JB Hi-Fi to launch streaming music service as CD, DVD and computer game sales slide

Electronics and entertainment retailer JB Hi-Fi will release a streaming music service by the end of the year and eventually open a new music store in what could be the first major local challenger for iTunes, the company announced yesterday.

The announcement has somewhat overshadowed the company’s disappointing financial results, with sales lower than expected and comparable store sales dropping 1.2% in the 2010-11 financial year.

Telsyte research director Foad Fadaghi says it is imperative that bricks and mortar retailers start expanding with new digitised business models in order to account for the loss of momentum in consumer spending.

“It is a difficult task right now, particularly the bulk of paid music. The reality is that companies like JB Hi-Fi need to fight back and look at emerging business models to try and counter the shift away from physical unit sales.”

This has become an increasingly difficult problem for JB Hi-Fi. While the division of its business that offers hardware such as televisions and computers is recording comparable sales growth of 4.1%, the software side – games, DVD s and music – saw a 9% drop.

Fadaghi says while opening a new streaming store is an ambitious task, it may have the capacity to do so if it leverages the JB Hi-Fi brand in the right way.

“Certainly it might make sense because of the customers they have and the brand they own in that market. The company can certainly build a substantial base of subscribers to offset any declines or future declines.”

JB Hi-Fi has also released a statement in which it says the store could continue to provide new opportunities, indicating it may eventually offer more than just music.

Chief executive Terry Smart announced the new initiative yesterday, calling it “JB Hi-Fi Now”. It will be available to customers on PCs and Macs first, and then expand to mobiles on all major platforms – iOS, Android and Windows 7 Mobile.

Smart also confirmed yesterday the new product will have millions of tracks available from hundreds of thousands of individual artists, both local and international, and users will only have to charge a flat fee for unlimited streaming.

“We’re dealing with all the major labels in getting the repertoire from that. We don’t anticipate any legal issues at all. This is all being done with the blessing from the labels and commercial arrangements, and that’s the important thing,” he told ZDNet.com.au yesterday.

Smart was contacted by SmartCompany this morning but was unavailable prior to publication. It is understood the streaming service will eventually turn into a digital music store as well.

This is not the first time a retailer has introduced an online music component. While Amazon moved into selling copies of digital recordings, US bricks-and-mortar chain Best Buy teamed up with Napster in 2008 to offer a digital music service.

Fadaghi says it has become increasingly difficult for music-based start-ups in the United States, with the iTunes Store dominating the digital music market – and the retail music market in general – and with Spotify now moving into the US and dominating the subscription-based platform.

However, Spotify has said it has no new plans to expand into Australia yet, leaving the market open for a competitor.

“There are various models to bring the product to market. However, if you look at VC circles in the United States, there is very little time for online music start-ups right now and very little money going into that market.”

“However, with the brand and reputation that JB Hi-Fi has, it may be a little easier.”