Business News Deals Digital Retail

Play.com sold

By | Published on Thursday 22 September 2011

Play.com

Online entertainment seller Play.com is being bought by Japan’s largest online retailer Rakuten in a £25 million deal. Play.com is second to Amazon in the mail-order retail space, and according to Music Week it enjoyed a 14.3% share of the UK record sales market in 2010 in terms of expenditure.

That said, its dominance is in mail-order CDs rather than downloads, with its download store accounting for less than 1% of total digital sales in terms of both units and income. The Jersey-based company has been a key user of the VAT loophole that exists for low-priced products like CDs, enabling them to sell albums without charging the 20% sales tax added by mainland retailers.

As much previously reported, a very long campaign to stop that loophole – which arguably breaches European tax laws – has gained momentum in recent months. It was thought the UK Treasury would publish a list of products barred from enjoying the tax break, which would include CDs and DVDs, though insiders say ministers may now go even further and close the loophole completely.

Such a move would severely impact the ability of Play.com – and its competitors operated by The Hut Group – to compete with mainland etailers. According to The Guardian, The Hut last week abandoned plans for a stock market flotation, very possibly based on reports that the VAT loophole that helped them build their business is about to disappear.

Not that Play.com or The Hut’s operations rely entirely on those products which enjoy the Channel Islands VAT break, even if that loophole arguably enabled them to originally build their businesses. Rakuten’s top man Hiroshi Mikitani said of his new acquisition: “Play.com is not only a pioneer in the market but also one of the UK’s most successful e-commerce businesses. We aim to leverage our e-commerce strength and experience to further expand and develop Play.com’s business model and channel its loyal user base, merchants, and deep product offerings into Rakuten’s global e-commerce network”.

The Play.com takeover, expected to be completed next month, follows acquisitions by Rakuten of two other e-commerce firms in France and Germany in the last eighteen months.



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