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The Move Online Is Hurting Europe’s Music Retailers

PARIS — Across Europe, music is once again fueling protests, strikes and sit-ins. In a twist on the 1960s, it is the music sellers, rather than the listeners, who are up in arms.

Employees of two HMV record stores in Limerick, Ireland, started sit-ins last week, demanding unpaid wages after the chain, based in Britain, filed for bankruptcy protection.

In France, workers at Virgin Megastore music and video shops went on strike this month after that chain, too, was declared insolvent and placed under a court-appointed administrator, threatening the stores with closure.

In Italy, workers at Fnac, which sells compact discs, DVDs, books and consumer electronics, took similar action last autumn after the Italian division of the French chain was sold to private equity investors, who are expected to shut stores and cut jobs.

Faced with the possible demise of a broad swath of its retail infrastructure for music, movies and other media, Europe is, in some ways, merely catching up with the United States — and with the technological and economic forces that have swept through the entertainment industry. Tower Records, the U.S. equivalent of HMV or Virgin Megastore, shut down in 2006, unable to compete with online retailers like Amazon.com and iTunes, from Apple, as well as digital pirates. Tower Records in Japan, which split from the U.S. company about 10 years ago, continues to operate.

But the threat to bricks-and-mortar shops selling music and movies is being seen as a broader economic and cultural calamity for Europe. Not only are thousands of jobs at stake; these chains, European owned, also play important roles in disseminating locally produced media. Waiting in the wings to replace them are mostly American-owned Internet giants, whose growing presence and smaller contributions to European fiscal coffers worry policy makers.

“The physical cultural businesses are threatened today because of the emergence of large online sites that completely avoid fair competition, since they do not pay the same taxes as others, being based outside France,” the French culture minister, Aurélie Filippetti, said in a radio interview with Europe 1.

In addition to the potential economic fallout, there is nostalgia. HMV, for example, is an iconic British retailer, in business since 1921, when the composer Edward Elgar attended the opening of the first shop in London. HMV stands for “His Master’s Voice,” the title of a painting by Francis Barraud that became the basis for a widely used music industry trademark, in which a dog is mesmerized by the sound emanating from a phonograph.

The owner of that first store, called the Gramophone Co., was a precursor to the British record company EMI, which recently passed into foreign hands when it was sold to Universal Music Group, controlled by the French media conglomerate Vivendi.

“People feel very emotional about all this. They feel very sad about it,” said Neil Saunders, an analyst at Conlumino, a retail consulting firm in London. “They say, ‘HMV is a part of my youth.’ And then you ask them when they last went into an HMV store, and they say, ‘Um, three years ago?”’

Digital music is making significant inroads in Europe, several years after it did so in the United States, where it already accounts for more than half the market. In Britain, digital outlets accounted for 32 percent of music industry revenue of $1.4 billion in 2011, according to the International Federation of the Phonographic Industry, up from 19 percent two years earlier.

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Virgin Megastore workers in France went on strike this month after it was declared insolvent.Credit...Ian Langsdon/European Pressphoto Agency

Counting compact discs sold by Internet mail-order businesses like Amazon.com, as well as digital services like iTunes, online distribution accounted for 73.5 percent of music and video sales in Britain last year, according to Conlumino. That could rise to 90 percent by the end of 2015, the firm forecasts.

The problems at HMV, Virgin and Fnac have heightened the scrutiny of online retailers like Amazon, with politicians in France and Britain accusing the company of unfair competition because of the strategies it employs to reduce its taxes in Europe. Amazon routes its European sales through Luxembourg, where corporate taxes are lower than in France or Britain.

Amazon has insisted that the practice complies with E.U. law, and analysts say that in any case the difference in tax rates is a relatively minor factor in the decline of physical retailers like HMV, Virgin and Fnac. A bigger difference is rent; it is much cheaper to operate a mail-order warehouse in an industrial park than a megastore on the Champs-Élysées in Paris or Oxford Street in London.

“There has been a structural change in the way we shop, and the business models of the physical retailers no longer add up,” Mr. Saunders said.

The retail crisis has engulfed two other British chains: the local arm of Blockbuster, the video-rental business, and Jessops, a camera and video chain, which collapsed last week. In both cases, court-appointed administrators were named to oversee sales or shutdowns.

With 4,500 jobs at risk at more than 200 HMV stores, the company’s chief executive, Trevor Moore, has pledged to try to save as much of the chain as possible. Several potential bidders have expressed an interest, even though accountants from Deloitte have taken over day-to-day oversight.

HMV has already been bailed out by one of its suppliers, EMI, which is paying the rent on 16 of HMV’s stores to keep an important sales channel alive. But analysts said it would be difficult for EMI’s new owner, Universal, to take over HMV, as E.U. regulators had already required Universal to make significant divestitures to complete the deal.

In Italy, the eight Fnac stores — in Florence, Milan, Naples, Rome, Turin and other major cities — were sold last year to a private equity firm, Orlando Italy Management, by their French owner, the retail conglomerate PPR, after losing money for years.

An employees’ group says it expects the new owners to announce a restructuring plan Tuesday, including the closing of Fnac stores and the elimination of more than half of the 550 jobs in Italy.

Fnac is also struggling at home in France, where it operates under a public pledge to support local music. Sales at Fnac, which also has stores scattered outside the country, declined a further 3.2 percent in 2011, prompting PPR to announce last year that it was exploring a public offering of the chain. The spinoff of Fnac, formed in 1954 as a buyers’ club, caused the news site Mediapart to lament “the end of a cultural exception.”

Fnac is at least doing better than the French Virgin Megastores, one of the last remnants of a once sprawling international retail empire built by the British entrepreneur Richard Branson. Mr. Branson’s company, Virgin Group, has sold those stores, and outside France, many of them have been shut; a handful are still operating in the Middle East, as well as in airports and train stations.

As with HMV, several potential buyers have expressed an interest in the French Virgin Megastores, which are owned by a private equity firm, Butler Capital Partners.

The more than 1,000 workers at the 26 Virgin Megastores in France are not sitting around silently, waiting to learn their futures. During a demonstration outside the store on the Champs-Élysées, which has witnessed an influx of American fashion chains and motorcycle supply shops, one employee told the French newspaper Libération: “Do we want the most beautiful avenue in the world to have nothing but garages and apparel boutiques, or do we want it to show what France can do in terms of culture?”

A version of this article appears in print on  , Section B, Page 3 of the New York edition with the headline: The Move Online Is Hurting Europe’s Music Retailers. Order Reprints | Today’s Paper | Subscribe

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