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HMV Group is one of the businesses I’m focussing on in the book. A few years ago, I thought there were destined for nothing but failure, a traditional business that had simply failed to make the leap into the 21st century.

They faced a perfect storm of Amazon; Apple; illegal downloading; and supermarkets selling books, CDs and DVDs at cheaper than cheap prices. You could forgive them for going the same way Tower Records had gone before them.

A friend in retail, however, told me when Simon Fox took over that he was a class act, and I shouldn’t dismiss them quite yet. And sure enough, he was right – to the point that Fox of course was said to be top of the list to transform that other digitally challenged UK institution: ITV. In the end, to HMV’s good fortune (and I suspect to his as well) he decided to stay.

Waterstones is still a long way from out of trouble – despite store closures and the savings from the launch of their distribution hub, like-for-likes continue to fall. But the transformation at the HMV business (where Fox is managing director in addition to his Group CEO role) is genuinely impressive.

The lesson here is that the real transformation was achieved by sorting out the core, traditional business. New mix of products (including Apple stuff and iPod accessories – Apple previously wasn’t allowed in the store, because it was seen as the enemy), and a focus on smarter promotion and presentation have all helped.

With that underway, and with financial targets being met, it allows them to expand into new areas, and develop their online business at a more reasonable pace.

The joint venture with Mama Group; the launch of digital cinemas in store in partnership with Curzon; and pushing Sony e-readers at Waterstones – all of these provide a good narrative and glimmers of future growth, but won’t be making a meaningful contribution to the bottom line in the near future.

I doubt they  not going to meaningfully challenge either Apple or Amazon in the online space. In fact, they still have their work cut out to take on Play.com, but the mix of a strong high street presence (at their core, HMV has always been a really well run retailer), a decent online offering and diversification into live music – helped by the decline of Woolworths and Zavvi is a pretty healthy platform for the future.

Today’s news that they’ve bought 50% of 7digital is another nudge in the right direction. A relatively small deal (£7.7m) that will give them a more meaningful digital footprint, and will bring some serious digital expertise into the business. The only thing I’m surprised about is that is that they’ve only bought half the business (not to mention a trading relationship with Spotify).

Why not go the whole hog, I wonder? Or was it just that the VC’s wanted out and everyone else wanted to stay in?

The heft of the still very credible HMV brand is also just what 7 needs if it wants to raise its game. Frankly, in this market, the chances of them creating a viable consumer brand is pretty minimal (they haven’t done it so far), better to team up with someone who already has one.

But, to go back to my point about the importance of the core business – this deal would be largely irrelevant if it wasn’t for the other announcement today that HMV UK like-for-like sales are up 1.7%, with total sales up 12.9% thanks to the integration of the stores they acquired from Zavvi.

They aren’t truly out of the water yet. Given the market the fact that they are high street retailers in a world that is ever faster becoming online and digital, you suspect they never really will be. The fact that their share price is down by 13% this year, despite everyone widely acknowledging that Fox has done an excellent transformation job shows the market is still luke warm about prospects for genuine growth. But, right now, things could be a lot, lot worse for them.

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