Archive for the ‘Economics’ Category

So the CD, DVD and entertainment retailer HMV has been saved for the nation (by the debt restructuring specialists Hilco), which as far as I’m concerned is very good news. I really couldn’t see how it couldn’t be possible for a single chain of CD/DVD shops to survive in the high street, and I’m glad that the business consensus has reached the same conclusion – for the time being at least.

However, while this secures HMV’s immediate future, it does nothing about the big question mark hanging over the brand in the longer term. In particular, the fact that it took almost exactly three months from going into administration for the deal to finally be struck suggests that the process was far from straight forward. It even went on past the end-of-March deadline, the point at which the administrators had to cough up another three months’ worth of High Street rent to landlords, which could very easily have been the moment that they pulled the plug altogether rather than send good money after bad. I wonder how close Armageddon came?

But that’s in the past and now the big problem for the new owners is: having bought the chain, what are they going to do with it in order to avoid it continue losing money? Let’s see if we can come up with any suggestions…

Unique selling point

Any business expert will tell you that the first rule in marketing is to identify its unique selling point. And with all due respect to HMV’s detractors, who usually lay into the underdeveloped online side the company (more of which in a minute), the USP for HMV is undoubtedly its physical retail presence in the high street. Without that it’s just another one of dozens of unremarkable, struggling anonymous online web pages. It’s vital that the high street stores continue, and moreover thrive.

That’s not to say that they should stay as they are (or that even all 141 branches Hilco acquired in the deal should remain open.) In recent times money has been pouring out of the chain to service debt repayments, leaving the stores looking older and shabbier by the month; grabbing some of the floor space for an ill-fated dabble in consumer electronics didn’t help either. The one thing that Hilco has said is that the gadgets are going, and thank goodness for that – that desperate ploy was the mark of a previous management in full panic mode with no sense of what the business o market sector was about.

Fortunately for HMV, there’s still a large number of people who just want to walk in a shop and pick up a CD or DVD, pay for it at the checkout and take it home. Not everyone is comfortable with streaming (which too often is ‘renting’ rather than buying) and many want something physical in their hands without having to wait for days for it to show up in the post.

Of course I don’t have HMV’s detailed financial accounts to hand, but my guess would be that up to 80% of their sales come from around 20% of the floorspace in the store: the areas dealing in new releases, current chart toppers and sales/special offer items found near the front of the store. That said, some stores seemingly do their best to hide these areas deep in the shops, presumably in an attempt to make customers come deeper and peruse rather than just grab what they want, pay and leave. But really, if that’s what people want to do then let them have at it – redesign the stores to put these sections right up front and push the rest into the background.

The Long Tail

But don’t, whatever you do, think that you can get away with just curtailing the stores back to stocking just these top sellers. The supermarkets do this already, and in a head-to-head battle they’re going to win and HMV will get slaughtered. What differentiates HMV from the general stores is that they have wider, deeper range of stock rather than just the top 30, and that their staff are more knowledgeable about the items. It’s massively important that HMV doesn’t lose this ‘specialist’ side to it, even if that means carrying more things in stock than the bottom profit margin would ideally like.

However, there is a definite problem in servicing what’s known as ‘the long tail’ – items that may be several years old and only sell a handful of copies a year. The problem is that high street stores invariably never seem to have the specific item that the shopper is after: I can’t tell you the number of times I’ve gone looking for something in HMV that might be only a few months old and not found it. It’s annoying and frustrating, and leaves me resorting to online stores like Amazon – and while I’m there I’ll grab a few others things, maybe some brand new titles, all of which saps sales from HMV.

Amazon can service the long tail because they can erect huge mega-warehouses in low-cost parts of the country; HMV can’t compete with that because there’s no way of storing such a wide range of items at high street floor space prices. So how can they possibly compete?

The online dimension

Okay, we have to talk about it: what went wrong with HMV’s online offering and what can be done to improve it?

On the face of it, there really was nothing much wrong with HMV’s online service (still shuttered, by the way, even three weeks after the takeover). The site worked fine, I had no problems finding things, and items were dispatched very quickly and arrived faster than most other online outlets. I can’t recall a single glitch with any order I placed. Other online retailers could wish for such a positive report.

Yet HMV got a pounding from business experts and critics who said ‘the company is collapsing because it hasn’t understood online retailing?’ As far as I’m concerned, the correct interpretation of this is because the online wing was never integrated with the high street shops at all – it was an almost entirely separate business. Prices and availability online had no bearing on what you might find in stores; gift cards bought from one couldn’t be used on the other. Truly it seemed that other than the name and brand, the only link between the two was that the stores dutifully posted the URL on their walls, and the website had a nice store finder telling you the branch locations and opening hours. Otherwise, ne’er the twain shall meet.

People expect more from a company these days, and that’s the bit of online that HMV didn’t get – that the digital operation should (indeed, must) feedback and fundamentally change the bricks and mortar operation in turn, in an ongoing cycle. Instead, having set up a (rather good) online shop, the old HMV management considered the job done and came to a dead halt. Emphasis on the ‘dead’.

Not only that, but the existence of the online store ironically became a real problem for the high street operation. Do you price a new online item at the same price as the shops, or the same price as online competitors? If you do the first, then you’ll be hideously expensive in online terms and buyers will quickly click over to Amazon. You’ll be dead in the water. But if you do the latter, than you make it painfully obvious to all your customers how high the store prices are by comparison, and that will rot the business to your branches.

