Nompumelelo Magwaza
THE VISIBLE shrinkage of music stores could worsen if retailers did not adapt to a multi-channel business model, which would allow consumers to do their shopping in both the physical and digital space, IBM’s media and entertainment leader, Shane Radford, warned on Friday.
With Musica, owned by Clicks Group, being the “last man standing” when it came to specialist music retailers, “things are about to change as consumers increase their connectivity and choose what to listen to and what to watch in their own time”, he said.
According to PwC’s South African entertainment and media outlook report for 2013 to 2017, the value of South Africa’s music market stood at R2.2 billion in 2012, down from revenue of R2.6bn in 2008.
PwC said annual revenue was forecast to grow marginally at a compound annual growth rate of just 0.4 percent, remaining relatively flat at R2.2bn in 2017.
“Retail spending on physical formats has been falling for the last few years” and this would continue “up to and including 2017”.
Earlier this year Look & Listen was placed under business rescue. The 45-year-old music retailer said that despite expanding its offering into gaming, DVDs and electronics, 14 of its 19 stores were unprofitable.
Globally, independent record stores as well as established retailers are reducing the number of their outlets.
Radford said Look & Listen’s model was predominately for the physical selling of goods and content. But the audience could decide where to get content and when to do so without physically going to the store.
“This put pressure on the Look & Listen business fundamentally… they had fixed rent and fixed costs to deal with.”
But Musica had done a decent job of diversifying its product set and bringing together some digital platforms, he said.
Commenting on Musica’s nomination as the coolest music retailer in the Sunday Times Generation Next Awards in May, Clicks chief executive David Kneale said that despite a growing interest in digital music, there was still a big market for the physical products. About 86 percent of purchased music in South Africa was still in a physical format, Kneale said.
However, according to the PwC report, retail spending on physical formats will fall compared with spending on digital platforms.
Retail spending on digital music will increase at an estimated compound annual growth rate of 7.8 percent in the next five years and will total about R132 million in 2017.
The introduction of iTunes, Nokia Music, Rara.com, Simfy and others continued to threaten retailers such as Musica.
Radford said: “One of the major trends is the ability for organisations to interact, connect and converse with people in a human-like form despite geographical locations.”
His observations included the latest massive investment in broadband and multimedia formats by companies and a number of municipalities.
Instead of DVDs, CDs and DVD recorders, cellphones, tablets and Smart-TV were taking over.
The shift in choice for consumers with internet access will also have an impact on the pay-TV subscription model.
“The digital barrier to entry for pay-TV is much lower now. They only thing that they need to do is to know the audience and offer good prices that challenge the traditional players,” he said.
Radford said it was not only the entertainment and media segment that was losing out but electronics retailers as well.
“Why would a person buy a DVD recorder if they can have a virtual recorder on the cloud or I can have the capability built into a Smart-TV?” he asked.