Is there good news in HMV's collapse?

 
HMV's Nipper dog Will HMV's iconic Nipper dog brand now be put to sleep?

Here are two big questions about the collapse into administration of HMV.

Will it go the way of Jessops and Comet? Will all 239 stores be closed, with the loss of all 4,000 jobs?

And is there a rising incidence of corporate insolvencies which could actually be a good thing, in the widest possible sense (please bear with me; I haven't taken leave of my senses or transmogrified into some kind of insane company necrophiliac)?

On the first question, what future holds for HMV and its people, the outlook looks considerably better than for other recently kaput store groups.

And the reason, according to influential sources close to HMV, is that the music industry and the film industry want its survival, albeit they recognise that will have to be with fewer stores and with fewer locations.

Record labels (are they still called that or am I showing my age?) and DVD distributors don't want to be wholly dependent for sales on Amazon and Apple's iTunes.

So Deloitte, appointed as administrators to HMV last night, is working on the assumption that these important suppliers will help the creation of a slimmed-down and viable HMV.

This is unlikely to involve these suppliers actually buying HMV out of administration. Much more likely is that they would provide easy credit terms to a buyer - which will very likely be a private equity group (right now, again, there is too much money in private equity chasing too few deals).

Start Quote

We do need to have a situation where bad businesses fail, otherwise the economy will stack up with progressively weaker business models and growth will go into reverse”

End Quote Jon Moulton Investor and entrepreneur

Now on to my hideously heartless question whether the collapse of HMV is good for the rest of us.

First of all, I had better explain what I mean.

The evidence of past recessions is that economic growth doesn't resume at any great velocity until unviable and inefficient businesses are put of their misery and excess capacity in various industries is eliminated.

Now, although there has been a fair old number of retailing collapses in the past year or so (according to FRP Advisory, HMV is the 32nd significant retail chain to go into administration in just over a year), there have been many fewer corporate collapses since the financial crisis of 2008 than was predictable on the basis of past economic experience.

As you will know (don't yawn) if you read this column, this economic malaise has been characterised by many weak businesses being put on life support and turned into the living dead, or (to use what is now a cliche, so sorry) zombies.

This is good for the employees of these companies, for a while at least.

But, many would argue, it is not good for the economy in the long run. Because it preserves excess capacity, in a way that makes it more difficult for new business to grow and thrive, and it also holds back the progress of bigger more successful businesses.

So if HMV's demise signals a rising incidence of banks and other creditors being more ruthless in putting lame companies out of their misery, that might in a fundamental sense be quite a good thing.

And if those rising corporate mortality rates were real, it would also show that banks were feeling increasingly confident that they have sufficient capital to absorb the consequential losses - which would also be a very positive sign, in that banks would also have sufficient capital to extend necessary credit to viable businesses.

Here's the bad news (please forgive).

According to leading administrators, so far the underlying trend of corporate deaths does not seem to have risen much. The number of companies going into administration is still bumping along at a relatively low level.

If it doesn't feel that way, that's simply because recently companies that have gone down - Comet, Jessops and HMV - were so visible and famous.

But there are still plenty - far too many - corporate zombies that are clinging on and holding back job creation by companies with much better prospects.

 
Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    -15

    Comment number 178.

    The less we pay for music, the lower the quality of the music becomes.

    After all if I wrote a song and played it on my synthersizer, and you paid me 69p I'd say sod this, by forgetting quality music formats and paying less your only hurting yourselves in the end. Mp3 is the future but vinyl and quality sound systems will never be matched by them

  • rate this
    -14

    Comment number 134.

    More lost private sector jobs.....



    ....when will our inept Chanceloor & PM fainally shake off the Omnishambles & realise how economies really work.....



    ...instead of sticking their heads in the sand & pretending it works how Milton Friedman claims it does......


    ....despite ALL the evidence showing Neo-Liberalism does not work.....

  • Comment number 72.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    -11

    Comment number 326.

    More viable businesses? Such as? The amount of Tory journalists churning out abhorrent propaganda is increasing daily at the BBC. From having a former president of Oxford University Tory Assoc. (Nick Robinson) being the political correspondent (impartial if I ever heard of it) to quite obvious Tory supporters in Peston.

    We'll soon have a high street full of banks. Ooh, lets go buy a bank account.

  • rate this
    -8

    Comment number 208.

    198michaelj

    The Government need to get off their backsides and act to create a level playing field and close tax loopholes and pursue those who cheat the system and the UK taxpayer.
    ===
    If the govt taxes a company where does the company get the money to pay those taxes - customers or shareholders?

 

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