Virgin launches online music service

Move could help test viability of bridge--if there is one--between old offline world of music selling and new digital medium.

Virgin Digital, the online arm of the Virgin Group, will launch an online music service Monday aimed at replicating on the Net the success of its offline chain of retail music stores.

The company is jumping into the market with a full-featured music jukebox written from scratch, in which it is offering a music download store and music subscription service powered by wholesaler MusicNet.

With an entry 18 months after Apple Computer first launched its iTunes song store, Virgin is starting well behind its biggest rivals. But the company says it can use the powerful Virgin Megastore brand--and the access to the millions of customers who shop at the stores every year--as a way to reach out to mainstream consumers more effectively than competitors can.

"We wanted to look at feature sets that (are) actively represented (when) walking around a Virgin store," Virgin Digital President Zack Zalon said. "(Our rivals) are technology companies developing music services. We are a music company developing technology. We look at things differently."

With the move, Virgin becomes the first major offline music retailer to enter the market now dominated by software, hardware and consumer electronics businesses. As such, it could help test the viability of the bridge--if there is one--between the old offline world of music selling and the new digital medium.

Big record retailers have watched with trepidation as the online music market has developed. They saw the rise of Napster and other file-swapping services as a threat to their core CD business--but then saw the moves of record labels to create their own digital song distribution services in 2001 as another threat.

In 2003, a coalition of big music stores joined to create a kind of digital music co-op, jointly supporting a venture called Echo Networks that they all would use to power their own online ventures. That project fell apart early this year, however, when it became clear that other options might be cheaper than Echo.

Zalon said the Virgin service had been built in part after months of informal interviews with Virgin Megastore customers, aimed at discovering what mainstream music listeners liked and disliked about the existing online music products.

What the company found is that few customers actually used any of the legal music services, Zalon said. Many complained that the services were confusing or that they didn't know how to find songs on their computers, among other problems. The lesson Virgin drew was to create a new jukebox from the ground up without relying too heavily on Windows interface conventions or other services' practices, Zalon said.

In truth, the player and products will be familiar to anyone who's spent much time with digital music, although there are slight interface differences.

The store sells downloads in a high-quality, copy-protected Windows Media format. The "Virgin Music Club" service offers unlimited streams and "tethered" downloads that are locked to the computer for a price of $7.99 a month--$2 cheaper than the parallel subscription offers from RealNetworks and Napster.

The company has spent considerable time building artist information, reviews, biographies and discographies into the system, all of which are linked to one another so that a listener might browse through related artists and genres as though flipping through stacks at a real music store, Zalon said.

Analysts said Virgin would not have an easy task ahead of it in gaining market share but that the financial and brand backing of the Megastores would help.

"It's a crowded market, but there is certainly opportunity here," said Mike Goodman, an analyst at The Yankee Group. "There's already a certain level of name recognition, and they'll also have the backing of Virgin, which, from a financial perspective, is very significant. That will give them the ability to sustain losses while they grow the company."

The Virgin Group, which offers cell phone service in the United States, Britain and elsewhere, has also recently branched into a consumer electronics business that includes MP3 players. Both businesses are expected to be linked to the music store eventually.

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