Hmv Group Regulatory News (HMV)

3 Sep 2009 07:01



HMV Group to transform existing digital offers to customers and accelerate future growth in digital entertainment via 50% stake in 7digital

JV to significantly enhance HMV and Waterstone's digital stores and further develop existing 7digital business 

3 September 2009 

HMV Group today announces that it is acquiring a 50 per cent equity stake in 7digital, a leading international digital media company, for £7.7m in cash. The new joint venture will combine 7digital's technology, digital expertise and catalogue with HMV's brand, supplier relationships and consumer reach to accelerate HMV's growth in the rapidly evolving digital entertainment markets. 

7digital will become HMV Group's single supplier for all of its existing digital operations. HMV's digital offers in the UK and Canada will be transformed by access to 7digital's leading technology and a catalogue of over six million digital music tracks as well as video entertainment. 7digital's technology platform will also provide a new and enhanced e-books store, enabling Waterstone's to build on its leading position in the fast-growing market for digital books.

7digital's technology platform has been developed over several years and currently powers digital entertainment services for partners and clients across Europe and North America, including Spotify, Last.fm, major music labels and artists. Forthcoming services include a mobile entertainment download application for RIM's BlackBerry devices. 7digital will continue to service this existing and future international customer base, whilst leveraging HMV's extensive relationships with entertainment industry suppliers to develop new digital entertainment services.

Simon Fox, Chief Executive of HMV Group, commented:

"This is an exciting new step for HMV which transforms our position in the fast-growing digital market. We believe 7digital is the best partner to help us accelerate our growth in digital entertainment and to become a major player in the market for legally downloaded entertainment. Along with other recent initiatives, it demonstrates the Group's continuing focus on transformation in structurally changing markets."

Ben Drury, Founder and CEO of 7digital, said:

"We're thrilled to be teaming up with HMV. Combining our experience in digital and HMV's brand, customer base and wealth of experience in music, video, games and book retail, we are creating a powerful force in digital entertainment. With consumer adoption of legal digital media now reaching the mass-market, this joint venture partnership is great news for our customers and suppliers."

Deal highlights:

HMV Group has agreed to acquire 50% of the equity of 7digital's holding company, 7digital Inc, from its venture capital backers, Balderton Capital and Sutton Place Managers, and management for £7.7m, subject to certain closing conditions. 

7digital co-founders Ben Drury, Chief Executive Officer, and James Kane, Chief Technology Officer, will continue to lead the business, supported by their experienced senior management team. A new Joint Venture Board will include three Directors from HMV.

7digital to power digital services for HMV Group including digital music services for HMV UK and Canada and e-book and audiobook services for Waterstone's.

Put and call arrangements have been put in place over the residual shareholdings in 7digital at valuations based on financial performance for the years ended 31 December 2011 to 2013. Any future consideration may be satisfied either in cash or HMV Group shares.

7digital is forecast to make an EBITDA loss of around £1m for the year ended 31 December 2009.

The JV will be accounted for using the equity method in the consolidated accounts of HMV Group plc from the date of acquisition.

Notes:

About 7digital

Established in January 2004, 7digital is a leading digital media delivery company offering businesses and consumers access to a huge catalogue of legal music and video downloads, competitive prices and promotions, and high quality sound and video in various file formats including MP3 through 7digital.com. In 2008 the company was the first in Europe to license DRM-free MP3s from all four major record labels.

7digital enables secure digital media delivery on behalf of record labels, artists, film and TV companies, retail and brand partners. 7digital's clients and partners include HMV Group, Universal, Spotify, Last.fm, EMI, Warner Music, Sony, AOL and many more. The company has delivered digital content to over 2 million customers in over 25 countries.

7digital was founded by Ben Drury and James Kane and was backed by leading venture capital firms Balderton Capital and Sutton Place.

About HMV Group

HMV Group is the UK's leading retailer of music, DVD and games and the leading retailer of books in the United Kingdom and Ireland in terms of total sales. As of 25 April 2009 it operated 379 HMV stores selling music, DVD and games in five countries and 313 Waterstone's stores, principally in the United Kingdom and Ireland. In January 2009, the Group created a joint venture with MAMA Group plc to own and operate 11 live music venues in the UK, and has recently established a partnership with Curzon Artificial Eye to trial digital cinemas located in HMV stores.

Enquiries:

** All enquiries on 3 September 2009 should be directed via Brunswick