HMV to Put Cinemas Above Music Stores in U.K.

As CD Sales Decline, Chain Looks for New Revenue Streams

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LONDON ( -- HMV Group, Britain's leading High Street music and film retailer, with 250 outlets, is putting cinemas above its stores as part of a drive to diversify and create new revenue streams.

In a partnership with cinema chain Curzon Artificial Eye, HMV is testing a 200-seat cinema above one of its London stores. The cinema will be branded HMV Curzon and is scheduled to open in the fall.

"Millions of film fans visit HMV's High Street stores each year, making them an ideal destination for this new type of cinema experience," said Simon Fox, HMV Group CEO. "This partnership demonstrates our commitment to getting our customers even closer to the film and entertainment content they love."

Cafe, bar and luxury seats
The cinemas will also include a cafe and bar with luxury seats and a merchandise area. Venues will open at 9 a.m. and will also show films for local schools and parents with young children.

HMV also moved into the $1.5 billion U.K. live-music business earlier this year by forming a joint venture with venue owner Mama Group. One of London's top venues, the Hammersmith Apollo, has since been rebranded as the HMV Hammersmith Apollo. The retailer also recently made a deal with France Telecom's Orange to sell the mobile-phone company's products in its stores.

The name HMV, which stands for His Master's Voice, comes from the company's logo, a 19th-century painting by English artist Francis Barraud of a dog listening to a wind-up gramophone. It opened its first U.K. store in London in 1921 and bought book retailer Waterstones in 2005. The group has 692 stores in seven countries including Canada, Germany, Hong Kong and Singapore.

Music now represents only 30% of sales, while DVDs make up 46% and games and technology 21%. HMV Group said it would also consider opening cinemas above Waterstones stores premises if the trial is successful.

"This is part of a wider strategy to reinforce the brand as an entertainment specialist," said Malcolm Pinkerton, a senior analyst at Verdict Research. "Their core market is moving online, and this is part of a long-term move away from the store as a place to buy music. At the same time, by getting people onto the premises to watch films, they will hope that they can attract customers to the stores."

Cinema's appeal
Mr. Pinkerton said he does not expect the cinemas to be a big revenue earner for HMV, but U.K. cinema audiences were up 2.5% last year, the strongest year since 2004. Cinema traditionally holds up well in difficult economic times.

"HMV is the ideal partner to trial this totally new concept in cinema," said Philip Knatchbull, CEO of Curzon Artificial Eye. "HMV Curzon will expand the cinema experience beyond just film programming by interacting and reacting to our customers' interests and desires and providing them with a wide range of film and entertainment in an intimate and high-quality environment."

HMV posted a pretax loss of $40.7 million in the six months ended Oct. 25, 2008. "We still have much to do," Mr. Fox said, "but I remain confident that the group's transformation plan remains on track to increase efficiency, revitalize our core business and establish new channels to market."

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