HMV buys half of 7digital to drive online expansion

Digitally remastered Beatles back catalogue set for release next week

HMV yesterday moved to expand aggressively in the music and book downloads market, taking a 50 per cent stake in the online store 7digital.

The high-street stalwart announced that it had paid £7.7m for a 50 per cent stake in 7digital, which will power HMV's online music and e-book operations. The deal will combine 7digital's technology and back catalogue with HMV's suppliers and consumer reach.

7digital, set up in 2004 and backed by the venture capital firms Balderton Capital and Sutton Place Managers, also operates online music sales services for labels including Sony and EMI, and streaming sites Spotfy and Last.fm.

HMV's chief executive, Simon Fox, said the move "transforms" HMV's position in the online market. "This will enable us to accelerate growth in digital entertainment. HMV wants to be a serious player in digital," he said.

The contract could see HMV negotiate a full takeover, depending on performance, after 2011.

The groups offer 6 million music tracks online, and the two companies will together overhaul HMV's e-book store. "It is early days in the e-books business, but we're really encouraged by how it has taken off," Mr Fox said.

The group was upbeat yesterday, despite sales falling 1.8 per cent year-on-year during the 18 weeks to 29 August. Mr Fox said: "This is a pleasing start in a tough consumer environment."

The group benefited from adding 29 stores from the collapsed rival Zavvi.

While HMV's like-for-like sales in the UK and Ireland rose 1.7 per cent, the struggling international business fell 12.6 per cent. Sales at its Waterstone's subsidiary fell 3.4 per cent.

Freddie George, an analyst with Seymour Pierce, said the trading statement was "positive, considering the weakness in the games market, which accounts for about 25 per cent of HMV's sales".

The group is set to benefit from the collapse of some of its closest rivals, opening up to 15 temporary stores over the Christmas period. Mr Fox said: "This is the first Christmas without Woolies and Zavvi on the high street. The demand means that the current stores can't deal with all of it."

Mr George said: "HMV and Waterstones are the only credible specialists in their categories following the demise of Zavvi, Fopp and Woolworth, while Borders in books is now down to 56 outlets."

Mr Fox, who again ruled out joining ITV after rumoured overtures earlier in the summer, is relying on a strong pipeline of releases to boost the group in the run-up to the festive period. Jamie Oliver's new cookbook Jamie's America is set for release, as is Dan Brown's new novel, The Lost Symbol. The music world is excited by next week's release of the digitally remastered Beatles back catalogue, in conjunction with a tie-in Rockstar computer game.

Other eagerly anticipated releases include new albums from Pearl Jam, Mika and Alexandra Burke.

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