Is HMV Too Late in Joining Music Download Bandwagon?

After approximately a year of waiting, HMV Group is finally making a foray into the digital music download industry. Called, HMV Digital, the music download service would go live on September 5 this year. HMV’s digital service, which took a year and £ 10m to develop, is a tie-up between the group, Microsoft, the world’s biggest computer company, and MusicNet, a US digital music provider.

Last year the HMV Group, UK’s largest music retailer, did not pay the least of attention to the growing digital music download industry. Leaving the group far behind, digital downloads gathered momentum to become one of the most profitable industries in the world, making Apple one of the majors in this field with it’s iTunes music store and the iconic iPod becoming the market leader in mp3 player technology.

HMV’s full-year pre-tax profits jumped by 9.9 per cent to £ 136.2m but, worryingly, underlying sales in the UK and Ireland in the first seven weeks of the new financial year fell by 4 per cent, despite a spate of successful new album releases such as Coldplay’s X&Y. Sales growth was driven largely by better sales of DVDs where HMV is gaining market share.

Last year Alan Giles, the chief executive of HMV, made clear the threat and opportunity of digital music, arguing it could have the same transforming effect on the sector as the introduction of CDs in the 1980s.What resulted was Apple commanding an estimated 75% of digital music sales. iTunes quickly established a market for paid downloads after the industry wasted years on misfires. Now the stakes are really high, since the digital music market has nearly doubled in the past 12 months.

HMV will make one hell of a racket about the launch! A month of concerts by high-profile bands at HMV’s flagship stores would be accompanied by an advertising blitz. "This partnership with HMV has the potential to really shake up the downloading market," says Alistair Baker, the managing director of Microsoft UK and Ireland.
The service is supposed to be different and better than most major players in this arena. Firstly, there will be more songs for download giving customers all the choice for picking up songs which they want.

Furthermore, customers would also be allowed to ’rent’ music for a 30 day subscription period, through a subscription service, as well as buy them permanently. Thus customers can listen to as many songs as they can download within 30 days, following which the songs that one wants to keep can be paid for and bought and the ones that do not appeal will automatically self destruct through the use of smart technology.

HMV’s service will also have a variable pricing structure, in contrast to the flat rates of 99c or 79p at which iTunes offers tracks. HMV is also planning to move into the movie downloading service by next year.

HMV has signed up the big four multinational record companies to the service: Sony BMG, EMI, Universal and Warner. But it is also working to secure deals with independent labels, which account for around 25 per cent of all music sales. This could be a trump card in HMV’s hands. Many independent labels have refused to sign with iTunes due to what they claim are inflexible terms imposed by Apple.

HMV has also trawled through a list of the 10,000 top-selling albums over the past three years to make sure that each one will eventually be available on its service. The group says it will be offering customers the same depth of range on a digital platform as they are in a HMV store.

But, there are some downsides as well. The most concerning and serious is the fact that iPod users will not be able to make use of the service. iPods account for anything between 50 and 75 percent of all mp3 players owned in the UK. HMV Digital will work on around 75 types of music players, and this number would increase with time, according to sources.

The strategically important launch comes at a crucial time for Giles and HMV. Digital music sales are growing rapidly, 10m were downloaded from in the UK in the year to July. The old industry structure, where artists provide content to record companies which then sell it on to retailers, is being eroded every day.

So the BIG question is that…can HMV, and rival Virgin, due to launch its own service next month, catch up lost ground in the digital download market, which is largely dominated by Apple with its iPod MP3 player and iTunes service?So what about the timing? Is HMV too late?

Let’s wait for the answer. Predicting anything would be not possible at this point of time. However, to wade in any earlier when you think of the capex required to do digital properly would be a bit foolish. Now you’ve got digital evangelists left, right and centre, but look at the amount of people that wasted money in the dotcom boom when one could have invested in something like this and made some good money.