In the early days of their online business, HMV chased the prices of others thanks to the handy Channel Island tax loophole (now closed, which is why the similarly affected is going out of the retail business.) As the debt situation at the parent company loomed ever more deadly, the online prices started to spike and match the physical stores. But while you can explain that High Street prices are higher because of the considerable cost of running the stores (including staff wages and rents), you can’t use that argument to justify the suddenly sky-high online prices as well. It looks either like price gouging, or like a business trying to stave off bankruptcy by going into frantic money-acquisition mode. We all now know which one turned out to the the reality.

The price is right

The one thing that does come out of this discussion is that price matters. In my previous post on HMV that I wrote in the wake of their going into administration at the start of 2013, I noted that I was willing to pay extra for the high street service because I understood the economic realities behind that increased price; but that my loyalty had limits. When the mark-up got to nearly 80% on one item, I’m afraid I took my business to Amazon without a second thought – and would again, even if it meant dancing on HMV’s pauper’s grave. Don’t play me for a sucker, in other words.

So more than anything else, Hilco must find a way of being able to price their goods at a reasonably competitive level to their rivals, both the online ones and the supermarkets who are circling over the entertainment market like vultures waiting for HMV to leave a juicy carcass to feast upon. Note that by ‘reasonably competitive’ I don’t mean that they need to match or beat the others – as I said, I understand the reality of the overheads here. But they do need to keep it within touching distance so that customers will shrug and go, “Well I could get it online for a couple of quid less, but it’s here in my hand so it’s easier just to get it now …”

If Hilco can’t negotiate rates with their suppliers that allow them to get into this touching distance of their competitors then HMV is toast without question, regardless of anything else we propose. But I think suppliers will want to keep the important HMV retail outlet going, and so I am hopeful that this will prove possible to arrange. If not, and the prices continue to be exorbitant (and I’ve found HMV selling items for well over the manufacturer’s Recommended Retail Price (RRP) in the past) then they’ll get ripped to pieces on social media and their credibility shattered. Heck, I’ll even help if they’re going to continue to treat customers with such disdain.

If I may make a suggestion … ?

Okay, so that’s some of the issues and problems at play in the sector which now face Hilco as they attempt to save HMV in the long term. Pricing aside (which is a purely business negotiation issue), are there any suggestions that we can make based on this overview? Excuse me while I go on a flight of speculative fantasy for the rest of this post…

My first impulse would be to strip down the stores and make them cool and stylish, with a front-of-house dominated by the aforementioned 20% of items that drives 80% of the sales displayed front and centre as people walk in, pick up and take to the counter or a wandering salesperson (like they have at Apple Stores) to pay for by card or cash. Shiny and new, cool and bright, roomy and airy – imagine for a moment all that long tail stock hidden away.

As well as the new releases and best sellers and sales items, the company should look to build up a supply of ‘HMV exclusive’ items. It should also make to have sections concentrating on items ‘in the news’: I’ve lost count of the number of times I’ve seen a new entry in a film franchise out at cinemas, or a show come on TV with a new series, thought “Oh, I need to catch up on the previous film/season first” and go to the shop – only to find the relevant DVDs totally out of stock. It’s basic identification of stock demand: while you don’t expect supermarkets to do this for CDs/DVDs, it’s Business 101 for a specialist retailer.

Use the staff in the stores to do some of this thinking for you: give them a section of the retail space for their choice of ‘spotlight items’ and allow them their head to organise the management of it. Maybe make their performance appraisal partly based on their success or otherwise in turnover for their selections to make sure that they’re meeting the needs of the local consumer market.

And yes, allow them to be quirky as well. It wouldn’t help for the stores to have a little individual character here and there rather than all look the same.

But you said not to cut off the long tail!

Yes, I just said that we’re going to be hiding away a lot of the older stock, which seems contrary to my previous assertion that getting rid of the long tail supply would undermine HMV’s position as a specialist retailer. But the key here is ‘hide away’ rather than ‘dispense with’; for one thing, you need that depth of stock to allow the staff to have their choice of items to cycle though and feature in ‘their’ part of the front-of-house. If you only have the new stuff and chart toppers in stock then they won’t be able to achieve that, so there needs to be a proper reserve bank of ‘deeper’ titles on hand.

There has to be a better way for stores to carry this large long tail/backstock than lining it up in row upon row of scruffy shelves, cramped together where you have to practically lie on the dirty floor to read the spines of the ones on the bottom shelves. Browsing in HMV hasn’t been a pleasant experience for some time; while I might spend time on a ‘mission oriented’ seek-and-locate mission for a specific back title, I don’t enjoy trying to browse for alleged pleasure like this.

If the physical shelves are no longer fit for purpose then why not service this market electronically instead? Build a digital presence that suitably mimics (not necessarily precisely copies, but similar enough in consumer experience) the experience of looking through shelves? You can imagine this working very nicely on tablets placed in the front-of house area. They’d be running something akin to cover flow, allowing customers to flick through the virtual shelves which would be organised in the same way that the stores have traditionally organised the layout: rock & pop, opera, indie, easy listening; action, horror, musicals, westerns and so forth. The digital representation has the advantage that an item can be filed in as many areas as needed, rather than the customer having to second-guess which category the store decided to use.

