Will iTunes be Musica’s swan song?

2014-04-27 15:00

The Clicks Group’s results for the six months to February have revealed just how much the launch of the South African iTunes Store has bitten into profit.

Technology giant Apple, which makes the iPhone and iPad devices, launched the local version of the digital marketplace late in 2012, but retailers did not see it as a threat, mainly because customers would need a credit card to buy music and videos from the store.

iTunes vouchers were not easily accessible, but that has since changed, and vouchers for both iTunes and the Apple App Store are now readily available inside shops such as Game.

On Thursday, the Clicks Group – which owns entertainment products store Musica, beauty store The Body Shop, and the Clicks chain of pharmacies, health and beauty retailers – showed overall turnover was up 9.6% to R9.3?billion, a slower rate of growth than the 11.4% observed in the previous corresponding period.

The Clicks chain was responsible for most of the turnover, at just more than R6?billion. Musica, The Body Shop and UPD – a pharmaceutical distributor – made up the rest.

But turnover at Musica, which previously accounted for slightly more than R500 million in sales, fell to just R495?million.

CEO David Kneale indicated that, although Musica continued to gain market share in the CD, DVD and gaming categories, total sales of CDs and DVDs fell 9.6% and 1.7%, respectively. Together, these two account for more than three-quarters of Musica’s business.

Only the gaming and technology sales categories saw increases in sales. But Kneale put a positive spin on Musica’s numbers, saying market share growth continues in all categories.

“Musica accounted for the highest return on net assets in the group,” he said during the results presentation.

Opengate – a subsidiary of the Value+Nettwork, which is owned by Primedia founder Issie Kirsh and his son William – is the company behind the now-ubiquitous iTunes and App Store vouchers.

Opengate CEO Anton Maybery said he could not disclose any details about the voucher market.

“Unfortunately, we are bound by onerous nondisclosure agreements and are not allowed to share any volumes or financial details,” he said.

But a circular to shareholders in FoneWorx, which tried to merge with Value+ last year, provided a peek into Opengate’s operations.

The telecoms and information technology solutions provider said Opengate was the largest supplier of gift, store and loyalty cards servicing all major retail groups in the country.

The merger has since failed, and FoneWorx boss Mark Smith informed shareholders that additional, revised financial information from Value+ had convinced the board that the merger “would be reckless and would significantly endanger the financial stability of the FoneWorx group”.

Blackhawk Network, a Nasdaq-listed global prepaid payments provider, announced in December that it had reached its first commercial agreement in African markets by bringing iTunes gift cards to South Africa through a partnership with Opengate.

The announcement stated the gift cards would be distributed nationally in more than 700 stores and across 10 retail chains, including Massmart and its three brands – Makro, Game and Dion Wired.

Pick n Pay, Incredible Connection and CNA also made the list.

Jim Strabo, Blackhawk’s MD for Europe, Middle East and Africa, said: “This launch continues Blackhawk’s global expansion and speaks volumes about future prospects of prepaid products in South Africa.”

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