HMV Group to close 60 stores

Earlier this week I spent part of my lunchbreak in the flagship HMV store on London's Oxford St.  Walking down aisle after aisle filled with products that I could buy more cheaply online - even in the post-Christmas sale -  either as a download or as a physical product, I wondered how its business model could be successful in today's marketplace.  When I got back to my office, I read that the HMV Group was to close 60 stores (40 HMV, 20 Waterstone's) and I was hardly surprised.  Other than a few deeply discounted lines that it couldn't have made much (if any) profit on (DJ Hero, with decks, for £30 for example), I didn't see why anyone with access to the internet would need to purchase from there.  This was particularly true in the videogame section, where some games were more than double the price asked by online competitors.

Last year Game, when announcing its poor half-yearly results, stated that it was going to close 85 of its stores (across the Game and Gamestation brands) by Christmas 2013, a move that will leave it with 550 stores.  Game is a little different from HMV, in that it is a specialist retailer and also that it has a fair amount of overlap in its branches, as a result of the earlier acquisitions of the Electronics Boutique* and Gamestation brands.  In my town (population 84,000 - thanks Wikipedia), there are two Game stores and a Gamestation in the town centre, a pattern that is repeated in many locations in the UK. In the same precinct, there is also a HMV, a Cex and a Tesco that sells videogames - this amount of competition in a falling marketplace is sure to result in closures.

Two years ago, zavvi went into administration and subsequently closed down.  Shortly before, Woolworths, which sold videogames, DVDs and CDs as part of its lines, also went into administration (this was a contributing factor in zavvi's failure, as a Woolworths subsidiary supplied it with much of its stock).  HMV has its differences to zavvi - its larger,  its brand is better established, it sells preowned games, it also owns Waterstone's (itself under pressure from Amazon and the like) - but the core business is essentially the same.   I don't think that HMV is on the brink - and it is clearly acting now to avert problems in the future - but fault lines can be seen in its business model.

The ultimate question in considering the entertainment media retail market is 'can it survive?'.  I'm not sure, in the long-term that it can, other than in flagship locations such as central London,  which can cater to the day-shopper market.  I often pop into Game and HMV in my lunchbreak, or at weekends but a lot of the time I only browse and don't buy anything.  This behaviour essentially turns the bricks and mortar retailers into showrooms for the online customer - not the basis for a successful business.  I think that this is a shame (not least for the thousands of staff that work in these businesses) but, ultimately, this is part of the evolutionary effect of the internet and of digital distribution, which have been very beneficial in many other ways.

Many people in the UK were sorry when Woolworths failed but how much of that was down to nostalgia from shopping or working  there in the past? How many of those decrying its closure had shopped in one its stores recently? As Woolworths' core market had been eroded by the large supermarkets selling similar lines more cheaply, online retailers have done the same to HMV and Game, a trend that seems irreversible.  Will HMV and Game be here in 5 years' time?  Probably.  Will they be here in 30 years' time?  I doubt it.



* it was actually Electronics Boutique that bought Game and then rebranded all the UK-based EBs as 'Game', presumably as 'Electronics Boutique' is such an awful name for a videogame retailer

Tax breaks for the gaming industry, part 2

Breaking news (this must be what it is like to work for the BBC).

The Chancellor (UK Finance Minister) today (22 June 2010) announced that the planned tax break (I'd blogged about this before) for the video games industry in the UK has been axed with immediate effect.

I think that this is a short-sighted move that could hasten the loss of skilled gaming industry personnel overseas (hello Canada). As a high-tech industry, gaming is a growth area, exactly the type of knowledge-based industry that the incoming Government had said they wanted to support. I haven't seen any industry comment as yet (the announcement was only an hour ago) but it is unlikely that they will be thrilled, given how long they have lobbied Governments of varying hues for such breaks over the years.

Tax Breaks for Games

The UK Chancellor announced today that videogame developers could look forward to receiving tax breaks, similar to those given in the film industry in the UK, in the coming years. The industry have been banging on about getting something like this for years, in the face of other countries - Canada for example - offering incentives for games companies to set up or relocate with their borders. Blame Canada.

State aid of this type is a tricky business in the UK. Very broadly speaking, European Union law prohibits the government of a Member State giving assistance to a company based in its jurisdiction that would not be enjoyed by a competitor company based in another Member State, as all companies operating in the EU should be operating on a level playing field. As with a lot of European law there are some exceptions - if your last indigenous car manufacturer goes tits up a few months before an election and its employees live in marginal constituencies, for example. Or if half of your banking industry had got heavily involved in financial instruments based on mortgages granted to the two little pigs who didn't build with bricks.

But even so there are many restrictions on what the government can do and for how long it can do it. There are platoons of State Aid (that's how big an issue it is - it gets turned into a proper noun) lawyers in government, working to make sure that the UK doesn't infringe any of those restrictions. Great guys at parties.

One of the exclusions, I believe, is where the aid is given for cultural (to the country giving the aid) reasons. Tax breaks for companies making 'culturally British' games was mentioned in the Digital Britain report published last summer and I figure that's where the £40m, then £50m, tax breaks in the next couple of years will be directed at.

I'm not sure what, in 2010, a culturally British game is - Grand Theft Crumpet? Sim Walford? Army of Tea? I think the Fable games are undeniably British but I don't think Microsoft needs any tax breaks. Maybe Rebellion could put their hand in the pot, in order to develop games based on their 2000AD properties? 2000AD is a British institution after all.

Over the last twenty years, the gaming industry has increasingly globalised and, as part of that process, the 'rough edges' of national identity have been knocked off so as to appeal to the wider market. 20-25 years ago, it would have been easy to identify games as British. The coders were often working alone, in their bedrooms and coming up with their own ideas based, subconsciously (at the very least) on their own experiences and they only had half an eye, if that, on the end market for the completed game. My big hope for the Government's initiative is that it will help fund games of the type that just aren't made anymore - idiosyncratic titles that are unconcerned if the US or European markets will 'get' them.