HMV has agreed a deal that will enable it to pipe singles, albums and games direct to customers' home computers as part of a strategy to head off the competitive threat that the internet poses to high street record stores.

It underlines growing efforts by traditional retailers to modernise the way they sell products in the face of competition from e-tailers such as Amazon.com, record companies looking to use the internet to sell direct to fans and a myriad of digital download websites.

Aim-listed Tornado Group will supply the technology that will enable visitors to the hmv.co.uk website to search for, purchase and download music and computer games in a digital form.

The service will go live next year and, although early demand is likely to be small, HMV believes it is investing for the long term.

"We believe there will be a real market for digital distribution in the future, which will complement our existing high street offer and now is the time to start putting the building blocks in place," said Stuart Rowe, e-commerce director at HMV Europe.

Tornado, whose existing customers include record companies EMI and V2 and computer games publishers Rage and Eidos, said the deal was evidence that "the future of digital distribution is a reality today".

The threat that the internet poses to traditional forms of music distribution was illustrated by the phenomenal popularity of the Napster file-swapping service. Napster, set up by a teenager in his bedroom, allowed music fans to swap digital music files for free, bypassing the record labels and artists.

The music industry was so fearful of Napster's power that it has taken legal action to close it down. Next year it is set to reopen as a subscription service.

· EMI is reportedly ready to announce further job cuts when it announces full-year figures this morning.

The record label behind stars such as Robbie Williams and Mariah Carey has already announced plans to cut 10% of its staff.

Chairman Eric Nicoli may also warn that plans to maintain the full-year dividend of 16p per share are under review.