HMV eyes Shenzhen as first stop in mainland China expansion

HMV plans to enter the mainland China market with the first shop likely to be opened in Shenzhen, followed by other Chinese cities, despite the country being well known for its piracy problem.

AID Partners chairman Kelvin Wu King-shiu, who took over the HMV Hong Kong office after the iconic British company filed for bankruptcy protection in 2013, believes it will find strong demand on the mainland from the growing middle class who pursue trendy lifestyle entertainment products.

“Piracy is no longer an issue as everyone is watching online. The selling of CDs and DVDs is extremely hard in mainland China,” Wu said. “I think we will only sell collectible editions in mainland China.”

He pointed out that HMV was no longer only selling music CDs or movies on DVD. “We have become a lifestyle brand. We also sell technology products, coffee, wine and meals as well as providing live performances,” he said. “It is not a retail shop but a lifestyle shop for young people to get together to enjoy life.”

The recently opened HMV shop in Causeway Bay has 40,000 square feet of space with restaurants, areas for artists to have life performances, as well as products ranging from books, DVDs, CDs and toys or other film related products such as Star Wars, Batman and Snoopy.

Wu said he was looking at several cities on the mainland in which to open a HMV store but the first choice would be Shenzhen.

“Shenzhen is a very dynamic city like Hong Kong. People chase after high quality of music and film products as well as other lifestyle products,” he said.

When HMV went into bankruptcy in January 2013, AID Partners bought the British retailer’s operations in Hong Kong and Singapore and the rights to develop the brand on the mainland and in Taiwan and Macau.

In an exclusive interview with the South China Morning Post, Wu unveiled his plans for HMV following a shareholder restructuring last week that saw filmmaker China 3D Digital Entertainment issue new shares to pay AID Partners Capital HK$408 million for an 81.63 per cent stake of HMV. The rest of HMV is owned by a Japanese fund.

Under the deal, China 3D Digital, a Growth Enterprise Market listed filmmaker, will issue 1.12 billion shares to AID Partners, representing 22.59 per cent of its enlarged issued share capital. This will in turn see AID Partners become the largest shareholder of China 3D Digital, which will be renamed HMV Digital China Group.

China 3D Digital chairman Stephen Shiu said the deal would be a vertical expansion for the company.

“We have film and TV production and an artist management business. Adding the HMV business to our portfolio would complete the whole line of our entertainment business,” Shiu said.

Shiu said he is not worried about the economic slowdown of mainland China and Hong Kong.

“Poor economic conditions pave the way for expansion opportunities in the film-related business. Watching a film is a very cheap entertainment. When the economy is not good, people do not need to work so late and a cheap way to have fun for the whole family is to watch a movie at the theatre or on DVD at home,” he said.

Total mainland China box office receipts last year rose 50 per cent to a record US$6.7 billion, with analysts expecting China will overtake the US to become the largest movie market worldwide next year.

Shiu said 70 per cent of China’s film industry earnings are still from the box office. “This will change as the overseas markets have shown that ticket sales represent only 10 per cent of income for filmmakers, with the rest from DVD, internet channels, and other film related product sales. China will have a similar development and that is why the HMV deal is important for us,” he said.

China 3D Digital has produced television shows and feature films such as the hit romantic comedy Delete My Love, and manages artists including Hong Kong singer-actor Julian Cheung Chi-lam.