General

This Network Sings

An ambitious new ISP business model is based on the power of music.

by Gerry Blackwell [September 30, 2005]

London, UK-based PlayLouder aims to become the world's first "music service provider" or MSP, a broadband ISP catering specifically to music lovers, with a variety of music-related services and features, including legal, licensed sharing of music over peer-to-peer networks such as Kazaa and Gnutella.

PlayLouder first announced the MSP venture in October 2003 and has been beta testing its technology and the service concept for several months in Britain. It plans a "soft launch" in early fourth quarter 2005 and hopes to begin a full commercial roll-out at the beginning of 2006.

The company's innovative business model is far from proven, but CEO and co-founder Paul Hitchman is so convinced it will work, he is already entertaining enquiries from ISPs interested in partnering with PlayLouder to replicate the model in other parts of the world.

"I think we will prove the concept quite quickly," Hitchman says. "We've already seen a strong growth in interest. We want to start discussions with potential partners almost immediately."

Licensed file sharing
The key to the PlayLouder business model is the notion of licensed file sharing. This may sound like an oxymoron, but the company is using a patented solution from Los Gatos, Calif.-based Audible Magic that creates a "walled garden" for subscribers in which they—and only they—are allowed to share music freely. PlayLouder pays a royalty fee to the copyright owner each time a subscriber downloads a file over a peer-to-peer (P2P) file sharing network.

The benefit to the record companies is clear enough, at least conceptually—they get revenues where they didn't before. But what about subscribers? PlayLouder says they will benefit because the walled garden can also keep out poor quality rips and spoofs—files that look like music tracks on file sharing lists but contain anti-sharing screeds or malware. And they won't have to worry about being sued by the music industry.

PlayLouder will also sweeten the pot with additional services. It is already offering a stylish insider's music news service, and it plans to sell gig tickets and other music and entertainment-related merchandise, including possibly CDs.

Can PlayLouder turn a profit with this model? The increased business overheads—the music royalties paid and capex and ongoing costs for special technology—will be offset by savings in a few areas, Hitchman says. Because the Audible Magic technology controls and limits P2P traffic, which accounts for a huge percentage of all off-net traffic from an ISP, PlayLouder will save on transit fees, he says.

"We also think we can reduce marketing costs. It's a very targeted marketing focus. We have a clear differentiating factor and that differentiator should help us reduce churn and, ultimately, subscriber acquisition costs." And PlayLouder hopes to earn additional revenues from premium services such as streamed music (including live events) and from retail sales.

Working with content owners
It will take time to prove the case. In the meantime, the company's first hurdle is convincing content owners that this is a safe, workable, and fair solution for them. PlayLouder started inking royalty agreements with independent music labels last year, and then in August it signed a breakthrough deal with Sony BMG, one of the largest music distributors in the world.

With the Sony agreement, PlayLouder now has access to about 500,000 tracks, but Hitchman is the first to admit this isn't nearly enough. "To provide a viable commercial service that we can market confidently, we need virtually all the tracks available," he says. "So the onus is on us to close deals with the other big record companies."

Can it convince EMI, Universal, and Warner to follow Sony's lead? Hitchman sounds reasonably confident. "Most of the rights holder groups are excited about the idea in principle and want to talk, because obviously if you extrapolate from our model across all ISPs worldwide, this could eventually generate substantial revenues for the music companies," he says.

But whether he can sew up enough deals in time to launch as planned in early 2006 is another question. Hitchman figures PlayLouder needs a pool of about two million tracks to make it work commercially. "There are no guarantees," he says of his chances of signing the other big players in the next three months, "but we're hopeful."

PlayLouder has been peddling the concept for two years. It's no surprise, though, that it has taken this long, Hitchman says. Because it's an entirely new model, the music companies had to carefully consider all the angles—technological, business, legal. File sharing is also an "emotional subject" with the music companies because of their long and often bitter campaign against it.

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