Surviving Disruptive Technologies MOOC Term Project Answer - Demise of HMV

This was the term project question for the Surviving Disruptive Technologies Coursera MOOC written and run by Hank Lucas from the University of Maryland

Choose an industry or a firm in your country that:
1. Has recently encountered a technology disruption OR
2. Is currently undergoing a technological disruption OR
3. Is likely to face a disruptive technology in the near future.

Here is my answer:

This paper will focus on the demise of HMV "His Master's Voice" company in the UK as a result of the changes that have taken place in the music industry over the last 10 years, in particular the decrease in physical album sales as a result of the increase of online musci services (disruptive technology), such as, purchasing downloads e.g iTunes, streaming services e.g Deezer and Spotify and peer to peer file sharing e.g. Napster. This has been compounded by a new business model for musical production, where artists are autonomously now able to manage both musical recording, promotion and merchandising, without the support of large record companies because the process has been made easier by technology.


HMV had a prominent place on the UK’s high streets until 2012, selling a range of items but particularly focusing on music CDs, DVDs and to a certain extent games. Founded in 1921 at the height of its success in the 90s the company expanded into international markets and bough well-known book chains Dillons and Waterstones and was floated on the stockmarket in 2002. However, in January 2013 HMV called in administrators but hopes of a rescue were raised when Hilco bought HMV's £176m of debt for a reported £40m. It was announced in February 2013 that 66 of HMV's 220 shops would close over two months, at the cost of nearly 1,000 jobs. Another 37 store closures were announced later in February. HMV built its success on CD sales, high mark-up but cheap to produce and then they invested in DVDs and Games. However it failed to invest in its online services, choosing to further expand into electronics which was already on the high street and entertainment venues (Why Did HMV fail the Guardian Philip Beechinghttp://www.guardian.co.uk/commentisfree/2013/jan/15/why-did-hmv-fail ) HMV underestimated the impact of online music, some of which is free on the internet with apps and YouTube, that can be downloaded as MP3s and can be streamed digitally via services such as Spotify. In 2011, digital music sales increased globally by 8% accounting for $5.2 billion legal downloads, with a decline in physical music purchases. (Say Goodbye to Record Stores and Physical Albums http://mashable.com/2012/07/24/music-sales-decline/)


The following provides is a history of HMV taken from HMV Collapse: History of A High Street Iconhttp://news.sky.com/story/1038339/hmv-collapse-history-of-a-high-street-icon Sky News

1921 The company's landmark store in Oxford Street, London, is opened by the composer and conductor Sir Edward Elgar. Its owners, the Gramophone Company (later EMI), developed its legendary "His Master's Voice" trademark.
1962 Brian Epstein visits the store's recording studio and cuts a demo for The Beatles. It led to the band meeting Parlophone's George Martin and they recorded their first single at Abbey Road studios four months later.
1976 HMV begins to expand and has around 25 stores across the UK.
1986 The group expands overseas, opening stores in Ireland and Canada. It opens a new Oxford Circus shop, which is the world's largest record store.
1990s HMV opens stores in Australia, the US, Japan, Hong Kong, Singapore and Germany.
1997 The company launches its HMV UK website.
1998 EMI and venture capital firm Advent Investors create HMV Media Group, which then acquires HMV, Waterstones and Dillons - subsequently rebranded as Waterstones.
2002 HMV Media Group is renamed HMV Group and listed on the London Stock Exchange.
September 2006 Former managing director of Comet, Simon Fox, becomes chief executive of HMV Group.
2007 The chain acquires a number of Fopp and former Zavvi stores.
January 2009 HMV enters the live music market after buying venue owner MAMA Group for £46m.
January 2011 In an attempt to reduce its debt pile, the company begins to close 40 HMV stores and 20 Waterstones shops.
May 2011 Waterstones is sold to Russian billionaire Alexander Mamut for £53m.
January 2012 HMV does a deal with Universal and other music suppliers to help bolster its finances. The company's banks agree to give it more time to repay its debt.
June 2012 The company winds down its live music business, selling the Hammersmith Apollo for £32m.
August 2012 Chief executive Simon Fox says he will leave the business, with former Jessops boss Trevor Moore to take over.
December 2012 HMV admits it could breach crucial banking agreements at the start of 2013 as a result of huge debts and falling sales.
January 2013 The company calls in administrators Deloitte to oversee efforts to rescue it, leaving 4,000 jobs at risk.