Is this the same as a website? No, not exactly. A website has a number of existing preconceptions and prerequisites, such as the technology needing to be usable on a wide number of different PC platforms. Here we’d be talking about a bespoke experience custom designed for whatever gadget HMV decides on (Apple iPads being the inescapable obvious suggestion) specifically for the purpose of people coming into the store, seeing the banks of tablets and using that electronic device to find the back title that they’re after without scrabbling around anymore. Then they could listen to some tracks of the CD or watch a preview or clips of a DVD as part of the process.

Once an item is selected by the customer then there’s a number of ways that the order could be placed and fulfilled. Firstly – is it in that backroom store on site? If not, is there a local nearby branch that has it in stock that the customer could go to? Or would the customer like to order it, either by placing a traditional online order much as if buying from Amazon or by having it made available for pick-up at the store, either from a central warehouse or by getting it from another store that does have it in stock?

Okay, let’s move on to picking up the item. How does a virtual selection on a general front-of-house tablet station become a paid-for sale and pick-up? I’m rather loath to suggest that the tablets are linked to card PIN readers as I’m not sure how viable or expensive that currently is. I would personally still prefer either the Apple-style wandering salespeople equipped with their own tablets, or else the traditional point-of-sale for cash business, but maybe that’s just me. There’s certainly a case to be made for allowing people to pay at the browsing station for immediate delivery of digital media like music downloads and movies, although to be honest I think this is a tough market given the domination of Apple’s iTunes Store.

What could be done is having the customer enter their mobile phone number into the system; they get a text message when the item it ready for pickup, with an ID number in it. They are able to then approach any sales person or POS to pick up the item by showing them the ID number, and then pay for it. Even if it took a while for the item to be retrieved from the backroom (we’ve all been to Argos!) the customer could head off and wonder around other shops for half an hour before getting their SMS. Yes, they could end up finding the item cheaper elsewhere in the meantime, so allow them a text response channel to cancel the item as well. It might be a lost sale, but at least it will help keep the stock fluid.

The same text message would also be true for any item ordered for store delivery and pick up – whenever the item came in, the costumer would get a text saying it was ready, how long it would be held for, and the ID number used to make sure that they get the order being held for them. Of course, you could also make custom iPhone/Android apps to make this whole side of things more advanced and flashy, but text messages alone would do at a pinch and are available to virtually everyone these days. That said, don’t forget to build in the willingness of the front-of-house staff to do things the old fashioned way for someone who has no mobile with them or simply doesn’t like this approach; no need to lose sales by being overly dogmatic.

One added advantage of this: if you have someone create a (free) HMV ID account that couples their buying history both online and in-store with their mobile number and their credit card details then you have a terrific consolidated database on their buying habits via both channels. You could also have an HMV Members card to offer special deals and exclusives – a RFID touch card could be integrated into the browsing/purchasing process to augment text messages, although I’d be wary of using this as a primary means of carrying out sales especially as HMV’s old Pure points card was such a weak performer.

Online integration

Considering that with this model over half the physical High Street store is now ‘virtual’, it’s natural to think of what this means for the online service overall.

For one thing, there’s no reason why the browsing should be restricted to the fixed tablets provided by the store itself; indeed, at times of peak demand when the place is rammed, giving the people the option to whip out their tablets, connect to the store WiFi, download and use the HMV interface would help keep sales moving.

If you’re going to that length, then really the general online store should stay pretty close in content. It might not have the bespoke ‘browsing’ interface but there’s no reason why people shouldn’t be able to use it look up an item either at the store or from home, see if it’s in stock (or which store it is available from) and to place an order for pick-up before even leaving their homes. They’d still have the option to buy online and have it delivered to them by the postman, just as they would from Amazon, but this leverages HMV’s USP (their physical high street stores, remember) and also ties together the branches and the online presence in a way that’s been distinctly lacking till now.

That brings us to the question of price. I said earlier that HMV needs to do something to bring its product prices to within a reasonable distance of their competitors, and that still stands, but another question remains: what price should be quoted on the website, store price or online price?

To me there’s no question: the price should be the one found in the store. If I’m looking something up, I want to know how much something will cost me if I go and buy it in a local branch. I don’t want to be misled by a totally different online-only price. But that needn’t stop HMV from adding an secondary ‘online special’ price clearly showing a discount for postal delivery that could serve to bring it within fair distance of their online competitors as well. Simply make it very clear what the ‘real’ price is – which should always be the same as the store – and what is being done as a special online offer. The online site is working first and foremost as an extended shop window for your branches, not as a rival chain undermining your stores.

It’s not rocket science

Readers who’ve got this far into this post (and seriously, congratulations for slogging it out and I can only apologise for the hour of your life you’ll never get back) might be sitting back in their seats at this point and saying: “Hmmm. Is that it?”

Yes, I’m afraid that’s it, for now at least. I could throw in a bit about negotiating some link-ups with former rivals such as WH Smiths, Game and Waterstones to put some HMV concessions into their stores on high streets now lacking a stand-alone HMV presence (and thereby adding more ‘pick up points’ across the country for ordered items) but that’s about the size of it. While transformational for HMV, I’d be the first to admit that it’s not hugely revolutionary in terms of the broader retail sector. Other stores have done so much of this already – the decades-old Argos chain has led the way in many of these approaches, and Apple Stores have been referenced multiple times in the post already. So yes, it’s not rocket science and there’s nothing outrageously new. Sorry.

