January 15, 2013, 3:24 PM

Online music sales claim music retailer HMV Group

The U.K. retailer enters administration as its finances worsen.

Lead Photo

Growth in online music sales were a factor in HMV's decision to enter administration.

Digital and online music sales have taken a toll on HMV Group PLC, a United Kingdom-based music and entertainment retailer. The company announced today it is entering administration, the equivalent of bankruptcy in the United States.

HMV has a 220 million pound ($353.2 million) loan that required a 30 million pound ($48.2 million) payment this month. HMV is No. 76 in the 2012 Internet Retailer Top 400 Europe with an Internet Retailer-estimated $226 million in 2011 online sales.

HMV, which operates 235 stores mostly in the U.K. and Ireland, warned investors in its first-half 2012 report released in December that its revenue was falling. Sales for the first six months of fiscal 2012 were 288.6 million pounds ($463.8 million), a 13.5% decrease from 333.7 million pounds ($536.3 million) for the same period in 2011.

The company continues to operate its stores and e-commerce site, a spokesman says. HMV employs more than 4,300 workers. Each year its online store draws more than 50 million visits, the company says, and counts more than 170 million visits to its bricks-and-mortar stores.

In its December earnings report HMV cited the growth of digital music as a factor in its financial decline. According to BPI, a trade organization for the British music industry, digital music sales accounted for 55.5% of U.K. music sales in the first quarter of 2012, overtaking sales of physical music, such as compacts discs and vinyl records, for the first time. HMV retains its 35% of 7digital, a music download service, but lost 500,000 pounds ($803,850) on its stake in the service in the first half of 2012, the company says.

Professional services firm Deloitte LLP will oversee HMV while it is in administration. Deloitte could find a buyer for the company or oversee its closure, if no buyers are found.

HMV’s demise could harm U.K. recorded music sales in 2013, says Mark Little, principal analyst at Ovum, a research and consulting firm. “With an estimated 38% share of physical music sales in the U.K., HMV’s slip into administration is sure to create significant drag for recorded music sales as a whole in 2013, if Deloitte can’t keep 249 stores trading,” Little says, “But this sad news could actually drive growth in digital music, which Ovum expects to hit 450 million pounds ($723 million) this year, as consumers consider digital music channels instead as well as new services such as Amazon’s Autorip that offers a physical CD with a free digital download, in a bundle.”

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