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HMV: How Many Victims?

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There's some fierce debate going on about the demise of HMV today. Many will blame the rise in digital downloads, the fall in physical formats and HMV's failure in adapting their business model quickly enough.

I can't help thinking, however, that one of the other, understated, reasons behind HMV's demise are the companies who undercut HMV online such as Amazon - the companies that can do so because they fail to pay very low (if any) corporation tax, unlike HMV who not only pay corporation tax but also contribute to the country by paying National Insurance for their employees and also business rates on the shops that they rent.

Before you exclaim that HMV's prices are expensive compared to other competitors, consider this: companies such as Amazon have much lower overheads. They only have one or two warehouses in the UK, which means less staff - less PAYE tax contributions, less National Insurance contributions. They don't run a chain of shops, thus don't have to pay business rates or ground rent. They pay less corporation tax, which means more profit which they can offset against the cost of their merchandise.

This is good for you, the consumer - who pays less for a product - and great for the shareholders who feel another couple of pennies fall into their pockets. At the same time, it's also bad for the local and national economy - so although you think you're making a saving on that chart CD, you're probably losing that saving to the taxman. Swings and roundabouts.

HMV, on the other hand, operate a chain of shops. They pay business rates on each of their 239 stores, which contribute to the local economy in the towns they are based in. HMV have to pay for maintenance for their shops, in addition to heating, gas and electricity bills. They have more staff to pay to run these shops, equalling 4350 employer National Insurance contributions. If they're selling a CD priced at £5 - the likelihood is that they're going to be operating at a loss once the overheads are deducted from the sale of that CD. Therefore, in order to survive - they need to increase the profit margin, thus increase the price of the CD to £10. Although these overheads mean you pay more for your CD, the end result is that HMV contribute more to the local and national economy than global, online corporations such as Amazon ever will.

However, more concerning is what the loss of HMV could mean for the physical music market. Times music Journalist Joe Clay pointed out on Twitter that HMV holds a 38% share in the physical music market. Although the potential loss of HMV is a catastrophic loss for the high street, it could also signal the death knell of the CD; the physical music format entirely. Although HMV hold a 38% market share, this doesn't automatically mean that other competitors in the market will take on those excess sales, resulting in physical format sales drastically reducing over the coming months and the market shrinking.

The losers aren't just HMV. The repercussions could weigh much more heavy than a few empty shops. The distributors, the small record labels, for whom, HMV makes a large portion of their sales will almost certainly lose out. To compensate, two things will happen: they will increase their unit prices to prevent themselves going bust (causing an increase in CD prices), and people will stop buying CDs altogether, because hey - a download is cheaper.

Either way, the outcome will see the demise of the physical music format entirely - whether that be through a price increase, or record labels and distributors dropping like flies - leaving us in the hands of unforgiving record labels who churn out a production line of popstars selling music which is designed to do nothing but tap into the part of your brain that makes you want to spend money.

This will be a massive loss - not only for music fans, but for musicians who put their heart and soul into making music that people will enjoy. Ultimately, this could result in creativity being de-valued. Musicians will aim to write music which will make them money, meaning that we're sentenced to a future listening to Rihanna and Nicki Minaj-style ditties - songs full of style but no substance.

More needs to be done to support businesses on the high street - besides the obvious of closing tax loopholes that enable global companies to divert their profits offshore. However, I get the feeling that the only time the government will truly sit up and take notice, will be the time when the high streets stand empty, resulting in big losses of revenue for local councils, thus increasing the UK's already burgeoning deficit. HMV won't be the first, and certainly won't be the last, but it really smacks when the government seem quite content to let it happen.