That simply highlights the big underlying point here: if none of this is particularly startling, then why hasn’t HMV been doing it already? Why are they still using a store model essentially the same as that of the 1960s and 1970s? It’s the application of these newer approaches and learning the lessons of other High Street and online stores to create an integrated presence that is the Big Idea, at least as far as the currently chronically compartmentalised HMV goes.

I don’t really expect anyone to listen or take much notice of this article, in truth. But it gets some thoughts off my chest, and if in 12 months time HMV has rebuilt itself in a way that coincidentally uses even one or two of the thoughts and ideas collected here then I’ll be pleased.

If not, then I’ll be worried that HMV might yet not be long for this world after all…


I admit it, I’m very sad and even somewhat depressed about the news that HMV has been placed in administration after 92 years in business. That said, you’ll notice that I didn’t say ‘shocked’ or ‘surprised’, because frankly this moment has been coming for some time now.

Actually, I genuinely thought that HMV would collapse early in 2012, but that time the management was able to hammer out a financial rescue package with the banks to keep it afloat. But once news emerged that the entertainment retailer’s pre-2012 Christmas sales had suffered a 8.1% like-for-like drop. That’s pretty disastrous, and clearly meant that insolvency could only be a matter of weeks away. It turned out to be just days instead.

The signs were clear in-store: there may have been piles and piles of sales stock, but strangely it simply hasn’t been selling – customers weren’t interested in the store’s selection of discount titles even at rock bottom prices, so the piles stubbornly stayed put. Meanwhile the rest of the shelves in the stores that I went to in London were showing obvious signs of not being restocked even of comparatively recent releases. To anyone who has seen a retail chain collapse in progress in the past – and there have been plenty of recent opportunities, sadly – these were clear and ominous signs.

When HMV staff started slapping on blue cross stickers onto large swathes of their remaining stock in preparation for a 25%-off clearance sale starting on Saturday, it gave every impression of a desperate and feverish attempt to liquidate as much stock as possible before having to call in the receivers. I figured that they would limp to the end of the month before the collapse, but rather than two weeks it was actually just 96 hours later that the edifice crumbled.

I still find it amazing that a chain which had been handed a de facto high street monopoly by the collapse of a succession of rivals apparently still could not survive in business.

What are the reasons behind it?

The obvious culprit is online stores undercutting HMV’s prices on CDs, DVDs and computer games. And you have to have some sympathy for HMV here because they faced a far from level playing field; some online stores like were taking advantage of a tax loophole available to businesses based in the Channel Islands, while has notoriously been indulging in some very near-the-knuckle accounting practices relating to VAT and corporation tax. HMV wasn’t able to follow suit, while also having the overheads of high street rent and staff wages to support.

However, just blaming online buying isn’t the whole picture by any means. After all, what was to stop HMV from setting up its own online business in the Channel Islands? Well – it did. Unfortunately the enterprise was pushed and pulled from all directions by corporate priorities: pursuing low prices to match the likes of and just drained further sales from the high street stores, and embarrassed the physical shops by emphasising how overpriced they were even to their own online operation; but being forced to match the same prices, offers and sales as the stores made them look absurdly expensive in the online realm. They literally couldn’t win.

Anyway, ‘online’ is no panacea. was once the poster child for e-commerce, but it’s been in decline for some time and when the government finally got around to closing the Channel Island tax loophole, the company announced it was pulling out of retailing altogether just a week before HMV was forced into insolvency. If even can’t make online retailing work without an opportunistic tax break then who can?

For the record: I’m not one of those who has ever piled on to the companies that have made use of some creative but completely legal accounting practices. Everyone – individual or business – seeks to get the best deal on tax possible to them, and is no difference. They might get a break on corporation tax and VAT, but they’ve also built huge facilities in the mainland UK and employ a lot of staff in the process. Besides, do you really want to crack down on now and force it out of business like HMV and before it, and leave us with nowhere at all to buy CDs, DVDs and games while also adding to the unemployment numbers?

Another culprit for the demise of HMV is supermarkets which now stock top CD, DVD and even game titles and therefore take the top-selling cream off the market that otherwise would have gone to HMV. On the face of it, it’s difficult to see how supermarkets can undercut HMV quite so much on these top titles. After all, supermarkets can’t take advantage of the same creative accounting that online companies have been able to; they have the same overheads in terms of rent and staff wages. It’s unlikely that the supermarket chains can get better bulk purchasing deals than HMV, and hard to see that CDs and DVDs are worth making ‘loss leaders’ supported by profits from the sales of other goods in the same way that alcohol often is. So how come supermarkets were able to consistently undercut HMV and steal the business?

This one comes down to HMV’s expansionism at the height of the entertainment market from the end of the 1990s through the first decade of the 21st century. As well as opening up new stores they also diversified into books (buying up the Dillons/Waterstones book chain) as well as cinemas and live music venues. That was fine at the time, but the borrowing the company did to fund this strategy came back to impale them after the credit crunch took effect. Not only have the last few years of austerity taken their toll on consumer spending power which in turn has curtailed sales in the entertainment sector as a whole, it also forced HMV’s management to be fixated on managing its debt burden rather than developing the business.

