INTERVIEW: Do video games have a future at HMV?

Yes, says CEO Simon Fox, but there will be sacrifices. Christopher Dring visits HMV’s offices to find out how its attitude towards gaming has changed.

Video game suppliers let HMV down. In a year where the retailer desperately needed their help, games publishers offered little in 2011. Exclusive deals and special editions went elsewhere and the retailer’s market share fell.

As a result, HMV has dismissed its head of games Tim Ellis. It has merged its tech and games buying teams. And now it’s telling us it will cut in-store space given to games.

On top of this, the landmark deal that HMV did with its banks last month was the result of a new deal with its DVD and music suppliers. The games industry was left out.

We ask CEO Simon Fox if games has lost its place at HMV’s tablet.

How vital was the agreement with your banks last month?

It has fundamentally changed our financial position. In our trading updates we have had to refer to material uncertainties. And what the agreement with the banks has done is transform our financial certainty.

It came about because we have entered into a new way of working with our music and film suppliers. And in return for that new way of working, we’ve issued them 2.5 per cent of our equity by the way of warrants. It was an enormous relief and totally crucial.

Why aren’t video games suppliers involved?

We frankly turned to the suppliers where we felt we could obtain their support to this new way of working.

Did you not get the support from games suppliers you needed?

It’s true that music and DVD suppliers did support us, while most of the games suppliers found it harder. And for understandable reasons. Games products are higher ticket items than CDs or DVDs and the economics of production are different. Also, some games guys are more governed by Head Office policy, which may limit local flexibility. And although I believe we’re important to the games industry, we don’t have the same market share in games as we do in music and film.

Is HMV not as vital to the games industry as it is to film and music?

It is clear than in music and DVD we are the only High Street specialist and the only company that takes the full catalogue of product from DVD and CD suppliers. But that isn’t to undermine our significance in games. We were disappointed with last year, but we are optimistic that this year we can fight back.

What do you think was to blame for you losing games market share?

Last year we were reacting with the games suppliers on a day-to-day hand-to-mouth basis. We didn’t always have the stock we wanted, we didn’t have the exclusives we needed, we weren’t planning long enough ahead. It was the opposite of a strategic relationship.

What do you need from publishers?

The ability to plan ahead properly. We need to be sure of supply, of proper credit terms and we need to be engaged as a serious partner. Also, one of the reasons we have brought our technology and games teams together, is as software becomes less tied to a single platform, we think we are well placed to offer something a bit different.

Most big games – FIFA for example – are played across more than one device. We have mobile devices, and we have gaming devices – which we will display on our tech tables rather than in our gaming sections – and I think we can bring product to life in a way that few others can.

We are committed to games. We want to work closer with publishers and format holders. And I’m hopeful they want to do the same with us.

How has your games team changed?

We were sorry to say goodbye to Tim [Ellis, HMV’s former games boss]. But Ewan [Pinder, head of technology and games] has taken over, because we no longer see this divide in HMV between games and devices. The team structures will change to bring the tech and gaming guys closer together, although there will be a distinction between the two.

We’ll also change the way that we buy. Historically we’d have one buyer per supplier, we want that to change so it is by format. That will make it more complicated for publishers, as they may need to deal with two or three people rather than one. But we think that is the right approach.

You’ve said games will lose space in-store. How much space?

There will be some contraction of gaming space. But we intend to do that in a way that doesn’t undermine the offer. And if it does, it will only be in the deepest catalogue tail. Our intention is that neither publishers nor customers will notice it.

Is it just back catalogue? Or are other areas going to be reduced – accessories for example?

We’d look to be increasing accessory space. We’ve underperformed in that area. We have become a significant provider of iPod and iPad accessories, we’ve become the market leader in headphones. We intend to be more serious in gaming headsets – it is inexcusable that we haven’t been. Digital cards are also important as we are undershooting in that market.

With music and film offering more support, is there a risk of games losing its voice in HMV?

I think bringing games and tech together gives the category a much higher profile. It is also an area, because we’ve underperformed, that to just regain our natural market share is a huge sales opportunity.

What’s happening with Gamerbase?

We won’t open any more paid-to-play Gamerbase outlets this year. They are doing well but it is more important, given how constrained space is, that we keep rolling out the Gamerbase four-man pods rather than the big play centres.

Are there any other areas you can move into in games?

Our priorities are to be selling digital cards, to grow accessories, and to support new platforms. We want to further develop HMV.com. Initially it will be about multichannel – so click and collect, which we plan to offer from June. And we will look at ways to make our apps more interesting. We want to add trailers to our Re/Play app. There’s a lot of content richness that can bring to our sites and apps.

What about digital downloads?

We see a role for us in digital. We’d like to sell extra characters and in-store subscriptions, we have looked at a whole range of options and I’d like to see us bringing some of them to fruition in the next year.

What do you think is needed to lift the games market?

The breakthrough innovation has happened outside of the games industry, so iPhone and tablets. That’s what’s exciting customers. We haven’t had that product in games. Hopefully Vita and Wii U will be those products. We’re dependant on the innovation of the games companies. We need more Adeles and Harry Potters, we need great titles that capture people’s imaginations.

OPINION

MCV’s Christopher Dring shares his views on HMV:

"Simon Fox stops short of outright criticising the games industry. He knows that publishers can’t just give it stock like the movie and music suppliers can. Video games are expensive.

"But underneath the empathy there’s disappointment. HMV did not get the special edition sets or exclusive content that its rivals did. So it lost market share.HMV has to take some blame for that. But the reality is the firm now has a better relationship than ever with music and movies.

"Games is fast becoming that disappointing younger sibling. HMV hasn’t given up on games, it believes it can claw back its market share. But it needs help.And considering the state of some of its rivals, the industry could well come to rely on HMV more and more as time goes on."