The Times Online reported today that music retailer HMV has become "one of the most “shorted” UK stocks of all time. To short a stock means people borrow stock they do not own, sell them and buy them back at a lower price and return the shares to the original owner. The investors keeps the difference between the higher sale price and the lower purchase price. The fact that HMV is being shorted means investors have great faith that the stock will drop in the future.

What is wrong with HMV? Plenty. Before a disappointing Christmas season, the retailer had already lost lost £26.1 million ($50.7 million) at the midpoint of its financial year. It has faltered under heavy competition from Internet retailers and supermarket chains.

Adding to brick-and-mortar woes, Brit retailer Music Zone ceased trading last week. About 800 jobs were lost after the retailer could not find a buyer to keep it in business. A deal with one potential suitor fell through because no agreement could be reached with suppliers over £12 million claim over stock.

These failures come after British musicians posted their best year in almost a decade. BPI figures show that UK artists represented 61.9% of UK album sales. But it's not as if UK consumers have shifted away from the CD: Digital album sales accounted for only 1.4% of total UK album sales in the last three quarters of 2006. Total UK album sales were down only 2.5% in 2006. The shift to digital singles has been more dramatic, and that leaves brick-and-mortar retailers out of the equation. Total singles were up 39.7% and digital singles rose 98.9%.