Blockbuster and HMV have received their 'death by digital' sentences. For Blockbuster, it is the end of the road, but there is hope yet for HMV and its role on the pavements of Britain. Hilco bought HMV’s debt this week so there may just be a way back for the high street music chain. The big question now is this: which big-name retailer will go bust next?
Digital content distribution business models like Lovefilm have had a significant impact on the demise of these two companies, disrupting traditional markets with new technology and creating an entirely new consumer culture.
I know quite a bit about this brave new industry. While working in the US a decade or so ago, I saw the success that Netflix was enjoying and decided to import online DVD rental into the UK. I set up online rental service Video Island in 2001 as a European rival. Video Island merged with Screen Select in 2004, and the company then went on to merge with Lovefilm in 2006, keeping the Lovefilm branding and integrating the technology platform and management structure I had initially developed.
Funnily enough, building the business was partly motivated by wanting to launch a service that did not exist in the UK, and one that there was clearly a market for, and partly by my experience in the Maida Vale Blockbuster.I wanted to make a system for DVD rental that was everything Blockbuster wasn’t: a pleasurable, hassle-free experience for customers. It was a disruptive business model that eroded Blockbuster's model and vied for its customers.
HMV’s administration announcement is also a direct result of the competition posed by online music DVD rental providers. HMV enjoyed the glory years of people stockpiling and collecting music and home entertainment. In the early days of DVDs and with the advent of LCD and Plasma TVs, customers were film curators, buying Ikea shelves to stack and display their collections and filling living room cabinets and draws with small plastic DVD boxes.
But consumers have shifted from being collectors to renters. The rental model is more convenient and offers more choice. However, unlike Blockbuster, I think the HMV brand is fantastic and still has the potential to survive by adapting to the increasingly digitised market and following customer trends, but also by taking advantage of what high street retail can offer that online cannot.
The first step in tunring around HMV - I hope you're reading Hilco - should be to sift through the business on a store by store basis assessing which could remain profitable and therefore open, and which need to be closed. The next step would be to bring the company into a much more online framework, developing and making HMV’s digital offering more comprehensive and potentially looking at partnering with an online company.
Although the internet is penetrating all aspects of our lives, whether it be film distribution or grocery shopping, there is still a place for high street retail. I think that the retail industry is missing a trick and needs a massive wake up call. One thing retail outlets can provide in a way that online cannot is merchandising, entertainment and an immersive experience, and this still has its place in the hearts of consumers (the nation’s emotional reaction to HMV’s administration announcement is testament to that).
HMV should focus on providing live entertainment and providing customers with a unique experience, rather than just displaying racks of products. There is an opportunity for the company to harness the use of video walls and digital displays as powerful ways to engage consumers and act as point of sale communication.
The convenience, choice and service that disruptive digital business models’ provide customers will no do doubt see the place held by traditional retail outlets continually squeezed and falling away. And this trend extends well beyond entertainment businesses, with other long-established high street outlets heading towards an uncertain future. For those that can, there remains time to adapt to evolving consumer purchasing habits, stay relevant and take advantage of the nuances of a physical store that cannot be recreated in the virtual world.
Those that cannot adapt will perish, but there is reason to be optimistic in what replaces them. The death of my local Blockbuster in Maida Vale has given way to a new specialist fruit and veg shop that is inexpensive, fantastic quality and is supported by the local community. So, that's a happy ending. There is hope on the high streets for some...
Antony Ceravolo is a serial entrepreneur and one of the founders of Lovefilm.com. His current venture is ECNlive, a digital advertising and content network custom built for office environments