The last couple of years, HMV has been all about servicing its debts and fending off creditors, selling off relatively profitable assets like Waterstones and the live music business in order to get the cash together to meet the next bank loan repayment. The more the company contracted, the more it forced the remaining debt burden to be heaped on the core business – the stores. The only way of generating enough revenue from the remaining rump was to increase prices, treating their market like a monopoly when the truth was this just forced disgruntled customers to look online or to supermarkets instead. Far from increasing HMV’s revenues, price gouging (as it came very close on occasion) just killed it.

The moment I really knew that HMV was toast was when the management announced a new retail strategy: they would pull back from stocking CD and DVD and instead focus on developing new products in personal entertainment technologies. Or as one wag put it: the visionary HMV management decided to exchange their existing share of the £1.6bn CD market for a hope of a share in the £160m headphones market, which was already in decline as the demise of high street electronics stores like Dixons demonstrated. Sorry, but that never seemed like a winner: and if it’s your emergency Plan B then you really are terminally screwed as a company, as it’s proved.

What’s going to happen now?

So now we’re facing the prospect where there will be no stores on high streets selling CDs and DVDs, and only the formerly insolvent Game chain currently surviving to service the computer game market. Back in 2005, there were around eight stores in my local city centre (Kingston-upon-Thames) which were either CD/DVD specialists (Virgin Megastores, Silverscreen) or were big stores with large sections selling CDs and DVDs (Woolworths, WH Smiths, Borders.) Now as we enter 2013, the last sick man standing is about to drop down dead.

Is there really insufficient consumer demand left on the high street to maintain a single CD/DVD retailer anymore? I genuinely find it hard to believe. Yes, I know that online sales, downloads and streaming services have taken a huge chunk out of the music sector; but a lot of people either can’t go that route or prefer to be able to walk into a store, browse, and walk out holding a physical item in their hand. Not everyone wants to be forced to go to for every single electronic entertainment item that they buy, surely?

Even in the 24 hours since the news of HMV’s insolvency hit the wire, there have been some green shoots of optimism breaking through the icy frost in the high street retail business. Knowledgeable sources confirm that many – a majority, even – of HMV stores actually trade a reasonably strong profit in their own right, it’s just that this is soon swallowed up in unsustainable debt servicing. Free the stores from this debt burden and do some basic reorganisation of the chain (which would include a ruthless pruning of their the deadwood from their 239 store, which will inevitably cost at least some of the 4500 jobs currently at risk) and you have a viable business, surely?

This must surely be the plan of the administrators Deloitte, and it must be hoped that they won’t follow the astounding strategy of PriceWaterhouseCoopers at Jessops, which permanently shut down the entire photographic retailing chain just 48 hours after taking over. But in these troubled economic times, does anyone have the funds to risk coming in and salvaging what’s left of HMV?

There are a few companies with pressing reasons for doing so: the record companies, TV networks, film studios and computer games manufacturers for starters, who rely on home sales of CDs, DVDs and games to keep their own core business afloat. There’s a serious risk that the loss of a high street retail channel could tip many of these businesses into financial problems; and as for the companies that make and distribute the products, it’s hard to see that they have much of a future at all if HMV isn’t replaced.

But won’t people just buy online or at supermarkets, as we’ve just discussed? Well, certainly some sales will go to these channels: the big blockbusters and family films which are already among the six to eight new titles per week that the supermarkets deign to stock will be okay, and ironically so will the very niche products like indie arthouse pictures and vintage classics since most hard core collectors will be motivated to seek out the titles online or even directly from the distributor if necessary. It’s the huge ‘middle mass market’ that’s at risk: the sort of films not big enough for the supermarkets to want to waste shelf space on, but are nonetheless only bought on impulse when someone walks into a shop and sees a cover that piques their interest, albeit not to the extent that they would bother seeking out online.

You’ll perhaps notice that I’ve shifted to talking about films here, and that’s deliberate. I’m not sure that the high street music market has the same claims to surviving the current storm. That’s because most people browse their music on the radio (or by streaming services) and form their purchasing decision right there and then so it’s the most natural thing in the world to boot up the PC and have the music on their iPod 60 seconds later. Moreover, these days it’s usually a specific single track they want. You can get that single serving on iTunes, but the high street stores selling the music on albums alone actively fail to even offer the specific product that customers want. No wonder sales are collapsing.

Films are different: you don’t simply hear them on the radio and decide you want it, so what’s going to drive sales if you can’t see rows of titles in a store? There’s also no equivalent of wanting a ‘track only’. And the downloads from iTunes, Netflix et al can be big and time consuming if you’re on slow broadband, and if you have metered internet usage then you can pretty much wipe out your entire month’s capacity with half a dozen films and a couple of TV shows if you’re not careful. Oh, and the end product is significantly poorer from the online download/streaming versions as well, even for DVD – let along high-def Blu-ray.

Still, the signs are clearly on the cards. While I think film sales on physical media via shops are still viable for the time being, the fact is that as technology and networks improve then films will indeed eventually go the the way of music sales. Or at least, they will once the crusty ancient ‘I want something real to hold in my hand, dammit’ oldtimer brigade die off.

