HMV must refocus in face of digital world - analyst

HMV needs to put more emphasis on DVDs, games, ringtones and other new media if it is to keep its stores going during a "realignment of the music industry", according to experts.

Business picked up for the retailer over the Christmas buying period, with total sales up 3.7 per cent year-on-year in the five weeks ending 6 January 2007. But it admits its actions in 2006 were "not sufficient" to counteract changes in the music market.

Mark Mulligan, JupiterResearch VP, told silicon.com HMV needs to be "a media retailer more than a music retailer" to keep its stores open. This is because music is no longer the central part of consumers' media consumption.

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HMV has long made some moves in this direction by allocating "very significant proportions" of shelf space to alternative products including games and DVDs, Mulligan added.

And the company has seen an improvement in its online business. There was a 58 per cent increase in UK visits to HMV.co.uk in December, compared with last year's stats, according to internet statistician Hitwise.

The music retailer also launched its own digital download website last year.

There is no doubt digital music is on the up. It is forecast to be worth 42 per cent of the total market by 2011 and to overtake the physical music market in value by 2013, according to Portio Research.

But analyst Mulligan said: "It's really difficult to see a good near-term story to tell for HMV in the digital space."

He added there's only so much HMV can do digitally because Apple's dominant footprint in the European market means the digital music market is almost inexplicably linked to the sale of iPods.

Rumours are also rife that HMV will start offering in-store download kiosks to boost sales. The company declined to comment on the subject.

Mulligan said in-store downloads are not going to revolutionise the way people buy music but they are something HMV has "got to do" as it's one of the few things Apple does not offer.

Simon Fox, chief executive of HMV Group, said the actions it has taken to improve its competitive position in 2006 are yielding results but are not sufficient to offset the profound changes taking place in the difficult markets in which the company operates.

The music retailer will announce new initiatives in March this year, Fox added in a statement.