The Business News Source

With the announcement that HMV are selling their Japanese business to DSM Investments for $140 million stock in the company jumped 6.5 percent to 130 on  Monday, after making steady gains through the previous week.

With all eyes on sales in its Waterstones division after the launch of Harry Potter, noting that over the atlantic ocean in the USA Harry Potter was a lifeline to Borders bookstores.

With dividends due in September and a turn around plan in place, HMV seems well placed to ride out the retail storm. Though realities of on line music downloads hitting Music retailers still present challenges to the current business model.

HMV Group has been on the sidelines recently as far as news is concerned. There has however, been much whispering going on behind closed doors it seems.

With results out this week looking to be dismal there doesn’t seem to be much going for the company - yet in the last few weeks the stock has gained significant ground, rising by more than 15% in the last 3 weeks.

So what’s going on? Well there are two schools of thought, first is that the company is likely announce a sell off of significant chunk of its business based in the far east, Japan to be specific. This sale could raise up to £75m.

At the same time rumours are starting to lift again that the company is ripe for buyout. Last year Permira offered a rumoured 210 per share. 

HMV is also rumoured to be cutting back 10% of the 330 stores its Waterstones group owns in an effort to cut costs.

The figures expected this week will not reflect recent cutbacks, which have been too recent to affect short term results.

The company has hired N.M. Rothschild & Sons Ltd. to advise the company on how to refinance its debt, the Sunday Express reported, citing a person close to HMV.

With the current whirlwind of M&A sweeeping through the city, speculation is that HMV may be ripe for an overhaul.

In a broadside attack on Microsoft’s announcement of Silverlight, a new competitor to Adobe’s Flash software, Adobe CEO Bruce Chizen unleashed a vitriolic attack on the Seattle based company’s reputation for support multiple platforms.

"Even though they say Silverlight is going to be cross-platform, and maybe the first [version] will be, I’m not sure our customers or the people that are trying to deliver that content will have the degree of confidence that if they go with Microsoft, they’ll be able to provide them with a complete cross-platform solution forever," he said.

 Of course the irony of Chizen’s words were not lost on Macintosh users, who have steadily seen an erosion of support for their platform from Adobe over time. Adobe has dropped support for it’s Premier movie editing platform for Mac (only to return six years late) , dropped support for many of the components of Adobe Acrobat Professional on the Mac and a whole range of other consumer products.

Our view is that thoug this may come down to practical commercial realities, people in glass houses really shouldn’t through stones. Mr Chizen you need to eat your words.

Adobe has pretty much been a technology follower over the last few years. It was visibly shocked when Apple stole a march on it with Aperture, beating it to the market with its copycat Lightroom product by over a year.

More recently Adobe has even admitted that its decision in a ‘fit-of-pique’ to drop ‘Premier for Mac’ in 2003 was a mistake, by re-introducing ‘Premier for Mac’ this year. So it is even more interesting that Adobe is now positioning itself with a copycat version of iTunes against both Apple and Microsoft. To add insult to injury Adobe is even showing how out of touch with customers that it is by hyping up the DRM features of its new, soon, sometime, to be released product – while at the same Apple announced that it has ‘pounded’ through the DRM issue with it’s agreement with EMI to do away with DRM altogether.

Having recently completed its buy out/merger with Macromedia Adobe finds itself in a difficult situation. Basically it has some great products, but little real vision. Adobe talks about enabling platforms whilst the world moves to Microsoft or Linux. Adobe flirts and fights with Apple. Adobe lags and disenfranchises its key customer base. Internally it wrangles with its sales teams and leaves customers and partners guessing what will happen next.

So why is Adobe getting into the iTunes me-too game?

Well, it’s simple – the next play will not be for the desktop, the next play will be for the STB – that’s Set Top Box. Adobe is desperate to utilise one of its major assets – Flash. It did well with YouTube and it needs to repeat that for the set top box – the simple reason is that, you the punter pay through the nose to watch, record, review and plan your TV viewing – Adobe are after your ‘viewing’ Dollars.

The next few years will see major developments in the commoditisation of viewing video – Bill Gates got it when he bought WebTV (prematurely), Steve Jobs got it when he introduced iTunes Video and AppleTV – perhaps Adobe’s Bruce Chizen has woken up from his ‘Rip Van Winkle’ sleep and realised that he may want some of it to.

At the beginning of this month the odds were pretty much 50/50 that the Bank of England would leave rates on hold as the CPI fell to 2.7 percent. Today the office of national statistics published the latest figures that show the CPI has jumped a massive 0.4 percent to 3.1 percent. This also triggers the need for the Governor of the Bank of England to write a letter to the chancellor explaining why the Bank has allowed prices within the CPI to rise so much.

 With this increase it is almost certain that the Bank will be forced to raise interest rates at the beginning of next month - the question is now will it be a nominal 0.25 percent or a more meaningful 0.5 percent. We opt for the latter and the reasoning is very simple, when interest rates were down in the 3 percent area an increase of 0.25 percent represented an increase in borrowing of around 9 percent, with interest rates at the much higher rate of 5.25 percent now a similar small increase would represent about half that increase to borrowers.

The problem has been that people have got used to borrowing and any increases in the cost of borrowing have been too shallow to force people to reign back on debt. The tide may now be changing - although the CPI pretty much ignores housing costs for example, there is a knock on effect that takes place further down the road and is reflected in the RPI. So of course the other shck has been the increase in RPI to a fifteen year high of 4.8 percent.

The RPI figure is likely to be jumped on as it will be used by firms and negotiators as the means to set wages. With fewer people using collective bargaining (ie trades unions) as a means of negotiating salaries, the pressure for wage increases is spread more thinly across the year (ie trades people joining new jobs negotiate for themselves) because of this the obsession of keeping the CPI/RPI low for the winter months is old fashioned and does not reflect reality.

 So what should happen? Well first the cost of borrowing needs to reflect the reality of risk, in effect this means ‘teaching’ the poor old house owner the salient lesson that house prices are a risk borne investment and that prices can go down as well as up. We’re also afraid that interest rates will need to rise fast enough to pull back on house inflation, we’re afraid that those who borrowed recklessly against the increase in values of their houses will need to learn that the party’s over.

Ironically we initially thought that Gordon Brown would do all in his power to avoid this situation as he looked set to take over the reigns of power at Number Ten, now it looks clear that he and his actions have precipitated his own epitaph.