Who’s to blame?

Let me come clear: I’m one of those crusty ancient oldtimers. Not to extremes: while I would prefer to have an actual product in my hand, if I only want a single track then I’m obviously going to buy it from iTunes. And if an entire album is half the price online than it is in the stores, then I’m going to treat the physical product as a prohibitively expensive luxury item and settle for the download there, too. My preference may be to buy the physical item, but it doesn’t override my rationality.

That preference has led me to keep supporting HMV by buying items from there regularly over the last few years. Indeed, my obsessive DVD buying has at times made me feel like I’m single-handedly servicing HMV’s entire debt mountain by myself. I value the high street presence, and I recognise that overheads make it more expensive to run than an online operation so I’m willing to pay out a little extra premium in order to support it.

For example: my last visit to HMV was on Sunday, the day before the news about the insolvency hit the headlines, and there were lots of vultures eagerly circling the discounted stock in the hope of picking the bones of the carcase clean before the corpse starts to reek of decay. Admittedly, one item I bought was indeed something in their 25%-off blue cross fire sale, but the other two were items that were full price and which I could have got a pound or two cheaper if I’d ordered online. But the price was still reasonable, and it wasn’t something I was going to bother with ordering from a website, so I paid it in the meagre hope that it might help the company survive in some shape or form. I’d have bought other things, but everything else I looked for was apparently out of stock – which itself tells a crucial tale of the problems facing high street retailers.

That loyalty has its limits, mind you. Just a few days before this crisis erupted, I noticed that the latest release in the BBC’s Classic Doctor Who DVD range was for sale at £25 at HMV (in store and online) compared with £14 at and I’m sorry, but a 78.5% overhead is simply too great to swallow, so the order went to instead.

I have the same sense of wanting to support other high street stores under threat in the current economic downturn, so when I can I buy large format books from local bookstores and even made a point of buying books for Christmas gifts for several people from local bookstores as a way of showing support. Better that than sleepwalking into having no bookstores left on the high street in a year or two. Unfortunately even this resolve is tempered: for my own reading I’m increasingly preferring to read novels on a nice, light e-reader, with the added advantage that the bought volume doesn’t add to my already overburdened bookshelves in my tiny flat. Even if that means buying the e-book from iTunes or Apple.

So even I’m crumbling and losing my fortitude, feeling like Canute trying to order back the inexorable tide to zero effect. Soon, the choice on the high street will be gone and I’ll have no choice anyway. I’ll be very sad when that moment comes, and wonder what will become of the high streets when they’re just a collection of ghostly empty spaces quickly forgetting why they were ever gathered together in the middle of town in the first place.

So this week, Barack Obama’s Democratic Party took a bit of a drubbing at the polls in the US midterms, the biennial elections which return a whole new House of Representatives and a third of the seats in the Senate.

Think back to the jubilation of just two years ago, that night of high emotion as Obama’s “Yes We Can!” campaign swept him to a historic victory and also delivered a majority in both parts of Congress: this week’s repudiation of the party (and by implication Obama) is a shocking post-euphoria crash, the worst kind of day-after political hangover. Not that it’s unprecedented by any means – Bill Clinton had a similarly disastrous first midterms in 1994, but he recovered and went on to win a second term as president in ’96 – but it certainly speaks volumes about the level of disappointment and disillusionment that the US electorate feels right now.

So what – if any – lessons can we in the United Kingdom learn from this week’s political earthquake in Washington DC?

On the surface it seems to reaffirm and endorse the idea that the political tide has turned and that the right wing, economic-liberal approach is very much back in vogue. The UK swept the centrist Labour government out of power in May, and now the US is doing the equivalent in November. David Cameron has been very vocal about how government has got too big in the UK, that it is unaffordable and unsustainable and needs to be pared back, that we cannot continue to live beyond our means. But this outlook has been received cooly and even with irritation by the Obama administration as it continues to expand government, pour stimulus money into the economy and generally follow FDR’s Depression-era playbook on how the government is the key tool and driver in overcoming major economic crises.

If you ask the Democrats in the US they will say this approach has been working – that things would have been far worse without Obama’s stewardship, and it just needs time before everything is back on track. The election results this week rather powerfully argue that the US voters don’t believe that, and that they don’t think the policy is working at all. They’re tired of seeing the government expand, spending their tax dollars seemingly indiscriminately and generally give them nothing back in return except for more home foreclosures and more job losses.

This all looks very good for Cameron, Nick Clegg and the Conservative/Liberal Democratic Coalition, then – the party on the rise in the US is singing from the same hymn book as they are. Soon we’ll see US budgets pared back, stimulus packages aborted, government shrunk as America finds its own Age of Austerity. Then we really will be in this together, at an international community level at least.

But this might be the wrong set of lessons to take away from the US this week.

One of the ways that the UK Coalition is presenting the austerity measures here is to say basically “look at the mess we inherited [from Labour], it’s a disaster, we have to do something about clearing up the mess.” It’s a powerful argument that’s cut them a lot of slack from the public, especially while Labour has been AWOL from the political scene for much of the last six months choosing a new leader, leaving them with no clear policies or leadership in the meantime.

