Warner Music Group has agreed to set up a joint venture with a South Korean recording company to sell music files through mobile phones and MP3 players.

The deal comes as recording companies struggle with falling album sales because of online and digital music service providers.

Warner Music, the world’s fourth-largest recording company, will have a 60 per cent stake in the venture – WS Entertainment.

Seoul Records, which was taken over last year by SK Telecom, Korea’s largest mobile carrier, will have a 20 per cent stake in the venture and a fund set up by SKT and Seoul Records will have another 20 per cent stake.

“South Korea is perhaps the most advanced and progressive mobile music market in the world. Consumers there spend more than twice as much on mobile music as they do on traditional music formats,” said Edgar Bronfman, chief executive of Warner Music, at a conference in Hong Kong.

Mr Bronfman has placed digital distribution at the heart of his plans to revive Warner since he and a group of private equity investors purchased the company two years ago from Time Warner.

Since then, digital revenue has jumped from virtually nothing to $90m for the most recent quarter – an industry-leading 11 per cent of total revenue.

WS Entertainment will take over all businesses of Warner Music Korea, except its overseas album distribution. And Seoul Records will secure online and offline distribution rights for all domestic albums and music files produced by WS Entertainment.

“The joint venture is part of our efforts to set up our own music label system and will lay the groundwork for our global business, as it helps us secure stable music sources in future and take advantage of Warner Music Group’s global network,” said Hahm Yong-il, president of Seoul Records.

Analysts said the deal would help Warner Music secure digital music delivery channels in South Korea, where portable digital music players are widely used and mobile phones often have MP3 player functions.

Sales of digital music in the country rose nearly five-fold to Won201.3bn ($217m) in 2004 from 2000, according to industry data, while traditional album sales fell from Won410.4bn to Won133.8bn over the same period.

More than 70 per cent of Korean households have active broadband connections, which make it easier to download content, such as music and videos.

Additional reporting by Joshua Chaffin in London