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Saving ISPs and the music biz: Is it even worth it?

Not when they behave like this

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Comment The banks have done it. America's car industry has done it. Now it's the turn of Britain's ISPs and its music business to see what favours they can eke out of government. The Digital Britain report, due to be published tomorrow, will reveal the extent of this back-scratching.

There's just two things to bear in mind: neither sector needs government intervention, and on current behaviour, neither sector deserves any, either. Both the ISPs and the music business are well capable of sorting out their own problems - by striking private deals to increase demand and revenue. But the way they're behaving, they seem to prefer to destroy their businesses first - presumably so they can ask for handouts later.

Leave aside the official submissions to the Carter review, in which both ISPs and music business repeatedly say that they don't want the government to intervene on file sharing. Instead, pay close attention to how they walk the walk.

Last Friday the first legal P2P file sharing service to be launched in the West was put on ice by Virgin, weeks before it was due to go live. It finally promised a solution to both industries' woes.

For the ISPs, there was a way out of the crippling self-imposition of flat rate pricing that they know will eventually drive them to the wall. They're unable to differentiate between light users and heavy users, and capture the value of demand. Since yesterday's light users become tomorrow's heavy users, they end up reducing the service for everybody.

Unless ISPs can come up with great music and movie services, they'll be increasingly drawn to the Dark Side: the Company We Couldn't Name becomes a lot more attractive when you're desperate.

But for sheer idiocy, the music business takes the prize.

Music's problems are so well known, it's pointless to repeat them here. But in short, major labels have fought to legitimise the one form of online consumer behaviour that people are prepared to pay for legitimately. Most had come round to the idea that in a controlled situation (with known and trusted parties as partners) they could let go. The Virgin deal was the first step on a graceful exit from a strategy of control and litigation. And unlike every other service available today, it promised real money at the end of it.

It was a game-changing service, with legal P2P so strange to several readers that they had difficulty comprehending it was really true, I noticed, and even more difficulty imagining what it might look like. Such are the low expectations of digital music services these days.

According to sources familiar with the negotiations between Virgin and the labels, the labels put increasingly unreasonable demands on the ISP. One in particular defies belief - unless you're familiar with the music business.

The P2P service uses a non-intrusive watermarking technology to count the exchanges. Streaming to friends and offering songs is an integral part of the service - so exchanges are encouraged. What the labels saw, however, is a chance to punish users who had signed up to the service - by blocking their Torrent uploads. What kind of incentive, you may wonder, is that?

Alas Virgin failed to "do a Steve Jobs" - who, legend has it, refused to sign the major label contracts prior to the launch of Apple's iTunes store - and went ahead and launched anyway, using one price per song. Virgin was punished for being responsive to music business demands - and the music business couldn't resist putting one over on the ISPs ("Virgin has blocked Torrents - why can't you all do that?").

Much of the music business was appalled by the failure to launch VMU. With digital revenue growth only up 25 per cent year on year, and the number of options for physical retail diminishing, what did the major labels have to lose?

Even the best services today fail to offer the full extent of catalogue that individual users can offer up from their own music collections. (For example Spotify, the best of the present bunch, offers none of the first five Small Faces LPs, nor the Zombies original of She's Not There. And this is aimed at music fans? Are we supposed to pay money for second rate choice?)

Unfortunately it looks as if the music business is happy to settle for the gestures to be made tomorrow: designed to make life for ISPs more tedious, but doing nothing to make music revenues increase. They should be careful what they wish for. Stephen Carter, in charge of the Digital Britain review, has worked in the private sector, but at heart he's a quangocrat. Creating a bureaucratic apparatus comes naturally to New Labour politicians and policy-advisors - so expect to see one emerge tomorrow.

Both ISPs and the big recorded music companies appear to be dead set on refusing to treat us as paying punters. We'd rather prefer to pay for a service - music or otherwise- that offers more value than the dross around it.

If nothing else, we can whinge and take our money to another service. And that's very much the point - they're not even trying. It's hard to feel sorry for them. ®

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