In America, however, that argument should surely be working the other way around: it’s Obama who inherited the financial crisis and massive deficits from the Bush administration (while George Bush himself had inherited economic prosperity and a balanced budget from his predecessor, Bill Clinton.) It’s quite bizarre that the Republicans have been able to campaign on a platform of financial restraint and reigned-in government, considering that the record of the previous GOP era was to blow the budget wide open and leave the biggest financial meltdown in history that nearly collapsed world capitalism for good. How could an electorate so quickly forget the situation of just two years ago and turn on Obama with such fervour now?

And this is where we get to the real lesson of this week’s US elections: basically it’s a distillation of the classic “It’s the economy, stupid.” A government which is in power when the economy turns bad is going to suffer at the polls. Every single time. Even if it’s debatable that things are getting better or just staying the same (as is broadly the case in the US), the electorate is not going to be happy with a struggling economy. And if things should get worse on your watch, then woe betide you come polling day.

Far from feeling happy and endorsed by this week’s developments in the US, Cameron and Clegg should be seriously worried by what they’re seeing. Unlike Obama (or Tony Blair in 1997), they did not arrive in Downing Street amidst a huge up-swell of public support and optimism. At best, the voters have cut them some slack for the first few months because of the existing economic crisis, but there’s not exactly any great reservoir of good will for them to fall back on over the next few months and years. We saw how quickly Obama’s support evaporated in just two years; how fast, then, before the grudging tolerance of the British electorate for a government that many feel they never voted for collapses? Especially if the economy grows worse, as almost everyone now expects it to do – and even faster and more severely if the new US Congress does indeed decide to slam on the stimulus brakes and bring the world economy to an emergency stop.

If I were a politician (and thank goodness I’m not – I’d make a terrible MP) in the Coalition at the moment, I would be very worried and scared about what’s coming. Labour have managed to hand over the stewardship of the economy at the precise moment when frankly no one in their right minds would want to have their fingerprints near the scene of the crime, because it’s going to be hard and uncomfortable for everyone, and the voters are going to blame the Coalition for it just as their US counterparts have landed the blame at Obama’s door. This has happened before in the UK, as well: the economy was faltering in 1992 and the writing was on the wall, so the smart play was to make sure someone else was in power to take the rap. Instead, John Major achieved the near-impossible in winning a new term, but after that the Conservatives got stuck with the collapse of the pound, the UK’s exit from the Exchange Rate Mechanism and a whole series of consequences that set things up perfectly for Blair in 1997 and contributed to the Tories being out of office for thirteen years.

The Coalition will quickly get to the point where it doesn’t matter how many times they say, “This is Labour’s fault, we’re clearing up the mess” – the voters will simply look at their day-to-day lives and answer with variations of “it’s the economy, stupid” and blame the party (or in this case, parties) in power right here, right now.

Any decent Labour leadership should be able to play this card to perfection: during the 2010 campaign the one argument (almost the only political debate of any substance) was about how to deal with the economy. Labour said that cuts would have to be done, but slowly so as not to stall the economy; the Conservatives wanted (and have now introduced) the most dramatic economic course change we’ve seen in a generation or more. If it doesn’t work – and quickly, at that – then Labour will be able to say “we told you so” and the blame for everything that follows will lie entirely with the Coalition. Labour’s past role in the economic situation will be forgotten as quickly as George Bush and the Republicans similarly escaped censure in the US – instead we’ll have Gordon Brown and Alistair Darling lauded as economic sages whose wise words the Coalition and the voters should never have spurned.

That’s the lesson that the Coalition should be learning from the US this week, but they won’t. Their eyes are too tightly closed with the effort of simply trying to hang on to this financial tsunami. And in the meantime, the latest opinion poll (YouGov’s poll for The Sun, which normally leans right) puts the Conservatives and Labour neck and neck on 40%, with the Liberal Democrat vote unsurprisingly collapsed to 9%, their worst polling since 1997 – hard to see any chance of survival for Clegg come the next election.

Of course, with every great risk and threat of disaster where there are high stakes, there’s also huge possibility and opportunity of great reward. If Cameron and Clegg (or Obama, the Democrats or the Republicans) actually can put together an effective and sustainable economic recovery over the next two years, then that triumphant success would be a game-changer for years to come and rewrite the political and economic orthodoxies.

No pressure, then.

With the rest of the economy seemingly disintegrating before our eyes at a rate few would have conceived of this time last year, it’s no wonder that danger signs are appearing online and even in social media.

There are two camps of people: those who believe that the recession will not touch online business – or maybe even boost it; and those who believe that the same economic storm will lay waste to online business just as ferociously as it’s already doing offline.

Both camps can call on different stories to support their views: online sales were up over Christmas, showing that people are moving online to buy things and that’s why high street retailers like Woolworths are going out of business; but the growth rate was dramatically down on previous years, and there were casualties online too: online electrical goods trader Empire Direct went bust in January seems to show that the medium (online/offline) makes no difference if a sector such as retailing is chronically depressed.

You can argue this week’s story of Twitter raising $20m more funding either way: that it shows that there is money out there to support good businesses despite the credit crunch; or else it shows that even the “hottest”, fastest growing, most publicised online service of recent months is struggling even to scrape together a pitifully small smount to stop it from going out of business. (How they wish they’d taken that Facebook buy-out offer now, huh?)

