HMV makes eyes at Luminar

The Times called it a strategy for stayin’ alive. In the mooted tie up between Luminar, Britain’s biggest nightclub group, and HMV, the high street music and book retailer, which could lead to a full-blown merger, one of the bigger questions is: who’s need is greater? In the landscape of UK PLC, there can’t be a much tougher business that running a nightclubs business at the moment. Except perhaps being chief executive of HMV. Britain’s nightclubs are enduring a crushingly tough trading period. Without wanting to generalise too much, footfall is down, spend per head is down, margins are on the floor because of drinks pricing, and rents – many of which were constructed without recession in mind – are fierce. The capex cycle of these sorts of businesses are famously short while in most cases the companies that populate the late-night arena carry sky-high debts. Long-term, changes to licensing laws mean the nightclub is no longer a distress purchase for people looking for a drink past 11pm. Consequently, operating a late-night venue has become an increasingly specialist vocation. Shorter-term, high unemployment among the key 18-25 age group is having a profound effect. If there is one business that can relate to seismic shifts that impact that foundations upon which its consumer proposition is built, it is HMV, the music and book retail group. It is engaged in numerous battles, such as the fight against the might of the online retailer Amazon and Britain’s mighty supermarkets; for music sales in the face of cheap / free downloads; against the relentless march of the iPod; and the ongoing threat of emerging technology such as electronic book readers. Longer-term, there is a significant question over the future of DVDs and CDs. Matt Brittin, head of Google UK, believes that in 10 years our handheld devices like the iPod and the iPhone will be able to store more films and music than we could watch or listen to in a lifetime. The thought of purchasing a single disc for every album or film we want to watch is already starting to look decidedly clunky. Fortunately, for the nightclub business, the needs of its clientele are timeless – you can’t meet your wife or husband online, well you might be able to meet them, but you can’t buy them a drink…..and look into the whites of their eyes, satisfied that you have not hooked up with an axe murderer or a bunny boiler. After overcoming some significant structural issues, one can envisage a smaller, streamlined nightclub sector emerging. Luminar, which has already shorn itself of 200 sites, to leave it with 80 large-scale venues, must be well placed to survive the shake out. The picture for high street music and book specialists like HMV is less rosy. The move with Luminar, which M&C understands will initially involve cross-marketing and various commercial tie-ups at four Luminar clubs, is about the race for other income streams. HMV recently opened its first in-store arthouse cinema, in a former stock room above a store in Wimbledon, in a tie up with Curzon. It is also putting the finishing touches on a £46m takeover of Mama Group, the live music and entertainment venue specialist. Fundamentally, HMV needs to do less of what it does now – and, without wanting to get too technical, more ‘other stuff’. It is getting out of the commodities of books and CDs. Simon Fox, HMV chief executive, has spoken of move toward “entertainment experiences”. Many predict that, like Mama, which also started as a low-key marketing partnership, the dalliance with Luminar could lead to a full-blown marriage. Cable wades in to M&B row It’s not often I find myself agreeing with my local MP Vince Cable, but I do tend towards his view on Mitchells & Butlers: how much evidence does the takeover panel need? For more on this see our separate story: Cable consults FSA over M&B row