HMV has had a great 2009, with the closure of two of its main rivals in the UK, Zavvi and Woolworths, its been able to posture itself as the only real mainstream music, film and game retailer on the UK High Street. Along with this new commercial reality they have been able to focus more on their games portfolio and grow on the back of the expansion of that market.

However, they know as well as anyone, that as we continue to move into a world of digital downloads their business model will slowly evaporate. Music, as we know, can now be downloaded or streamed directly into devices, whether it be Nokia ‘Comes with Music’ phones, the Iphone/Itouch family of devices or games consoles which are now starting to push full price product through their online distribution solutions.

Hence they have invested and purchased 50% of 7Digital a UK based online retailer and distribution solutions company. 7Digital is an online retailer which also has a music streaming service. It is yet to turn a profit and is operating in crowded market place alongside companies such as Spotify (streaming) and Itunes, Amazon and many others for downloads.

This deal with HMV is wider than just music though. HMV also owns Waterstones a leading book retailer which in recent years has been trying to find its way in the digital world, playing ‘catch up’ to Amazon. 7Digital’s technology and services will allow HMV to launch an online book store and leverage the audience 7Digital already claims to have along with the current consumer base HMV and Waterstones have access to.

Yet, why go to their store? What USP will it have? Itunes were the first and their software and hardware combo are superb. Additionally they now sell a wealth of other content through the Itunes store which again gets nicely organised into their software. Amazon and Wallmart sell everything you can think of online and their music stores are there to add value and perhaps pick up extra sales. They have been very successful. But why go to the HMV/7Digital store? Will they have exclusive content? Will there be some unique software that makes their experience high value and too good to miss for the educated content consumer?

Im doubtful, and I would imagine that to some degree the HMV management are yet to come up with the answers. Perhaps the aim is to provide back end services to other businesses that want to sell content and not focus on a direct to consumer relationship themselves. As one of the last large ‘content’ retailers on the high street it will be a fascinating 5 years to see how they manage to progress from being in the physical world of business to moving to an online proposition.

Perhaps their overall strategy is to hedge their bets and add value to HMV so that they become an attractive purchase for another company, perhaps a hardware manufacturer who needs to add a digital distribution element to their business model. This would be similar to when Nokia bought Loudeye a digital music service, which then evolved into the Nokia Comes with Music proposition. For example, if Sony bought HMV, they would overnight gain access to a music store, ebook store and physical stores, some of which could be shut down, and others transformed into their versions of the Apple Store equivalent.

For a while now I have been doing talks at various universities or even at the Dana centre (part of the London Science Museum), and the focus of the discussion often falls on the ‘quality’ of audio today.

In essence I find myself stating my case that the MP3 format might have helped the digital music player industry grow, but that it has held back the progress and sound quality of music for the majority of people.

The MP3 was launched at a point in history when memory capacity was limited. The MP3 format compresses the audio which results in the file taking up a lot less space. For example a CD quality file lasting around three and half minutes can be reduced from 38.5 Mb to around 3-10Mb depending on the amount of compression applied. 

Of course ‘compression’ cannot be done without a hit in the audio quality. The MP3 format in effect results in parts of the recording being removed. Normally its the part of the audio which is not crucial to the sound and ‘narrative’ of the music. This results in a range of frequencies being removed. Although not crucial to the listening experience these frequencies are noticeable, especially if played through a decent hifi rather than the standard Iphone headphones. Placed against a CD, a MP3 is clearly inferior for the majority of music genres. However, this reality has not stopped MP3 taking off and being the ‘format’ of choice for the majority of people. Apple have their own version called AAC, but this too is inferior to CD. 

Where as the visual would has not only avoided reducing quality (yes I know compression is used for digital broadcast - but it always has so compared to SD television its a win, win) but its actually gone HD and FULL HD mad. Maybe its because watching things is a primary activity, where as sound takes place whilst something else is taking place for the majority of people? However, I still believe that many people still listen to music just for the sake of listening to music, and hearing it in its full glory is something which most people would appreciate. Why else spend money on that expensive Bose Ipod dock if you don’t care about the sound quality?

