HMV is hoping that the major labels can help it deal with its current cash flow stresses by offering the music retailer more favourable terms on the CDs it stocks, according to The Sunday Times. The broadsheet says that HMV has asked the big record companies to provide some back catalogue releases on a sale or return basis, with only a nominal upfront payment, possibly in line with what Tesco is paying for chart releases.
The proposal is one of a number of measures being considered by HMV management in a bid to reduce its dependency on bank loans as the entertainment company struggles to meet the terms of its £130 million debts. As previously reported, the firm’s bankers have given HMV until July to pass loan covenant tests that should have been applied this month. Other measures being considered to free up cash include the sale of the Waterstones chain and the group’s Canadian business.
It is thought that renegotiating stock terms on some back catalogue with the majors could cut between £10m and £15m off HMV’s capital requirements. The majors have previously expressed public support for HMV since its financial situation turned sour last year, insisting they would continue to provide stock to the retailer despite the profit warnings and City concern.
Whether that commitment will extend to taking a hit on cash flow remains to be seen, though that HMV are asking for the new terms on back catalogue is significant: the retailer knows that record companies rely almost exclusively on their retail chain to get such stock onto the high street these days, where browsing shoppers might be persuaded to buy old albums they didn’t know they wanted.
Insiders say the labels are up for considering any moves that help HMV, though they will have their own cash flow situations to consider. When Tesco pushed for more favourable terms recently Warner Music, for one, expressed concerns of the impact it may have on their own finances.
In related news, it’s thought proposals to issue more shares to raise extra cash are off the agenda at HMV Plc, after a bad response to the idea from existing shareholders.