HMV prepares to face the music

High street retailer HMV has admitted that it could breach its banking agreements next month due to dwindling DVD, music and game sales. While talks with its banks have so far been ‘constructive’, the group has warned that HMV still faces ‘material uncertainties’ – in other words, it’s nearly flat broke.

Not even the sale of Mama Group, its live music arm, earlier this month, has been enough lift the firm out of financial distress. The sale of the iconic Jazz Café, Forum, Barfly et al may have helped to narrow HMV’s losses in the short-term, but pundits warn that flogging the live music venues – perhaps the only remaining area of the music industry still making real money – was a poor strategic move. HMV's pre-tax loss for the half-year has hit £37.3m, compared with a £48.1m loss last year.

Chief executive Trevor Moore is trying desperately to reassure the markets that there is hope for HMV yet: ‘HMV has had a difficult first half,’ he says. ‘However, the business has started to deliver a number of new initiatives which will help to maximise the seasonal sales opportunity and provide a platform for growth in 2013.’ Basically, HMV is hoping that a bumper Christmas will allow it to keep the lights on for a few more months.

Alas, Moore is starting to sound like a broken record. HMV has simply been unable to compete with its powerful competitors – everyone from iTunes to Play.com to Amazon –in the race for the music spend. It also got heavily into video games just as the market slumped. The explosion of peer-to-peer file sharing sites, where users can download music and movies for free, has also made a serious dent in media sales. In the last six months alone, HMV’s like-for-like sales were 10.2% lower than a year earlier. Sales of its CDs and DVDs dropped 16%.

When confronted by these figures, Moore is forced to admit, ‘The group is unlikely to achieve previous expectations for the full year.’ The admittance has prompted a flurry of activity on the markets. HMV’s shares fell 1.5 pence to 2.6p in early trading, a drop of 37%. Back in 2005, when people still thoughts CDs were cool, its shares were priced at 272p.

You’re got to feel for Moore. He’s only been in the job a few short months, stepping into the breach after ex-CEO Simon Fox’s departure. Does he really have a hope in hell of turning around the struggling business, which has already been forced to close 60 stores? Or are we about to hear the death knell for HMV?