The story of the demise in HMV is not dissimilar to Kodak’s with the company's refusal to acknowledge the impact of technology until it was too late. The music industry has experienced a series of disruptions, sheet music to analogue, vinyl to cassette, analogue to digital CD. However, applying the survivor model, the most recent information technological disruption which has had a major impact on the music industry, in particular music retailers is the movement from physical format to online services. This disruption led to new products, services and business models. In particular the availability and sale of music downloads through services such as iTunes; streaming music via subscription and free services such as Spotify and Last-Fm which integrate sharing communities via the web site and/or via social networking integrations such as Facebook and semantic functionality, if you like this music you will like this too. Linked to this disruption is a different business model for musicians, with increased opportunities to share music on the web and the development of e-tools to enable easier production, musicians are relying less on music companies to promote their music and developing their own music production enterprises. Alongside these innovative developments has been the development of ecommerce and the ability to purchase online via companies such as Amazon and play.com, who provide a greater choice than the high street retailers and undercut on price.

In 2011, digital music sales surged 8% globally, accounting for $5.2 billion in legal downloads. More people may be listening to music, but physical album sales will continue to decline. By 2016, record stores sales are projected to drop another 77.4%, according to the Wall Street Journal. It is predicted that local music shops and large national chains will not do well. The music retailer's incumbents' dilemma is how much of a risk it takes to adapt to a disruptive environment caused by online services, what to cut or sell off to adapt, how to integrate and link existing services or to wait for the technological storm to pass before making a decision, however we now know that the last option has had negative serious consequences on HMV.

HMV invested in the wrong products and failed to see the impact of online music on the music retail market.

Looking at the Survival Model and the incumbents' dilemma the following are the factors which inhibited HMV’s response to the disruption of the availability of online music.

Denial: HMV failed to acknowledge the threats of online retailers, downloadable music and supermarkets as early as 2002. They saw the threat of supermarkets but thought they were not a threat to music, games and film retailing. They thought downloadable music was a fad and the customers would prefer the physical environment for purchasing rather than online shopping. There has been a suggestion that there could have been a confusion that the bursting of the dotcom bubble was an internet crisis which is not the case as online services have continued to grow.

History: The first shop was opened in 1921 in the UK by the turn of the 21st century was the major retailer of CDs and DVDs on the UK high street. Many individuals within the UK can nostalgically recall the influence of HMV on the development of their musical taste.

Resistance to Change: Although HMV had online services it failed to make any major investment and chose to diversify in the wrong products electronics and entertainment venues. The company was also risk aversed, despite being warned about the impact of the future consumer behaviour with respect to purchasing music. (See Denial Above).

Mind Set : The company focused on the physical not the digital. HMV’s success and the monopoly of retailing of CDs and DVDs on the high street edging out other retailers led to arrogance, they thought were safe. The company did not take advantage of the brand loyalty of its customers and did not appear to consult them with respect to their needs.

Brand: HMV like Kodak had a strong brand linked to its history and despite its demise it was recently voted one of the top 10 names people most wanted on their high street. HMV still had about 35% of the CD sale market in 2012.

Sunk costs: The company chose to invest in other products and companies rather than focusing on enhancing its core products the selling of music and film.

Profitability: very profitability was in the 90s into the early 21st century survived other well know shops such as Virgin in the UK. It was floated on the stock market in 2002.

Lack of Imagination: It thought that technology was a fad (see denial above), although it had online services it failed to invest in them, which was illustrated by a failed mail order venture. They chose to invest in books and electronics.

The outcome, influenced by the disruption of online music services and the incumbent's dilemma (outlined above) has been predominantly, the failure of HMV. After trying to expand its business into other areas such as electronics and entertainment and it being the last major CD and DVD retailer on the UK highstreet, after the demise of the Virgin, it called in the administrators in January 2013. In 2002 HMV floated on the stock market for a £1bn valuation and a share price of £1.92 (today it's a fraction above £0.3p and it is valued at £15m). It appeared to lose sight of its core business which was predominantly related to the music industry, selling music and more recently the film industry, selling films.

However, it appears it may not be the end of HMV as HILCO which acquired HMV's Canadian operations, bought HMV's £176m of debt for a reported £40m. It was announced in February 2013 that 66 of HMV's 220 shops would close over two months, at the cost of nearly 1,000 jobs, another 37 closures have also been announced. HILCO plans to take HMV back to its traditional musical roots and has stopped selling tablets within HMV shops it say that it wants to "reclaim the space for an enhanced music and visual range". It is report that major music labels and film studios, are keen that a major entertainment retailer remains on the high street, are understood to have agreed to new supply terms with HMV and approved the deal.

