HMV is once again fighting for survival after a fresh collapse in demand for CDs, games and DVDs over the summer set the high street specialist on a perilous course that could mean it breaches the terms of its bank loans early in the new year.
Revealing a first-half loss of £36.1m, its chief executive, Trevor Moore, said tough trading conditions meant there were “material uncertainties facing the business”. He insisted closing stores or putting the retailer in administration was not currently “part of our plan” but said he was seeking to cut running costs. “I joined the group because I believe it has a strong future,” he said. “If I thought we had tried everything I would not have joined.”
HMV, famous for its Nipper the dog mascot, banks all its profit at Christmas. Analysts had previously pencilled in £10m for this year but Moore said dire summer sales meant its performance would now fall short of City estimates. Like-for-like sales slumped 10% in the six months to 27 October after suppliers held back new titles for fear they would be overlooked as the nation focused on a summer of sport. The warning sent HMV’s shares into freefall, closing down nearly 40%, at 2.49p, giving the retailer a stock market value of around £10m.
The retailer, which remains burdened with a £176m debt despite having sold off the Waterstones chain and its live music venues to raise cash, said it was “probable” it would breach its banking covenants when they were tested in January.
A breach would put the banks in the driving seat and could result in their calling in their loans. The company said it would be able to meet a £30m payment due then and had “adequate resources to continue in operational existence for the foreseeable future”, adding it was “currently operating within” the terms of its £220m banking facility.
The move, which comes on the heels of the closing of movie rental giant Blockbuster Video, leaves Canadians without a national movie rental chain. Numerous smaller players, as well as on-demand companies that offer streaming movie rentals to a person over the Internet, have been moving in to compete in the sector in recent years.
Revenues from Rogers’ video rental and retail business fell 43% to $82-million in 2011.
“We wound up our rental business at the end of last week. We are now in the process of liquidating all of the videos and DVDs,” Leigh-Ann Popek, a spokeswoman for the company, said. “All of the locations will stay open but will be repurposed to showcase our wireless sales and service as well as our wireline offerings such as cable, home phone and Internet.”
Rogers has 460 locations across the country. The stores are now liquidating stock with two-for-one offerings on all remaining movies and video games. The stores will be remodelled to more closely resemble competitor Bell Canada’s Bell Stores, which showcase all of the company’s cellular, TV and Internet offerings to consumers.
Rogers’ has been watching the market for movie rentals and sales slide over the past two years. The company said it has been gradually working toward an exit from the money-losing rental business since 2009. The video business makes up less than 1% of the company’s annual revenues, which hit $12.4-billion in 2011. Exiting the business will allow Rogers to focus on areas with more room for growth.
According to Michael Arrington, senior analyst for U.S. video at market researcher IHS Inc., the number of video stores has been in contraction since lower cost movie rental kiosks and online streaming offerings, such as on-demand movies and services such as Netflix have entered the mainstream.
According to statistics from IHS, 2012 will mark the first year that the number of TV shows and movies legally streamed and downloaded from online sources will surpass the demand for those films and shows on physical discs, such as DVDs.
Strange Random Media Quote:
“Cinema, radio, television, magazines are a school of inattention: people look without seeing, listen in without hearing.” – Robert Bresson
- Rogers shutting down video-rental business (business.financialpost.com)
- Rogers exits video store business (cbc.ca)
- Rogers exits video-store business (theglobeandmail.com)
- Good bye Blockbuster, Good Night Rogers Video Stores (resumedetective.wordpress.com)
- Redbox surpasses 2 billion movie and video game rentals (bgr.com)
- Redbox surpasses 2 billion movie and video game rentals (demandroid.info)
Vodpod videos no longer available.
Strange Random Movie Quote:
It’s the movies that have really been running things in America ever since they were invented. They show you what to do, how to do it, when to do it, how to feel about it, and how to look how you feel about it. – Andy Warhol
- Netflix abandoning Qwickster DVD rental idea (bizjournals.com)
- Netflix Drops Qwikster DVD Service, Game Rentals “to be Determined” (1up.com)
- You can’t say “hell” in the New York Times? (chicagoreader.com)
- Christmas in September? Business news – msnbc.com (exitbusiness.wordpress.com)
- US journalists launch campaign for ‘op-ed transparency’ (guardian.co.uk)
- The Financial Landscape: Post-Recession Blues; Netflix Kills Qwikster (dailyfinance.com)