Virgin Media, UMG Looking Backward Together
Much has been made about the new subscription service that Virgin Media is launching this coming December. And the timing of the announcement, the day before the Digital Britain Report was released, was no accident. That report, although mostly focused on broadband penetration, suggested that warning letters and “technical solutions” from the ISP’s be explored to police file sharing. Just prior to these announcements, Wiggin released a survey saying Britons don’t give a fuck about any warning letters. But they do care about losing their internet service. Yet according to a Brit buddy of mine, an ISP can’t cut off a customer since there is an EU law that says that every citizen is entitled to an internet connection. I’m, as usual, very confused. If anybody can lend some clarity to this , please leave a comment.
But something that I am definitely clear about is my assessment of the Virgin Media/Universal Music service and its potential. At first blush, one would be inclined to celebrate this as a great innovation and a huge step into the future. The media was all frothy about it. After all, the media usually likes to go out there and scratch the surface. But when I started to drill down a bit, I found some nagging, even troubling, details.
First of all, let’s do the math. According to Virgin Media, the 10-15 GBP per month will give you unlimited streaming and mp3 downloads from Universal’s catalog. Fine. But how much will the service be when the other 3 majors are signed on? They’ll certainly want the same amount of dough that Universal is getting. So this will effectively bring the price up to 25-40 GBP a month. That’s a significant price barrier. Many say that 10 GBP is too much. But let’s move on.
So let’s assume that you’ll have a service that is minimally 25 GBP per month, a tough sell by any means. What’s the value? How many itunes does the average user purchase every month? I would suggest certainly not more than 10-15, or the equivalent of 1 CD a month. So what’s to keep someone from subscribing to the service for a month, filling out their entire library with let’s say 3000 tracks, then dropping the subscription and and just purchasing the hit singles they want a la carte on itunes? Nothing. The truth is that the average consumer would actually be overpaying!
This service will only be valuable to extremely heavy music consumers. And when it comes to that type of customer, Spotify represents a much better value at 10 Euros a month (less than 8.5 GBP). In fact, it is a better value for casual consumers as well. Spotify offers what no record label sponsored service can: a lush user experience. The labels still don’t get it. It’s not just about their content. Users want a rich experience. It’s all about search and discovery. Spotify has that experience. The labels have consistently failed to deliver on that level. Look to the upcoming Vevo project and you’ll see. Who gives a shit about it. Vevo is just a music video channel on YouTube. So what? Doesn’t really show a lot of creativity on the part of Universal and Sony. The Virgin Media/UMG service just smells way too corporate. And it will be. Third party services have to be extremely creative in order to compete and the arrogance of major labels makes them think that all they need to do is offer their content. Build it and they will come. Not necessarily. And I’m willing to bet that they’re incapable of building a compelling user experience with an organic, grass roots, music lover’s feel.
Virgin Busts Downloader
Now the troubling part. As part of the trade off, Virgin Media has agreed to use packet sniffing technology to police downloading. Now I ask you, do you want to give up your privacy in order to download all the overpriced music you want? It just doesn’t square. Another thing I’m not sure about is how would Virgin know if you’re illegally downloading something? Can they tell the difference between downloading a bit torrent of a Maria Callas recording that’s in the public domain and one that’s not? If any of you out there can bring some clarity to this, please do so in the comments section. I know that if I were a Virgin Media customer, I’d be on the phone to BT right now to switch my service. It’s a very slippery slope and if Virgin thinks that sucking up to UMG will get them anywhere they’re nuts. I’m sure that they’re also trying to brown-nose the government as well, but you don’t see the other UK ISP’s rushing to duplicate the model. If they did, that could then lead to every ISP snooping on their users and acting as a private police force for record labels. It just doesn’t sit well. The great Peter Kafka made an interesting comment in his ATD post today regarding the US music industry saying ” [individual user] lawsuits are supposed to be relics of the past, replaced by a new strategy whereby music labels convince Internet service providers to help them police piracy. But while the industry floated the concept six months ago, it has yet to get a single cable company or telco to sign on. And even if they do, there’s not a whole lot of incentive for the likes of Comcast (CMCSA) or AT&T (T) to really crack down on music pirates, who don’t take up much bandwidth and don’t steal anything the pipe guys care about”.
And what about competition? Now that an ISP is doing direct deals with the majors, how does this effect the Spotify’s, iTunes, and Passionato’s of the world? Could Virgin make life difficult for these services? What would the EU say about that? I guarantee that the French and Spanish would bitch like crazy. And I don’t see that going over well in the US either. Consumer groups in the US like Public Interest would go ballistic.
What’s interesting is that the market has changed and this model will work, that is if it was 2004. Now, I don’t think so much. The industry, as usual, missed the window of opportunity and is again way behind the curve. The fact it that downloads matter less and less these days with the advent of inventive new streaming models, especially Spotify’s mobile app. In my opinion, the service will get a lukewarm reception at best. There will be an initial surge of interest and then it will die down substantially. Virgin will have done its best to actually lose customers, sending them into the arms of non-meddling competitors. They’ll learn that looking backward will have cost them more than they could ever make from some crappy major label sponsored subscription service. The only ones who win are the record companies. Don’t forget the major label mantra….”Heads, I win. Tails, you lose”.
© 2009, Wayne Rosso. All rights reserved.
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Wayne
I’m not sure where you are getting your facts/insights from Wayne but as far as I am aware some of these points are really way off the mark.
