All under one roof

February 06, 2011
For an informed view on connected entertainment in the UK & Ireland, visit Cue Entertainment 

Queensland expatriate and Entertainment Distribution Company (EDC) CEO John Fitzgerald has a radical view of packaged media retailing in the UK. He says, “The entertainment market is problematic when stores selling the electronic hardware are separate from the entertainment product. Look around at the rest of Europe and take note of what companies such as Media Markt and Fnac are doing.”

He has a point. While HMV dabbles in hardware and the six Best Buy stores in Britain offer a restricted range of entertainment software, elsewhere in Europe the sale of consumer electronics boxes and packaged media goes hand in hand.

Home entertainment kit has become increasingly complex since the dog first sat by the phonograph listening to his master’s voice. From the birth of recorded music to the era of the compact cassette, it took only a few words of explanation and a simple demonstration to show how the magic of music could come into the home. Audio entertainment was on tap just as soon as consumers learned how to put a long-playing album on the turntable or to press “play” on their Walkman. Little changed when the CD arrived on the scene – the disc may have changed but the concept remained the same.

The videocassette formats that followed were only slightly more complex especially if you were happy to see a row of flashing green zeroes on the machine while you watched TV. A visit to your nearest branch of suppliers Rediffusion or Visionhire was all it took and before long almost everyone could watch feature films in the comfort of his own home. Only a few pedants insisted on reading the manual.

The result of this audio-visual revolution was a boom in the demand for content, on disc or tape, and the dedicated retailers that sprang up owed more to the model of the bookshop than to that of the box shifter. It wasn’t necessary to know much about the interior workings of the equipment in order to play a CD or a DVD and the monoculture of 12 centimetre discs made for simple stock control and display.

By the end of the 20th century, the separation of technology and content had reached its zenith in the UK with the arrival of music megastores. Elsewhere in Europe, a different pattern emerged, one that became more relevant as the number of features increased and the need to read the manual (or at least ask the nearest teenager) became ever more important. The seeds of the current turmoil in entertainment retailing might owe as much to the separation of content and delivery platform at that time as they do to the parallel arrival of the villain of the moment: the internet.

The pioneers of the DVD format conceived it as a stable consumer electronics product that would not alter over time and the fundamentals of “Version 1.1” remain unchanged today. Consumer devices that require “firmware updates” every month or so in order to play the latest titles are at odds with the aims of the DVD Consortium, which established the standards for a universal home entertainment format in 1996. Today, even the HDMI cables connecting the equipment suffer from constant “feature creep” and who can blame the consumer who walks away in confusion.

Best Buy in the USA understands the consequences of breaking the link between the content and the delivery platform. Whether customers come in to buy players or discs, the benefits and features of both are on display with well-trained and enthusiastic staff on hand to ensure buyers of hardware and software can enjoy the same experience when they arrive home.

Readers of Cue Entertainment are probably some of the best informed in the industry but to understand the implications of digital downloads, home media servers and connected TVs requires hands-on experience. A visit to one of the six Best Buy stores in the UK could be a starting point but a trip across the Channel to mainland Europe would bring greater enlightenment.

Sales of Blu-ray titles in Germany reached a record high in 2010, where the format represents 10% of the disc market. EDC’s Fitzgerald says that its relative success is due in part to retail stores selling Blu-ray discs alongside the playback hardware. “Customers looking for a BD player, a 3D TV or a new smartphone find a full range of content and accessories for their device under one roof,” he says, “the potential for impulse buying is there right from the point of purchase of the hardware.”

Fitzgerald believes that customers once hooked will return to browse for both BD titles and additional consumer electronics equipment.

Media Markt is the German-owned giant in home entertainment retailing in Europe, a part of the €67.3 billion (£56.8 billion) per annum Metro Group. Full-year figures for 2010, announced in January, showed that the Italian online business boomed by 20% and Eastern European outlets reported double-digit growth over the financial year. The company is in sound financial health.

The effects of the winter snow, which extended beyond the UK, meant that Q4 growth was up “only” 1.3% on the previous year, which in turn was boosted by a successful “30th anniversary” promotion. The full-year figure for the Western European Media Markt stores was up by 5.6% at €20.8 billion (£17.6 billion), a result that many UK retailers would be delighted to emulate.

When Media Markt opened its first shop in Munich in 1979, the retail landscape resembled the UK today. To paraphrase the company web site, “Consumers bought their TVs from electrical appliance stores, their music from record stores and their washing machines by mail order. The Media Markt founders took a risk with a new concept and were met with resounding success.”

Media Markt operates superstores in Iberia, Benelux, Sweden, Switzerland, Austria, Italy, and beyond. It reported a net gain of 59 stores over the year, which gave it an international network of 877 outlets although it has now sold its 34-strong Saturn network in France to HTM, a subsidiary of the Auchan supermarket chain. The retreat from France, where Media Markt first began its overseas expansion in 1989, was probably a wise move, in the face of stiff competition from the incumbent market leader Fnac.

Fnac began as a buyers’ club in 1954 and today describes itself as “the leading distributor of cultural and technical products in France”. Although its financial path has not always been profitable, parent company PPR announced international growth of 3.1% for the third quarter of 2010 over the previous year. Online sales in France were up 20% on 2009 and represented more than 10% of the Fnac business in its home country. Full-year results are due on Feb. 17 with Q4 figures predicted to be slightly down on the year before.

Neither Fnac nor Media Markt has shown much interest in the UK in the past but the high street upheavals of 2010 could attract their attention. Fitzgerald says, “The arrival of a company such as Media Markt could do the UK landscape a lot of good. Their advertising is effective, pricing is competitive and they manage their inventory well.”

The concept of having it all under one roof apparently works, although Media Markt is not usually in prime high street locations. “The entertainment product brings customers into the store and the margin on electronic goods is high. If UK retailers don’t get the message, a company such as Media Markt could come in and pick up the pieces.” Fitzgerald says.

It might not be too late for HMV and others to examine their 2011 strategy. Although a move into hardware retailing could prove a step too far, the attractions of co-location might prove irresistible.