HMV should have done the following as result of disruptive technology in the past:

• Used their brand and associated musical heritage and focus on its access to content from film, game and music companies rather than diversifying in books, entertainment and electronics 
• Invested in the internet and social media, including the integration downloading including semantic and online community sharing features/integrations 
• Management should have listened to advice 2002 with respect to the threat of supermarket sales and downloadable music

What HMV should do now:

• Focus on developing quality of its core business within its high street shops selling and promoting a diverse range of music and films rather than moving into other business 
• Come to an arrangement with record companies to tap into the increase in vinyl sales and link this with free downloads, a lot of independent labels are doing this 
• Support and showcase music and musicians and directors streaming online and within retail outlets via personal appearances 
• Link up with local independent retailers to come up with a community strategy to engage in high street purchasing of music and film 
• Relaunch its brand within the context of its past musical legacy, the bad press with respect to Amazon's tax avoidance in the UK opens the door to launch it as a UK brand 
• Employ music specialists in all musical genres that can give advice the customer in the range of genres 
• Develop an app that links up to its musical services and can lead to online purchasing not everyone is using iTunes

References

Independent record store Rough Trade could benefit from HMV closures, says founder
http://www.independent.co.uk/arts-entertainment/music/news/independent-record-store-rough-trade-could-benefit-from-hmv-closures-says-founder-8462152.html

Why Did HMV fail the Guardian Philip Beeching http://www.guardian.co.uk/commentisfree/2013/jan/15/why-did-hmv-fail

The Guardian HMV Bring in the administrators - Simon Bowers and Josephine Mouldshttp://www.guardian.co.uk/business/2013/jan/15/hmv-administrators-4500-jobs-at-risk

Independent record store Rough Trade could benefit from HMV closures, says founder
http://www.independent.co.uk/arts-entertainment/music/news/independent-record-store-rough-trade-could-benefit-from-hmv-closures-says-founder-8462152.html

45 HMV shops rescued by restructuring exper HILCO
http://www.guardian.co.uk/business/2013/apr/05/hmv-sold-hilco-saves-jobs-shops

MOOC2

So I Survived Disruptive Technologies MOOC, run by Hank Lucas and his able teaching assistant

Frankie the dog from the University of Maryland. I managed to submit both assessments and get my certificate of completion. In comparison to the University of Edinburgh's E-learning and Digital Cultures MOOC it was for me more time consuming, I would say that the 3-4 hours were an underestimation, when you take into account the work required for the mid-term and final assessment, Edinburgh's time prediction for its MOOC, 5-7 hours was far more accurate and I think at least 5 hrs would have been more accurate for Hank's. As with the Digital Cultures MOOC I did not engage with the discussions, I think it is a challenge when there are so many people and you are time poor. I think this is something MOOC runners really need to look at, as discussions in my experience do not appear to work and I am an advocate of discussions for developing and consolidating knowledge in elearning, a technical solution for the automation of groups I think could help with this. With respect to the assessments both were peer assessed by 4 people, both required a high pass mark 8 out of 12 and 10 out 14 respectively and you had to pass both to get a certificate of completion. The peer assessment and the need to pass both did generate considerable discussion and criticism, in particular, with regards to the inconsistency of marking, the need to pass both to get a certificate of completion and the high pass marks. However, Hank, must be commended, he listened to the comments and decided to combine the scores on the midterm and term project so that a higher score on one made up for a lower score on the other and to account for any problems with peer grading, he reduced the point total needed for a certificate to 16 out of 26 or 61%.

The course was mainly delivered from a US perspective and I think there should have been a more critical analysis with respect to those companies who have successfully survived the disruptive practices, in particular the social cost, the conditions of the workers in these companies e.g. Amazon and the lack of unionisation to protect workers' rights. However, I did take away that organisations should face up to the disruptions of technology and should scenario plan around their potential impact. Organisations, also, have to understand the needs of their customers if they are to have any chance of being successful and the sometimes this requires taking risks. Furthermore, middle managers should think creatively and encourage creativity in the workplace. I, also, found the lecture on complicated electronic systems and their impact on the product design an eye opener - I did not know that there are more lines of code in a BMW than a fighter plane!  And I really liked the presentation of the video lectures despite being recorded the tutor presence was far more apparent than in Edinburgh's and this is really important and often overlooked aspect of eLearning to enhance student experience.