1. Not sure who has told you that the service would cost £10-£15 for Universal ONLY. My understanding is that the service will cost £10-£15 full stop. And the aim is to get as many labels as possible on board. If you are right about this then clearly there would be a big problem and I would agree that it wouldn’t work. But I don’t think you are right.
2. There’s no DPI. That was the previous project – not this one. Virgin is saying they would respond to rightsowners’ notifications by a system of graduated response which would end in temporary suspensions. I don’t underestimate that this is a fairly severe response but as far as I am aware it would not include any DPI
3. As for your assertion that the authorities would ‘go ballistic’ about an ISP doing deals with rightsowners and that this would somehow be anti-competitive, this is just plain nonsense Wayne. If anything it’s the opposite that’s the case. Have you read the Digital Britain report? The UK Government wants to see ISPs develop new business models. And aa for the French and Spanish – they do too – and they already have plenty of such services eg Orange Musique Max, Neuf Cegetel, SFR and Telefonica
Paul
Thanks for the clarifications.
Firstly, in regard to pricing, I spoke to several people both here and in the UK and everyone is under the impression that it currently is priced just for UMG content and that it will go up as other majors sign on. If that is in fact incorrect, then I do apologize. But it is a bit unclear nonetheless and if you are correct about the pricing it does change my perception somewhat. But not entirely. It would certainly have a better chance of adoption. The reality is that for a subscription to fully work it must be under 10 GBP. Probably even less.
Regarding the policing, once again someone in the UK who is somewhat familiar with the deal from UMG’s end gave me this information. And I do understand the progressive responses that you outline are part of the strategy. But it still doesn’t negate the fact that Virgin will be a police force for the music industry which, in my mind, would ultimately tend to turn off customers. And is it known just how far Virgin has agreed to go with their policing technology? Just the simple idea that you’re being watched is slightly discomforting. And I would imagine that it is more so in the UK and Europe as users, and governments I might add, have historically been very sensitive to privacy issues. Once again, if I am wrong on this as well, I do apologize, but may I also refer you to Peter Kafka’s post yesterday in ATD (that I quote in my post) about how US ISP’s are dealing with this strategy.
And no, I confess to not reading the entire Carter Report. I merely read the accounts published by the BBC. And I may have awkwardly worded that particular passage. You’re certainly right about the fact that the UK government wants to encourage these new models. I thought that I had reinforced that when I said that Virgin was currying favor with the government as well as the music industry. And although the EU has a long history of anti-competitive action, I do realize that they are looking seriously at new ISP strategies to fight piracy. I think that the pressure is now on these governments to do something about piracy. I do, however, think that this kind of deal could raise some issues with the existing services in Europe and the UK as far as anti-competition goes. For instance, why are other subscription services required to use DRM and not Virgin Media? I was wrong in placing that sentence in that paragraph, as I had intended to for it to refer to the privacy issues. If I was wrong on both accounts, then I do apologize.
Thanks very much for taking the time to comment and I appreciate your thoughts and corrections.
Gosh – how polite you can be when writing. It’s almost as if you become another person!
I agree that £10 is probably the limit and, ultimately, even better if it can be bundled in with other stuff which I’m sure it will be. I am a Virgin customer and know very well how cleverly they structure these bundles to tempt you to go for the bigger package.
As for the policing bit, I am pretty convinced that Virgin won’t be doing the policing. I believe this is all down to the rightsowners. Virgin simply has to respond to the rightsowners’ notifications. There was a plan to introduce DPI but that was because they were looking at allowing users to carry on using their existing file sharing services (the Playlouder model) so Virgin would have been doing the monitoring anyway. But the whole DPI aspect made them understandably nervous and it just didn’t work well. You’re certainly right to highlight the point that cosnumers don’t like the idea of ISPs ’sniffing’ around their content – but neither do ISPs. More fundamentally though labels, particularly Universal, were never going to allow users to carry on using existing file sharing services. I’m not surprised either. That seems like a much more complicated way of doing things which requires all sorts of content identification of unlicensed stuff and your own licensed stuff which seems totally unnecessary when you could simply give them the MP3s via a platform you control, as they now plan to do.
Your point about forcing other services to use DRM was not what I was thinking of when I read your comment. And that is an interesting point. But that’s another reason why this is deal so significant in my view as effectively it spells the end of DRM on all digital music. There’s talk of Nokia’s CwM getting rid of the DRM on that service and I suspect all the other ‘rental’ models will follow, such that ultimately rental will only be about accessing streaming music – like Spotify – while everything else will be permanently owned with no DRM.
I do think this deal is hugely significant. To me it marks the end of a phase in the digital music business: the end of DRM, the point at which it has been accepted that digital music has become almost totally commoditised, completely unlimited music, as much as you can eat to keep forever, there’s really not much further you can go with these kinds of models. So I think the next phase will be much more about everything that you can do around managing the music, sharing, playlists, users becoming radio stations etc.
Better stop now – I need some breakfast!
Paul
All good points. And I agree with you on the end of the DRM era, though I do think that the labels move so slowly that we’d better not order cake and ice cream yet. My feeling is that:
1. It’s way too late in coming.
2. The labels think their content is worth more than it really is.
3. It’s all about search and discovery.
I think that we probably would basically agree on those points. Of course I’m jaded and cynical from having been in the trenches for so long. But like I said before, this is far from a slam dunk. And as we both know, you can never fully trust a record label.
Paul
See ‘Three-Strikes’ Off Anti-Piracy Agenda In Spain
[...] one of my blog posts last week I gave some analysis of the Virgin/UMG subscription service that was recently announced. I expressed concern about ISP’s policing users [...]
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