Believe it or not audio HAS gone HD. We have 24 bit audio and it can be recorded and played back 192Khz (the frequency at which a sample is taken - the higher it is the more accurate the recording). Its just that, except for the production environment, these formats have failed to take off. Home cinema has helped a little as Blue Ray can support some of these formats, but for most people CD quality sound is still the best they have ever heard, and they live in a MP3 world for most of the time. 

The success of the MP3 format has been the main factor holding back progress. MP3 players were created to play back MP3s and hence new or even older alternative formats were locked out of the consumer offering. However the owner of MP3, Thomson, have now come up with MP3HD. This is excellent news!

What is great about MP3HD is that its backwards compatible with older players. So if you download a MP3HD file but your player can’t play HD files, it will still read it and just play a traditional MP3 version. However, when you upgrade your player then your files are already HD and you haven’t got a wasted download. Now these MP3HD files are not better than CD but are promising the same as CD sound, which is good. However, one assumes that the format could be extended to a FULL HD audio standard with the same backward compatible principles being applied.

The pressure to act is now with the actual download stores and hardware manufacturers to adopt this new standard. We want Amazon and co to offer MP3HD files for download and for hardware to support the files. Clearly download stores won’t jump at this despite the improved experience for customers. This is because of the extra bandwidth the stores will require to be able to send all this data to consumers. Additionally consumers will need fast broadband connections to recieve a file within a reasonable period of time. The latter of these concerns is not really relevant in most of the developed world with broadband fast enough to deliver this for most people.

The earlier concern, regarding the bandwidth download stores will have to use to deliver the files, is relevant. Indeed, this would most probably result in the files carrying a higher price. Though, this might stop the format establishing itself in the first place. Perhaps Thomson should lower any licensing fees required to use the format, at least to begin with, to help it take off?

Either way, its good to see that the quality of Audio is at last being made relevant at the consumer level and is not just an academic issue for the producers and professionals in the industry.

EMI has been struggling for a while now. In fact struggling is probably an understatement. Bought by Guy Hands a few years back now for around £3 billion, in today’s climate (and based on EMI’s continued slide into financial armageddon) surely the banks will soon call in their debt?

EMI claimed at the end of December, that its last 6 months had been positive resulting in cash being generated. Perhaps the slide into financial doom is over? March will be the important month in 2009 as thats when its banker checks the state of the finances, making sure they are in line with the risk and expectations required for the finance to continue and not be called in. 

However, as a huge part of EMI’s sales are in the UK, and as the UK music industry had an awful xmas (due to music sales switching to games, and the lack of coverage on the high street due to the Woolworths situation) one wonders if EMI will find that their position is not quite as positive as they had hoped?

Its rumoured that they are shutting down the world famous Olympic Studios. Recording studios in London (and the developed world) have been finding it tough going for some time, especially the large studios. EMI will concentrate on Abbey Roads, a studio which in recent years has diversified. Abbey Roads has become a specialist venue, and tv studio (home to Live at Abbey Roads - a Channel 4 TV series). Meanwhile its name and facility mix allows it to continue to be used for large budget games/films and top recording artists from around the world. However, the next 12 months will be crucial for Abbey Roads too as its fate is wrapped up in EMI’s. 

EMI needs to work out what it does and how. It doesn’t really have the time to be ‘experimenting’ in the market place and should either streamline down in a particular direction or raise the finance to move aggressively into a new market or distribution platform. It seems, though, that they either lack the direction, don’t know what the future holds (and hence are hedging their bets) or lack the finance to move aggressively to where they want due to the amount of debt they are burdened with. CNET reports that EMI are to launch their own download store, quoting a spokeswoman saying it is where they can ”experiment with new digital platforms.” Well surely the whole download store idea is not exactly something which needs much experimentation? We have Itunes, Amazon, Nokia, Napster, Emusic and many many more? What is EMI bringing to the party?

Ultimately those with a financial stake in the company will at some point ask - how best can our investment maintain or increase its value? Even if ‘turning the company around’ is slowly working, would we be better served by selling it whole, or in parts, to other companies with the direction, resources and finances to make best of the great assets locked into EMI and its heritage.