall and a further fall in the UK’s CD market. Its 125 stores continue to trade in the meantime. At the time, Paul McGowan, executive chairman both of HMV and of its owner Hilco Capital, said that the CD and DVD market had collapsed over Christmas, with DVD sales down by 30% on the previous year. “In the six years since the HMV business was rescued from a previous administration process the entire team has been immensely hard-working and engaged with the business and has captured market share from all of its competitors. As such, it is disappointing to see the market, particularly for DVD, deteriorate so rapidly in the last 12 months as consumers switch at an ever increasing pace to digital services,” said McGowan.

 

The scale of that switch is flagged up in this week’s news from the Entertainment Retailers’ Association (ERA) which shows that over the course of the last year, 76.1% of entertainment transactions were in a digital format. That rises to 80.1% in the games sector, while 72.3% of video and 71.3% of music sales took place online. Overall entertainment sales rose by 9.4% to £7.5bn during the year - with digital sales, including streaming, accounting for £5.7bn (+18.1%) and physical sales at £1.8bn (-11.4%). Music saw the strongest move towards streaming (+37.7% to £829.1m) while physical sales were down (-16.6% to £383.2m) – thanks to the success of companies including Spotify, while the dominance of companies such as Netflix and Amazon in video saw physical sales of video fall (-16.9% to £616.9m) and digital sales grow fast (+26% to £1.7bn), taking the total 2018 market to £2.3bn, growth of 10.1% on the previous year.

 

ERA CEO Kim Bayley said, “On a market level these figures are a stunning testament to the investment and innovation of digital services who have transformed the fortunes of an entertainment industry many had thought was doomed by the internet and piracy.” Digital sales, says ERA, has helped the games market to more than double in value to £3.9bn since 2007 - and in 2018 games sales accounted for more than half (51.3%) of the entertainment market for the first time.

 

The place of the high street

Bayley still sees a place for physical retail of entertainment products since hard copy sales underpin the biggest hits. The Greatest Showman was the biggest selling video of 2018: of the 2.6bn copies sold, 28.7% were digital and 71.3% were physical. Bayley said, “Video was arguably entertainment’s most dynamic sector in 2018. Streaming services have transformed the viewing choices of the British public by offering 24/7 access and convenience. Meanwhile sales figures show the continuing loyalty of video consumers to DVD and Blu-ray, still the default choices for gift-buying and building a video collection.” Similarly, chart-topping game FIFA 19 sold 1.9bn physical copies, and seven of the top 10 albums of 2018 sold more physical than digital copies. They included The Greatest Showman cast recording (51.3% physical), George Ezra’s Staying at Tamara’s (70.5% physical), and Now That’s What I call Music 100 (85.4% physical).

 

“The data shows that if you want a real mass market hit, you need the reach and convenience of physical formats,” said Bayley. “In music even today more people buy CDs than pay for streaming subscriptions and in video more homes have DVD players than subscribe to all the leading video services put together. The challenge for physical retailers is to tap into this huge market of occasional buyers.”

 

However, in a such a market the costs of running stores devoted to entertainment proved too much for HMV, which in 2018 made 31% of the UK’s physical music sales and 23% of its DVD and Blu-ray sales. In the coming year that’s expected to fall by another 17%. HMV’s McGowan said that before its administration the retailer had cut the bill for running shops to the “lowest possible cost base through consensual arrangements with landlords and the use of technology to reduce other operating costs”.

 

He added: “HMV has clearly not been insulated from the general malaise of the UK high street and has suffered the same challenges with business rates and other government-centric policies which have led to increased fixed costs in the business. Business rates alone represent an annual cost to HMV in excess of £15m. Even an exceptionally well-run and much-loved business such as HMV cannot withstand the tsunami of challenges facing UK retailers over the last 12 months on top of such a dramatic change in consumer behaviour in the entertainment market."

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