ANALYSIS: What’s next for HMV?

HMV’s financial update this morning did not make for pleasant reading.

And the business media – unsurprisingly – has been sticking the knife in.

To them – and indeed many analysts and experts – HMV is on the way out. The retailer is just a few short months away from joining Woolworths and Zavvi on the administration scrap-heap.

But are they right?

There’s no denying that the results are disappointing. HMV often makes a first half loss. It has always relied on Christmas sales. But even with that taken into account, failing to match 2010’s H1 performance (which in itself was disappointing) is a blow.

There’s also an impending financial deadline. In the New Year, HMV will have to pay its banks. If it defaults, the retailer will face financial penalties. Which could result in the company going bankrupt.

HMV is hoping for a Christmas miracle. And word from within the company’s HQ is that sales have been promising. We will know how promising when the Group releases its Christmas update in early January.

But even if sales don’t quite match expectations, it isn’t necessarily game over for HMV. Simon Fox and its management team have one last trick up their sleeves – selling HMV Live.

HMV has already sold loss-making Waterstone’s and HMV Canada to make repayments. Live is another division it can sell in order to generate cash.

But the difference this time, is that HMV won’t want to sell Live.

Live was the one part of HMV that made a profit during the last six months. And it is a crucial part of the company’s future. Live music is the one HMV success story of the past two years. Attendance to its festivals grew last summer, and they’ve opened new venues, including a 1,500 capacity club in Manchester.

But sell it, and the firm can satisfy the banks and keep the wolves from the door (for the time being, at least). If Fox and his team can get a favourable deal – with HMV holding on to a stake – then it is an option worth exploring. Although it will be a decision the company’s management won’t take lightly.

Anything we can do?

HMV told MCV back in August that it needs more support from games publishers. Judging on the retailer’s Christmas activity, it looks like it still needs it.

The HMV TV ads have been promoting the company’s aggressive offers on DVDs, Blu-rays, CDs and technology.

These deals follow vocal backing of HMV from movie and music studios. In contrast, games publishers have been more muted. HMV may not be as important to the games industry as it is to the other entertainment markets, but perhaps we could offer a bit more in terms of help.

The Future

It’s a fight for survival at HMV. The company is caught in an awkward place. Its new business ventures are growing, but not fast enough to combat the slump seen at retail. And it’s all happening during a High Street and economic crisis.

To say HMV will be fine would be naive. In the company’s own words, if trading conditions worsen it will "cast significant doubt on the Group’s ability to continue as a going concern."

But with one last week left before Christmas, and the option of selling off its Live division, HMV has another chance to turn things around.