The HMV Money-go-round

HMV have gone into administration again. There was a Guardian article saying how we don’t need HMV anymore and the response from labels, music distributors and even independent shops like us is that it is not a good thing for the music industry as a whole but I don’t want to get into that because this is not really a story about a high street chain that can’t compete with Amazon and downloads. It is a story about the short term thinking of Vulture Capitalist companies and tax efficient licensing agreements.

Strictly speaking, the company that owns HMV has gone into administration. That company is called HMV (Retail). After a quick look at their publicly available accounts I see that it took out a loan of £8 million at 8% interest a few years ago. Over the past few years the company has been losing money which was fine for them as they had that loan and others to help keep things ticking over. They were not putting much away for the pensions of the 2000+ employees. £300,000 per year or about £150 each. They were also somehow managing to pay £5 million a year to another company HMV (Brand). This is a very profitable company that doesn’t seem to do much. It is very much not in administration. It also pays very little tax on its millions of earnings due to “group tax relief” whatever that is.

So HMV (Retail) is bust while lots of money has left the company to HMV (Brand) in what I presume is a shady licensing agreement. Both companies are owned by Hilco who presumably don’t care about music. One is designed to be profitable. The other? Well that one will take out the loans and so survival doesn’t matter so much. The Times:

Get rid of the company, get rid of the debt… It is what EMI did years before when they sold the HMV part of the business off with £100 million of debt that they (probably -in case lawyers are reading) had no plan to repay.

Entertainment Retailers Association figures

Physical music sales have been declining but relatively slowly. Netflix and video streaming has led to plummeting DVD sales. Your second hand DVDs are becoming worthless…

Maybe that came as a surprise to them but I think that HMV as a shop on the high street was not meant to survive under Hilco’s stewardship. It was a handy vehicle for them to take money out while eventually screwing their creditors, employees and the taxpayer who have to pick up the pension bill. Of course HMV was going to struggle against downloads and on an individual level many store managers and employees will have done their best to make money on the high street against a backdrop of declining physical sales and so on.

The total spend on music and entertainment (including downloads and streaming) is still steady at around £5 billion a year. People are still paying for music! HMV perhaps did not try very hard to break into the digital side, that would have cost money.

The timing? Just after they have sold potentially millions of pounds of vouchers to capitalise on the Christmas market. They saw it coming, they did, they did. They sacked their auditors Deloitte in November.

The borrowed money? That £8 million is due to be paid back early in 2019. Oooft! Perfect timing and a reminder if you see a fixed 5 year type investment paying 8% to stay well clear.

What to expect? Well, HMV as the public knows it will be “rescued”. A new company will be set up and rents will be renegotiated, some shops will close. New loans will be taken out and we start again with money being siphoned to a side company that licenses the HMV name. This is an unhealthy way of doing business. Perfectly legal, but in my opinion pretty immoral and causing a lot of worry to many in the wider music industry which will continue for many months. I am not sure if more people “supporting the high street” and shopping in HMV would have saved it. Just further lined the pockets of Hilco.

The music business has always had a shady side as far as contracts go as this Kinks tune explains.

For those with a sense of deja vu, I wrote about the HMV demise in 2013 Giving a Dog a Bad Name. I am still fond of the HMV brand for various reasons.

HMV (Brands) filed accounts.
HMV (Retail) filed accounts

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