Industry Report: Distribution and exhibition
Does the demise of HMV mean disaster for British indie cinema?
by The Guardian
- As the retail chain disappears from the high street, the monopoly of supermarkets and online retailers on DVD and Blu-ray sales may have a catastrophic effect on the UK film industry
As HMV slides into administration, there's been an outpouring of nostalgia for the 92-year-old chain, not to mention sympathy for the plight of its 4,350 staff. With buyers circling, its fate lies either in a slimmed-down form or the annihilation of its 235 shops in Britain and the Republic of Ireland. It caps a grim couple of weeks for the high street with the DVD rental firm Blockbuster, which employs 4,190 people in 528 stores, also going to the wall.
But aside from the seemingly inevitable loss of livelihoods – plus the gaps the chains' demise will leave in our town centres – the biggest loser could be the British film industry.
While much is made of the growth of online retailers and movie-streaming websites such as Netflix and LoveFilm, the firms who actually fund, buy and distribute these films are still dependent on a buoyant high street to get their product out there.
Put it this way; you're yet to walk into a cinema to be confronted with a made-by-Amazon logo. While the online retailer reported a large but unspecified pre-Christmas sales bounce, typically 80% of DVDs and Blu-rays are still sold on physical "hard copies" through traditional retailers. In the next couple of years, insiders predict ever-tightening margins, brought on by the monopoly of supermarkets and online-only retailers, will have a catastrophic effect on our already frail film industry.
It's a sign of how powerful the behemoths of Tesco and Amazon have become that none of the film-marketing experts we spoke to wanted to go on the record. When you're faced with not one but two Goliaths, nobody wants to be David.
"The supermarkets make very, very good money from selling DVDs and Blu-rays mostly because they charge us these huge 'sighting fees', where we pay to have our films on their shelves," said one reluctant-to-be-named movie company's marketing executive.
"Typically, if one of our new releases makes £100,000 at Tesco, they'll expect a cut of between £15,000 and £20,000 which is a huge and unsustainable margin. With HMV, you'd pay £5,000 and for that you'd get in-store displays and print advertising.
"When you're routinely expected to pay tens of thousands of pounds to get your product on to the shelves, it makes less and less economic sense for us to shell out. We're in the position where we're paying a lot more to get a lot less."
When it comes to the ratio between box-office and home-entertainment revenues, figures vary wildly. Traditionally just 10% of a rom-com's entire take will come from its DVD/Blu-ray release but the figure rises to 40% for action, sci-fi and war movies – making their production most vulnerable to the changing home-entertainment landscape.
As our source said: "The bottom line is that a lot of British films just won't see a release. I'm thinking of something quirky and leftfield such as Made in Dagenham or the stuff Mike Leigh puts out. I also can't see a film like The Sweeney remake being made in the near future.
"Nobody will pay tens of thousands to get them on supermarket shelves because there's no chance of recouping your investment. When your profits are so squeezed, films like this just won't be made.
"We'll then reach a tipping point when, in perhaps two years time, I can see Tesco no longer selling DVDs or Blu-rays because they can make better profits selling baseball caps or jars of Marmite. When that happens there won't be a substantial physical market."
But he has little sympathy for HMV.
"We all have a lot of nostalgia for the chain but it's been bloody expensive for years and their customer service has got worse.
"They did the worst thing possible by screwing over their very loyal customers by cancelling orders and refusing vouchers. The first people they hit were the most loyal. If they manage to survive, they've alienated their best customers and that's appalling."
After an outcry, the chain's administrators, Deloitte, announced on Monday that vouchers and gift coupons will now be honoured. The following day, restructuring specialist Hilco UK bought HMV's estimated £176m debt, although the chain's future remains parlous.
It's an open secret among film executives that Amazon has become their enemy number one. The online retailer's pricing policy means that if any rival undercuts the price of their DVDs, they'll respond by doing the same. And if this results in the release making a loss, the film's distributor will be expected to foot the bill.
Another source – a publicist with a leading British film company – said: "There are typically 20 DVD and Blu-ray releases a week and the supermarkets will tend to take about eight of these. Because their shelf space is limited, you pay a premium to get your product up there and you have to be very sure it's going to make money.
"They tend to favour blockbusters and, sometimes, schlocky straight-to DVD action films, which means smaller foreign films, British indie flicks and arthouse movies are often passed over. So if HMV were to go under it would hit the bottom line of how much money these films make – and it is far from certain in the short-term that the money would be found elsewhere by increased online DVD sales or via video-on-demand rentals."
Tesco is keeping its cards close to its chest, with a spokesperson only saying: "Arrangements with our suppliers are confidential."
It's become part of the zeitgeist to talk of the death of the British high street. In just a couple of years, it might become part of the popular narrative that the demise of HMV rang the death knell of British cinema as we know it.