Why Richard Branson jumped ship on his first business venture, and what his financial prudency can tell us about the state of the industry he left.

Sir Richard Branson made his millions in business, not in music, and in the wake of HMV’s administration, one shouldn’t overlook the fact that as well as creating Virgin’s record shops he also went on to sell its music arm– the latter being the more profitable move.

Virgin went from humble beginnings on the UK highstreet in the 1970s to becoming an international phenomenon, with ‘Megastores’ occupying space throughout Europe and North America, as well as in Asia and the Arab world. But from the turn of the 21st Century the Virgin Group started to sell off most of its music megastores to local companies in an astute business move by Sir Rich. One by one, the newly spun-off operations (Zavvi etc..) began to go bust.

The demise of these record chains was all but inevitable. The United Kingdom is the second worst country in the world for illegal music downloads and with a digital infrastructure in place consumers are already starting to lean towards downloads over records.

Commenting on the recent demise of HMV chief executive Trevor Moore said the store “still deserves a place onBritain’s high streets”, but unless consumers change their habits, that statement is fundamentally flawed. Universal and Hilco have shown interest in the firm but they will struggle to amend the fact that ‘His Master’s Voice’ is as outdated as the logo printed above the doors. A place on the highstreet will never be ‘deserved’, but earned.

The Times They Are a-Changin’

One of my favourite lines from the film ‘Social Network’ comes from an argument between Sean Parker (founded of file sharing site Napster) with Eduardo Saverin (co-founder of Facebook), and goes something like this:

Parker: “I faced the record companies head on and I won.”

Saverin: “Um, the record companies sued you for millions of dollars…. they won.”

Parker: “Do you want to buy a tower of records Eduardo?”

And…. Silence.

As morally corrupt as file sharing may be, there is little denying the fact that we as consumers prefer downloading records for free than going to HMV to buy it for a small fortune. Add the legitimate file sharing businesses to the equation (iTunes, Spotify etc..) and record stores have themselves a problem.

HMV have been lacklustre in adapting to changing tides in the record industry, but there is a case for saving companies such as this which extends beyond sympathy and nostalgia.

Saving the highstreet

If the stores were to be closed all together (highly unlikely but possible) it would leave an irreparable scar on the face of the British highstreet. What’s more, revenue lost from such a staple store would go to firms operating outside our jurisdiction (Amazon, Apple, eBay), and we all know how they feel about UK corporation tax: http://jnopinion.blogspot.co.uk/2012/12/thats-capitalism.html.

I certainly won’t be crying over my Sony Walkman tonight, and the loss of Nipper and his wind-up gramophone makes little odds to me. But I do care about ethical British companies and fear for the future of the highstreet.

Trevor Moore’s sentiments undermine the business objectives of the company, but his predecessor Simon Fox certainly made a tangible case for its survival: “It’s nuts for digital service providers – like iTunes and Amazon Kindle – to be located in low tax locations. All of the high growth digital markets are not delivering the Government tax revenue. It is absolutely idiotic.”

HMV will have to change to survive, but we should support it if it chooses to do so. They may not deserve a place on the highstreet, but if they go it will change the makeup of the retail economy indefinitely, not necessarily for the good.

 By Jack Peat

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