This document analyzes potential strategic options for HMV Group, an entertainment retailer facing declining sales and profits due to industry structural changes. It provides a background on HMV, discusses the strategic issues and external/internal environments. Three alternative strategies are evaluated: maintaining the status quo, focusing on niche markets, or launching a live concert streaming business. The recommendation is for HMV to launch a live concert streaming service to leverage its strengths in live events, artists relationships, and brand reputation in a new untapped market with growth potential. An implementation plan and considerations for evaluating/controlling the new strategy are also outlined.

1. strategy analysis

2. FORMERLY THE LOBLAW GROUP
1. KIRAN CHADARAM
2. NIANJIU LI
3. VI NGO
4. SEBASTIEN ROSNER
5. VARUN SHARMA
6. JEREMY WONG
1 1
© 2012 SGMT 6000
HMV GROUPSUBJECT TO CLASS PEER EVALUATION, SEE PROFESSOR TAN’S INSTRUCTIONS
33⅓ R.P.M.

3. company background
• First store opened in 1921 (London, England)
• Public company; headquartered in England
• 252 stores (UK, Ireland, Singapore, and Hong Kong)
• Entertainment retail: music, film, games, and music
accessories/technologies
• HMV Live: owns venues, organizes concerts and festivals
• HMV Digital: online music sale

4. strategic issue
• Industry structural changes: online delivery (Apple iTunes)
• Price competition against supermarkets (Tesco) and online
retailers (Amazon)
• Seasonal; 1/3 of sales in December
• Declining sales, negative net income, financial distress
• Divesting Live business; sold HMV Canada and Waterstone
(book retail chain)
Re-focus on in-store experience and bank on technology sales
OR change strategic direction?

5. external environment
• Consumers shunning high street retail
• Online piracy + streaming vs. owning
• Online downloads and streaming (e.g. Spotify, Songza,
Pandora) increasingly popular
• Proliferation of mobile and social media
• Poor economy and tight access to cash
• iDevices + accessories, headphones, etc. growth market

6. industry analysis
• Industry: Entertainment retail
• Last 5 years: revenue fell at 6.0% per year
• Next 5 years: market will shrink by 1.7% per year
• Key success factors: adoption of technology, online
presence, relationship with suppliers, copyright protection
• Life cycle: CD/DVD à decline, video games à maturity
• Highly-concentrated: Tesco, Amazon, Apple, HMV
• Products are “made for the internet”

7. main competitors
• Tesco:
• Supermarket
• Sells CDs and DVDs as loss leaders
• Price competition
• Amazon:
• Online retail
• Sells physical and digital, at lower prices, with reviews and
recommendations
• Price competition & differentiated services
• Apple:
• Online and store retail
• Biggest seller of music player and mp3s (iPod and iTunes)
• Differentiated products

8. industry analysis
• Five Forces:
1
2
3
4
5
Suppliers
Substitutes
New EntrantsRivalry
Buyers
• Oligopoly of studios &
record labels
• Store must stock popular
items
• Legal downloads
• Piracy
• Online streaming
• Low fixed costs
• Undifferentiated product
• Online startups
• Brand and marketing (barriers)
• Many players
• Undifferentiated product
• Price competition
• Online competition
• Low/no switch cost
• Price sensitive
• Undifferentiated = no
brand loyalty

9. industry analysis
• Five Forces:
1
2
3
4
5
Suppliers
Substitutes
New EntrantsRivalry
Buyers
• Oligopoly of studios &
record labels
• Store must stock popular
items
• Legal downloads
• Piracy
• Online streaming
• Low fixed costs
• Undifferentiated product
• Online startups
• Brand and marketing (barriers)
• Many players
• Undifferentiated product
• Price competition
• Online competition
• Low/no switch cost
• Price sensitive
• Undifferentiated = no
brand loyalty
Inferences
from Porter
• Embrace new technology
• Consolidate with small players
• Focus on relationships
• Tackle changing landscape
• Must know how to sell old media
to new generations

10. internal environment
• Century-old brand, specialist reputation
• Industry experience (retail & live music)
• Solid relationship with artists, record labels, and studios
• Campaign and promotion experience
• Formerly owned by EMI; music in its DNA
• Laggard in the mp3 segment; not much success

11. value chain
Strong
• Marketing: brand
• Procurement: artist and studio relations
• Sales: knowledgeable employees
• Operations: brick and mortar stores, locations
Weak
• Technological Development: online presence

12. swot analysis
Strengths
• Established Brand
• Great relationship with
artists, labels, and
studios
• Industry expertise
• Retail experience
• Live events experience
Weaknesses
• Inadequate
technological capability
• Inexperienced in online
retail
• Seasonal business
• Lack of cash
Opportunites
• Live concert streaming
(untapped market)
• Niche markets
(classical, jazz,
audiophiles)
Threats
• Fierce competition
• Changing consumer
preferences

13. alternative evaluation
1. Status Quo:
• Re-focus on core retail business and ride on growing
technology sales; divest HMV Live
• Technology undifferentiated; future uncertain
2. Attack the Niche:
• Digital delivery of classical and jazz
• Growing market of young listeners
• Existing player: X5 Musical Group
3. Live Concert Streaming:
• Adapt to consumer preference for streaming
• Uncontested market à first mover advantage
• Leverage all strengths
• No geographic barriers, revenue all year round
• Will not cannibalize existing retail (studio-recorded)

14. recommendation
1. Status Quo:
• Re-focus on core retail business and ride on growing
technology sales; divest HMV Live
• Technology undifferentiated; future uncertain
2. Attack the Niche:
• Digital delivery of classical and jazz
• Growing market of young listeners
• Existing player: X5 Musical Group
3. Live Concert Streaming:
• Adapt to consumer preference for streaming
• Uncontested market à first mover advantage
• Leverage all strengths
• No geographic barriers, revenue all year round
• Will not cannibalize existing retail (studio-recorded)
Unique
Position.
Awesome
Fit.

15. implementation
low high
lowhigh
Relative Market Share
MarketGrowth
?
moo.

16. implementation
low high
lowhigh
Relative Market Share
MarketGrowth
?
moo.
moo?

17. implementation
• Sell remaining venues to improve cash flow
• Retain and revive HMV Live: keep talents who know the in’s
and out’s of running live concerts; maintain industry relations
(artists and record labels)
• Negotiate and gain buy-in from artists and record labels
• Strategic alliances & joint ventures with small live streaming
firms, e.g. Livestream.com, for missing technological
capabilities (they need access to the labels)
• Synergy between retail and live business: share resources
and capabilities (e.g. marketing, industry connections);
develop cross-divisional teams

18. evaluation & control
• Cost may > revenue in the beginning; think long-term
• Monitor geographic and demographics trends
• Collect and analyze demand data; provide it to suppliers
• Make sure it does not hurt ticket sales, as implicitly promised
• Exit strategy: sell rights to or partner with Microsoft for its
war against Apple? (Remember the Zune?)

19. thank you.
(sorry, no encores)