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Virgin Megastores to shake-up music download market
Major announcement "weeks rather than months" away...

By Will Sturgeon

Published: Monday 28 February 2005

Virgin Retail, known for its Megastores brand in the UK, is to launch a digital music download service above and beyond current Virgin offerings.

Tony Johnson, CIO of Virgin Retail, told silicon.com the company is currently working on "a very compelling offer" which consumers will be presented with in "weeks rather than months" – though he was tight-lipped on many of the details.

Currently Virgin's V2 music label offers limited music downloads via a branded version of a service run by 7Digital. Meanwhile a separate branded version of the OD2 service is offered by Virgin Megastores.

"We do already have an offering in this area but are actively looking to improve on it," said Johnson, adding the company is not entirely happy with the existing service.

"We need to have not just a presence but an effective presence in the growing download industry.

"This is a market that every man and his dog is trying to get into but with our pedigree and our heritage we will be able to make a very strong offering," said Johnson, who questioned the credentials of a number of other companies who have moved into the market.

"What does Coca-Cola really know about music?" he asked, perhaps choosing to overlook Virgin's foray the other way into cola in the mid-nineties.

Adam Thomas, media research manager at analyst firm Informa, told silicon.com: "Virgin is very well placed to offer a download service, as its music assets offer great opportunities for cross-promotion."

Johnson told silicon.com the company will be focusing more on a subscription-based model, offering customers the opportunity to listen to as much music as they like for a monthly fee – a move which Informa's Thomas believes makes the most sense.

However, Johnson would only offer a 'wait-and-see' response to questions on whether the service will be offered in association with other Virgin businesses, most notably Virgin Mobile, which further down the line would enable it to compete in the market for downloads over handsets.

Certainly closer co-operation with Virgin Mobile would make sense and could prove very lucrative, according to Informa's Thomas.

"In the mobile sector, Virgin targets a younger demographic than many of its competitors, which could also give it an edge in terms of reaching its target audience."

Vodafone today demonstrated the extent of demand for music downloads on mobile with the announcement that it has hit the million-download mark for users of its 3G services since November 2004.

Virgin mobile doesn't currently offer 3G services, though its network, provided by T-Mobile, does provide it with the capability to roll out such services in the future.

And Thomas believes it is important Virgin embraces one service across its brands if it is to increase its chances of success.

For example, while the current 7Digital service for V2 does offer micro-payments via SMS, Virgin Mobile users are actually blocked from using that option, along with those on 3, while Orange, O2, T-Mobile and Vodafone customers are free to pay by reverse-billed text.

Informa's Thomas said: "Virgin has suffered in the past because its various companies have had a reputation for wanting to work independently of each other. But if they've now found a way to co-operate, then the service will have a much better chance of success."

Johnson said the overall strategy must be to be to limit the impact on its core home entertainment revenues from download services as well as online retailers such as Amazon.co.uk.

As such the company is also looking to improve online sales by installing point-of-sale web terminals in all its stores where customers will be able to order CDs, DVDs and games for next-day delivery.

Johnson said the company has experimented in the past with terminals in the stores but said positioning let them down as there was still some degree of hand-holding required for customers.

"We have been down the kiosk route before but they will only work if they are promoted by the store and there is assisted service," he said.