Facing the music
If you can't beat them, join them. A number of large music retailers have taken that old adage to heart in a bid to win back customers. Droves of music buyers have turned away from conventional compact discs in favour of downloading - legally or otherwise - music from the internet.
The trend has negatively affected sales from CD stores, cutting into the profit margins of retailers that have had to carry large inventories.
HMV, the dominant music retail chain in Hong Kong, is betting it can entice both old and new customers to its shops with the introduction of digital-download kiosks, which function like automated teller machines.
For the past two months HMV has been trying out three of these music ATMs at its flagship store in Tsim Tsa Tsui. Another four kiosks started operating last week at the company's newest store - in the Elements shopping mall, above the Kowloon Airport Express station.
'Being able to offer our customers the choice to download music legally in a safe and comfortable environment is the first step in developing HMV stores' digital offering,' says Emily Butt, managing director of HMV Hong Kong and Singapore. 'We look forward to rolling out these kiosks to other HMV stores.'
She says consumers can download music from a database of more than 500,000 digital tracks covering all genres.
A test shows the kiosks are as easy to use as a bank's online personal banking system. The touch-screen interface allows a customer to search for, sample and download songs with just a few strokes. Users can choose single tracks or complete albums, or create customised playlists. The user transfers selections into an online shopping cart and prints an order receipt at the kiosk. The bill is settled with a cashier, who arranges the download from a wall-mounted port.
Bought music can be uploaded to a Microsoft Plays-For-Sure-compatible storage device - a portable media player, USB drive or memory card, for example - or burned directly to a CD within five minutes. Single tracks cost HK$8 and full album downloads start at HK$40.
Butt says the format of the audio file is currently not compatible with iPod players because Apple, the gadget's manufacturer, and Microsoft use different digital rights management (DRM) systems. This limits the types of device and number of computers that purchased songs can be played on. HMV downloads can be copied onto three devices.
HMV has so far spent about HK$1 million on its download-kiosk project, mostly on content-management and distribution software from a United States-based vendor and on the terminals, built by an Australian supplier.
'We're looking to spend close to HK$24 million on this project as we deploy kiosks custom-built for each of our six stores in Hong Kong over the next six to eight months,' says Butt. HMV is expecting 1,000 downloads a day at the two stores already equipped with kiosks.
The software behind the kiosks comes from American technology firm Mediaport Entertainment, which provides digital entertainment distribution systems for retailers. Mediaport also supplies content and its catalogue includes thousands of albums from Warner Music Group, EMI Music, Sony BMG Music Entertainment and Universal Music International.
'We built a [traditional] Chinese-character profile for HMV in Hong Kong, so users can search for tracks in the language. The Chinese-specific content receives periodic updates from the record labels and from HMV, which can feature albums and display promotions on the screen,' says Doug Bartschi, director of quality assurance at Mediaport.
Bartschi says Mediaport's software is ready to support DRM-free digital-music distribution - downloads that can be played on any device - but the company is guided by the record labels. 'Our contract with the record labels says we have DRM. But as iTunes becomes more popular, the labels will be forced to consider adopting Apple's DRM-free model. Apple, in turn, will have to open up its encryption mechanism for iTunes.'
In May, Apple started offering EMI Music's entire digital catalogue of music DRM-free from its iTunes online store, which is, at the moment, unavailable to Hong Kong consumers. The tracks are provided at the higher-quality 256-kilobits per second Advanced Audio Coding standard, an audio quality that is indistinguishable from the original recordings. Apple plans to offer more than half the 5 million songs at the iTunes store in DRM-free versions by the end of the year.
Each HMV kiosk provides the equivalent content of a 60,000 sq ft music store within six square feet of retail floor space, according to Mediaport. 'We believe more music vendors will adopt a digital distribution system, helping them cut down on expensive retail space and providing their customers - whether young or old - with a great experience,' says Bartschi.
Consumers have become increasingly relaxed about downloading digital music via iTunes and other legitimate sites, and this has not only boosted sales of pop, rock and urban music - the records favoured by many young, internet-savvy consumers - but other genres too. Fans of classical music have adopted digital-music downloads with gusto.
Early this year, Sony BMG Masterworks announced that Grammy award-winning cellist Yo-Yo Ma had become the first artist in the record label's history to have an album that sold more digital copies than CD units in its first week.
According to the International Federation of the Phonographic Industry, which represents the interests of the recording industry worldwide, digital-music sales last year reached about US$2 billion, up from US$1.1 billion in 2005. It estimates digital sales made up 10 per cent of the global music market last year, up from 5.5 per cent the previous year. Credit goes to the record companies, which are continuing to innovate with an array of business models and digital-music products, involving hundreds of licensing partners.
Other potential kiosk download offerings include video games, movies, television programmes and audio and electronic books.
For HMV, timing is everything. It has a window of opportunity to educate and attract consumers before the iTunes store becomes available in Hong Kong and other parts of Asia.
'We offer the best [retail music download] alternative since iTunes is not yet in Hong Kong,' says Butt. She notes the next stage will be to adopt the Mediaport setup to HMV online, which currently provides only CDs.
HMV's planned expansion into the mainland will probably consider the adoption of unmanned point-of-sale music ATMs in lieu of full-service music stores, she says.
The deployment of download kiosks at all of HMV's more than 400 stores worldwide is 'going to happen very soon', says Butt. 'We just have to make it work [in Hong Kong] first.
'We have to move forward with the times. Our digital-music kiosks represent an extra service for consumers. Regardless of whether it makes money or not, we hope people who want to download legal music will do it in our stores.'