Zooming in on Arcadia's customers

DAILY Mail publisher Associated Newspapers has taken a 50% stakein High Street retailer Arcadia's free Internet service providerZoom.co.uk, a move which analysts say could mark the beginning ofsimilar tie-ups between media and retail groups.

Arcadia - which includes the chains of TopShop, Dorothy Perkins,Evans, Burton Menswear, Principles, Racing Green, Hawkshead, TopManand Principles for Men - said Associated Newspapers would pay #15mfor its 50% stake in Zoom. Some #5m of this will be paid up-front,with an additional #2m payment each year for the following fiveyears.

While Zoom's main focus is on electronic commerce, Arcadia chiefexecutive John Hoerner said the move would give subscribers access tomore comprehensive news coverage. This should keep users returningto the site, while also promoting its use by a wider mass market.

Arcadia, whose shareholders yesterday approved the purchase of theSears Womenswear chains, currently has 2100 stores and a databasecontaining information on more than five million storecard holders.It distributes the software for its Zoom service through thisnetwork, with users encouraged to select and order their clothingpurchases on-line.

For its part, Associated Newspapers will market Zoom to itsestimated weekly readership of 13.5 million people. This includesreaders of the Daily Mail and the Mail on Sunday, as well as London'sMetro and Evening Standard publications.

"I think it looks a very good deal," retailing analyst RichardRatner of Butterfield Securities said. "It makes quite a lot ofsense for both sides.

"I am told that Zoom has got an extremely good service. I am toldby those who would know that it's better than Dixon's (Freeserve)."

Asked whether other retailers and media outlets might follow withsimilar deals, Ratner said he "wouldn't be surprised" to see othersjoin the bandwagon. However, with about 100 free Internet serviceproviders now available in Britain, it was difficult to predict whichcompanies might be involved.

Electronics analyst Ray Burgham of Henry Cook Lumsden agreed withthis assessment. "I think it's a distinct possibility, actually," hesaid. "I think a lot of companies have been slower to develop theirweb strategies, and this would be a way for them to quickly buy intothat, if they can agree a price."

Launched last month, Zoom was founded upon the strategy that e-commerce would be its route to profitability. This contrasts withmost other free Internet service providers, including market pioneerFreeserve, which rely on pulling in cash from sales of advertisingspace.

Although Zoom generates a small amount of money from a share ofprofits on telephone calls needed to connect to the Internet, thatrevenue is scheduled to disappear.

Hoerner believes Internet service providers will eventually haveto offer free telephone calls along with free access in order tosurvive.