His Master's Voice

2011 starts with the news that HMV have announced their intention to shut 40 branch locations this year.

The alarm bells are not only the poor Christmas trading - but the rumour that the company was having trouble meeting their bank loans. 

Over the past few years, it's been clear that record retail - in the form of physical sales - has been shrinking; not only the amount of HMV's shelf space devoted to CDs, but the disappearance of chains such as Fopp and Virgin Megastore. In the case of HMV, I'm neither surprised nor disappointed.

From an artist and a label perspective, HMV's approach to retail is in no one's favour but their own. Their margins are massive and yet they demand one of the highest discounts on PPD than any of the other retailers. This is the set rate that a distributor sells CDs at to stores. HMV then request a discount of 20% or more, depending on the relationship they have with the retailer. Independent stores would get this discount, but because of the size of HMV, the discount is granted.

Distributors love HMV because they buy in bulk volume. HMV has over 250 locations - so each album release could get a hefty minimum order. The problem for the label is that distributors make their commission up front - labels pay around 20% for every unit shipped. If HMV don't sell your album in a few weeks, they return them. And the distributor keeps the commission.

It gets worse. HMV orders weekly, with each store putting a separate order in to the distributor. So even though you may have returns from the Glasgow branch, the next week might see orders from Bristol. The same CD returned to your distributor could be resold to HMV, and then even returned again. 

As an artist having your CD in HMV once gave you credibility. But once the discount was applied, you weren't making much in revenue from your sales. Then taking into the account returns - well, you could find yourself losing money on a release.

This distribution-retail relationship has always been one of my biggest issues with the record industry. Digital music has none of these problems - music is shipped and sold on demand. With this in place and available to all, there is no need for physical product or record stores like HMV.

If you're one of those who still insist on buying a physical album, there are great independent stores and Amazon who you can go to. For artists, get your CDs out of HMV now - there's no prestige in seeing your work sink with the ship.

Image from Flickr by Max Sparber