HMV, the music store chain, announced losses of £31.6 million for their first half year last week. They blamed just about everyone but themselves for this.
But what's their reaction been? Well, it's too undermine their own loss making stores by moving heavily into the offshore CD market, basing their operation in their case in Guernsey. But this is the route of economic madness. The standard price of a CD to someone like HMV is £9.30 less a large retailer discount of 16% i.e. about £7.81. In-store this would be sold for about £12.75 plus VAT which comes to £14.99. That's a margin of £4.94 to cover costs.
But HMV are offering all CDs from Guernsey at £8.99, delivered. So, after post costs of £1 that leaves about 18p to cover costs and profit. Losses are guaranteed onshore and offshore on this basis.
This is a world where tax abuse is driving prices down to the point where it will destroy masses of jobs, and maybe large parts of the music industry itself. The madness of offshore is daily becoming more apparent. Worse still is the increasingly obvious inability of managements to prevent their companies disappearing up their own backsides for fear of standing up for properly regulated markets.
When will they learn? Not until long after HMV is dead and buried, I suggest.
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Richard – one of your correspondents took me to task on the basis the CD market is a collectors’ market – erog – offshore providers could not compete. I have no problem with that.
HMV’s actions are the last gasp of a desperate person – as evidenced from the major retailers’ concerns about downloadable music.
I have said that CI could rejuvenate their economies by gettting smart and offering online downloads and in doing so create a sustainable *internal* industry that adds value to the local economies and applies the future of business (ie technology led) to counter balance the corrosive effect of BS trust business.
Yes – there are caveats – but this is a lesson the Nordic countries had to learn when EMU came in and their margins on currency exchange evaporated.
Care to argue the vibrancy of their economies?
Dennis, here are actual figures for downloads last year. UK Downloads 50m as opposed to physical music sales of 1600m. Virgin just closed down their US download site and HMV wrote theirs off in their accounts last year with no mention of it this year. The single is dead and the download has replaced the singles chart hence the increase in download sales, but downloads remain expensive and unrewarding (and unattractive) as a product for purchase by a music consumer. Album sales for downloads are virtually non-existent. The problem at the moment is that shops are suffering from mail order CD’s, http://www.play.com and Amazon are the market leaders in the UK for mail order and HMV is desperate for market share. Because of the VAT loophole everyone is having to fight this out in The Channel Islands, but unfortunately for HMV they still have the shops so they are caught in a mad scramble where they are stuck on both sides of the fence. This is Government mis-management of the e economy. In the rest of Europe CD prices remain higher than the UK for CD’s (see January 2006 Which?) which proves this is mainly a UK problem. CD’s in Ireland, France and Germany are around £2.50 more expensive (and effectively that’s the VAT)
Fine, but you miss the point. Increasingly consumers are buying their music as downloads. No amount of offshoring will save businesses that depend on selling music CDs.
I’d like to share your enthusiasm but the facts don’t reflect it. Didn’t I list those above ? Unless you have some figures I’m unaware of ?
Oh and dance music is the future of rock