It has been a miserable winter for retailers. Warmer than average weather, fierce price competition, and the growth of online shopping has left a trail of profit warnings and resignations.
But amid the gloom there is a bright spark – and it is coming from televisions, game consoles, and music players. Figures show the entertainment industry had a record year in 2015. Sales of music, film, TV series, and gaming products grew by 5.6% year on year to £6.1bn, beating the previous record set in 2004.
The surge in sales was driven by a handful of high-profile releases, led by Adele. The singer’s new album, 25, sold an extraordinary 2.6m copies in the UK in just six weeks, making it the first multimillion album release in a calendar year since her previous album, 21, in 2011. Other popular entertainment products included Paddington, Jurassic World, and the Fifa 16 video game.
This represents a remarkable recovery for a sector that endured a decade in the doldrums. Since 2004, the previous record year, piracy and digital services have threatened to wipe out physical sales, leaving publishers, record labels, film studios and retailers on edge. In the UK, well-known brands including Zavvi and HMV have collapsed into administration.
“These figures give hope than we can finally put the past decade of decline behind us,” Kim Bayley, chief executive of the Entertainment Retailers Association, said. “The music business really has been through the wringer in terms of falling sales and piracy. I believe the retailers and digital services who have invested hundreds of millions in developing new sales channels for music deserve a lot of credit. Without them, music would be in a very different place.”
UK retail sales UK retail sales.Much of the recovery has been driven by investment in paid-for streaming and digital services by Apple, Netflix, Spotify and others. In 2015, digital sales rose 19.2% across all categories, with music sold through streaming services up nearly 50%.
However, the industry would not have enjoyed a record year if these sales were simply replacing CDs and DVDs. Instead, physical products are proving resilient, particularly in music. There are clear signs that the decline of physical entertainment products may have bottomed out.
Sales of physical music fell by just 0.5% in 2015, and it remains the biggest part of the market. This included a 3.7% fall in sales of CDs - the smallest decline for a decade - and a 65% rise in vinyl sales to the highest level in 21 years.
According to the British Phonographic Industry, Adele led the revival of LP sales, but other big sellers included Amy Winehouse’s Back to Black, which was boosted by the release of the documentary Amy, and the Stone Roses’s self-titled 1989 album.
Instead of new streaming services hurting physical music sales, they are eating into the digital download market. Music download sales fell 13% last year.
“It’s quite remarkable the way the decline in CD sales seems to be flattening out. I’m not sure anyone expected that in 2015 CDs would be doing relatively better than downloads,” Bayley said.
“CD is now declining at its slowest rate for a decade. The benefits of the CD in terms of sound quality, the fact that it makes a great gift and it works well as an impulse buy are clearly working in its favour. The high street music market is undoubtedly smaller than it was, but it is clearly going to be around for some years to come.”
The fightback by physical entertainment products is demonstrated by the health of two retailers – HMV and Waterstones – which were both owned by HMV Group until they split in 2011.
HMV collapsed into administration in 2013 with 223 shops and more than 4,000 employees. However, the remnants of the chain were bought by investment firm Hilco Capital, and since then it has been revived.
HMV has about 130 shops in the UK, but Hilco has plans to open more and expand overseas, particularly in the Middle East and Asia. Last year HMV regained its position as Britain’s biggest seller of music. HMV it is yet to finalise its figures for the vital 2015 festive season, but is likely to have enjoyed another robust period.
Paul McGowan, chairman at HMV, said: “Music continued to perform well, buoyed by the runaway success of Adele’s 25 and the continued resurgence of vinyl as the format of choice for serious music lovers. Although last year was not a stellar year for film releases, HMV has continued to outperform the market and we have much to look forward to in the months ahead with both Star Wars and Spectre hitting the shelves in 2016.”
Meanwhile, its former sister company Waterstones is set to report its first annual profit since the financial crisis struck. Although books are not included in the ERA’s figures, Waterstones is benefitting from a similar phenomenon to HMV - a realisation among customers about the benefits of the physical products. James Daunt, the boss of Waterstones, has decided to stop selling Kindle e-readers in most Waterstones shops and is instead using that space for physical books.
“I always believed there would be a natural point of equilibrium with digital reading – that it would overshoot, then come back and settle down. That made intuitive sense, and that indeed has happened,” Daunt told the Guardian recently.
However, despite the resilience of the entertainment market, competition remains fierce among the retailers. Amazon and the supermarket chains continue to loom large over specialist chains. According to market research firm Kantar, Amazon’s market share of the physical entertainment market stands at almost 22%, with Tesco second on 16% and HMV third with 12.3%.
Game Digital, the video games retailer, was forced to issue a profit warning before Christmas. The company has been squeezed by rival retailers cutting the price of new consoles and games on Black Friday, the promotional event at the end of November. It also warned that gamers were not moving to the new Playstation 4 and XBox One consoles as quickly as hoped, and at the same time the market for old formats was shrinking rapidly.
In addition, retailers found it difficult to shift DVDS in 2015, with sales down 15%. Fiona Keenan, strategic insight director at Kantar Worldpanel, said this decline was linked to the popularity of the cinema.
She said: “The incredibly strong performance of cinema in 2015 came at the expense of new release physical video sales, which saw the biggest losses to cinema since 2012. While this impacted physical video sales in 2015, the home entertainment release of Star Wars this year will no doubt be a huge boost for the physical video market.”
Sales of cinema tickets hit a record level in 2015. This was primarily thanks to two films – Spectre and Star Wars: The Force Awakens – that will not be available on DVD and download services until later in 2016.
The Star Wars and James Bond effect – and the continuing success of Adele – should mean that the new year carries on where 2015 left off, proving that the fightback by physical entertainment is not a blip.
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