HMV drops Amazon for its own web operation

HMV, the owner of Waterstone's, is to take control of its internet-based bookstore from Amazon as it grapples with growing threats to its dwindling revenue streams.

The retailer, which revealed yesterday that sales at Waterstone's and its HMV music chain were still deteriorating, admitted it had failed to predict the impact the internet would have on the book market. It is ending its five-year relationship with Amazon, which also operates online websites for Marks & Spencer and Borders, the US book group that owns Books Etc.

Alan Giles, HMV's outgoing chief executive, said the retailer thought the internet would be "relatively modest" at less than 10 per cent of the market when it entrusted Amazon with selling its books online.

"We are now concluding that it will be bigger and sufficiently important to feel we want to bring that relationship with customers back in-house," Mr Giles said.

Internet sales of books increased 30 per cent last year, outstripping the rest of the market which advanced 5 per cent purely because of the growing dominance of supermarkets in the sector.

HMV will launch its own online bookselling service in the autumn. By then it could also own Ottakar's, a rival specialist, depending on whether it opts to re-bid for the chain after clearance from the Competition Commission this month.

HMV, which is ceding market share in its music and books businesses to supermarkets and internet-based rivals, said yesterday group like-for-like sales dropped 5.7 per cent in the year to 29 April. In the past 16 weeks, its music chain saw an 11.4 per cent drop in underlying sales, while Waterstone's suffered a drop of 5.6 per cent on the same basis.

Mr Giles said there had been no change "either for the better or worse" since HMV disclosed its poor Christmas figures alongside a profits warning. Since then the group has received a bid approach from Permira, which it turned down, and a separate offer for Waterstone's from the chain's founder, Tim Waterstone. That offer collapsed after his financial backer pulled out.

The group expects profits to be in the middle of analysts' reduced range of £93m to £103m. This figure is before an exceptional charge to cover 50 job losses at its head office - 10 per cent of staff - and advisers' fees linked with the two bid approaches.

It is testing demand for cheaper CDs and DVDs in six of its stores, and said the early results of the trial were "encouraging".