The latest rumour is that it appears AOL, once the biggest player in the online sphere, seems set to dump the youth-orientated Bebo social media network. This is one of the biggest social media networks around – not of the order of MySpace, let alone Facebook, but still an important player and seemingly very successful in appealing to advertisers who want to target the youth market. But with advertising drying up on all fronts it seems AOL need out of the deal, which cost them $850m in cash less than one year ago in one of the few Web 2.0 acquisitions we’ve seen thus far, and which now – if reports are to be believed – will be lucky to scrap a quarter of that ($200m) in 2009.

You could argue – with justification – that this is more a reflection on AOL’s precipitous fall from grace (remember when it was big enough to buy Time-Warner? Feels like a completely different epoch, doesn’t it?) and you’d be right. But it also bodes badly for any Web 2.0 business starved of advertising revenue looking to any angel company for a buy-out and a big (or even modest) payday.

So if you can’t get loans without a high price, and you can’t get bought out (unless it’s a deal like Movable Type owner Six Apart made to buy up faltering micro-blogging company Pownce to immediately shut it down as it did late last year) then things can’t be good out there. One by one we could well see the social media landmarks falter and possibly fall. And then all those nice toys we get to play with – from WordPress to Twitter, Flickr (whose owner Yahoo! just posted a $303m loss for the last quarter of 2008 ) to Wikipedia (only recently saved by a massive fund-raising drive), from Bebo to MySpace and even Facebook – will disappear without a trace.

Maybe this will be a case of Schumpeter’s “creative destruction” and leave the ground clear for a thousand new businesses to bloom post-recession. Or maybe it will just leave a barran wasteland and a generation of entrepreneurs too scared to try anything. Either way, we need to be sure that we’re not complacent about the challenges and difficulties we all face – online as well as off – in 2009 and beyond.

If you happened to be watching any of the BBC’s “city season” programming over the last few days, you may – like me – be coming out of the weekend feeling pretty depressed.

Whether it was BBC2’s excellent Saturday night documentary 1929: The Great Crash drawing chilling comparisons between then and now, or Peter Day’s Radio 4 In Business which looked forward at what will hapen post-recession, it was all sobering stuff.

The former really did show how we seemed doomed to repeat history and never learn: in the 1920s they believed boom and bust was a thing of the past because technology and the dawn of world trade had changed the rule book, just as many people in the 2000s felt about the internet and globalisation. The programme also explained how the lack of regulation resulted in disaster; and in recent years, many of the key post-Depession government oversight regulations put in place by FDR have been torn up by Reagan, Bush x2 and even Clinton administrations. It also described how the 1920s boom worked because so much of what was going on wasn’t understood or even known about by many investors or officials, and how this resulted in an iceberg waiting to hole the entire endeavour; exactly the same as today’s complete lack of knowledge of investors about sub-prime mortgages, credit markets, derivative markets and the market in loans repackaged into bonds has wrecked the 21st century economy. BBC Radio 4’s More or Less did a good programme on this aspect, too. (All BBC programmes are available on the BBC iPlayer for the next few days, in the UK.)

The only slight fly in the ointment of all this coverage is the slightly annoying BBC tone of admonishment, Auntie can’t help being Auntie sometimes, and the City season seems designed to tell us all off for our ignorance, hubris and most of all for our greed, which the BBC coverage never fails to put the blame on of all this economic downfall. And of course they’re right – it was the banks’ greed to make money (to sate their shareholders’ greed), and the greed of many traders like Bernard Madoff committing outright fraud, that has caused much of the maelstrom we see around us.

But to say “it would all have been okay if we hadn’t got greedy” rather misses the point. Because at its heart, capitalism is greed. It’s greed adapted into a workable system for running a civilisation. Take away greed and you take away the desire to buy things, acquire more, and to beat the neighbours. The greed that drives people to find the best deals, and traders to make the most profit for their investors, is at the heart of the engine that drives capitalism. Without greed, capitalism itself doesn’t work. But that’s okay, because greed is an intrinsic part of the human animal, almost as basic to us as our urge to procreate, and it will take many centuries for us to evolve out of that basic fact.

This is why communism has failed. Communism (and Marxism, and socialism) all rely on the basic optimistic view that people just want to work together to make the world a better place. But it forgets that people at heart are not like that: we try and be altruistic, but that urge isn’t as powerful as that of the selfishness and greed, and so communist systems become hopelessly corrupt almost from the start, and also underperform and stagnate. Any system that assumes that people en masse aren’t greedy and prone to corruption is bound to fail; only by accepting the reality and either playing to its strengths or rigorously compensating for its deficiencies will a system work.

I’d love to live in a world where greed wasn’t the most important, most dynamic driver of business. But as a realist, I have to accept that I do live in such a world: and that capitalism is the best way so far we have come across to harness those traits for the greater good. But we have to also accept that within the centre of our civilisation is this very dark heart, and it’s going to keep on exploding out of hiding every now and then to show its teeth. This latest recession is just the most recent demonstration of its malign but inescapable influence: boom and bust will be with us for many, many years to come. It only becomes truly dangerous and deadly – as in 1929, and possible in 2009 – when we blithely forget that its there and about to pounce and we let down our guard, take away the oversight, remove the regulations. That’s when ‘bust’ becomes ‘depression’ rather than merely ‘recession’.

And we just sleepwalked into it all over again, because we forgot our history and our basic human nature.

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