Media Forum: Can Sky vie for iTunes' turf?

Will Sky and Universal's mp3 subscription plan succeed?

The record industry hasn't exactly been astute in its attempts to come to terms with the new challenges and opportunities offered by the digital world - though arguably, of the big four music companies, Universal has been making the most effort to wake up and face the future. Back in July 2007, it had the sheer effrontery to pick a fight with iTunes, arguing that its flat, 79p- a-track fee approach to life was not in Universal's long-term interests.

In the end, it decided to continue its relationship with iTunes on an ad hoc basis but it hasn't renewed its formal long-term contract, thus giving it leeway to explore other relationships.

Such as the one announced last week, which saw Universal form a joint venture company with BSkyB to launch a download service that may, in time, rival iTunes. It's not exactly a me-too, though. For a start, it will be underpinned by a far less restrictive mindset, offering downloads compatible with mobile phones as well as iPods.

But more importantly, it will feature a new (or newish) business model. In a word: subscription. Napster tried to reinvent itself on a subscription basis a few years back but Sky's involvement could - and should - take the subscription proposition into a different league.

Sky, after all, has a peerless track record in building and maintaining customer relations and this will, presumably, be fundamental in developing the new service. There will be plenty of scope for cross-promotion too - airtime and promotional opportunities on the Sky-owned TV channels plus the ability to drive traffic directly from the Sky online portal and via its broadband access operations.

Matt Jagger, the managing director of Naked Ventures, maintains that this is terrific news for anyone with the best interests of the music industry at heart. "This is the empire striking back," he asserts. "The major labels allowed themselves to be excluded from iTunes - they are not shareholders. That's not good. And this promises to be a better distribution system than iTunes. For the music industry to set up its own purely online business to rival iTunes was never going to work. This is an entirely different proposition."

Paul Richards, a media analyst at Numis, says caution is needed at this stage. He adds: "We need to see more detail before we can say more but you can never underestimate Sky. It has a superb record in customer relations, has always delivered a class product and starts from a very strong position. When Sky announced it was looking at broadband, for instance, there was all sorts of speculation from analysts about what it might do. It turned out to be a far more ambitious project than anyone had predicted. Never discount Sky's record when it comes to innovation."

However, Jean-Paul Edwards, the executive director, futures, at Manning Gottlieb OMD, is considerably more sceptical. He says: "You could argue that moving from a fee-per-track to a subscription system could commoditise music even further. And most people under 40 don't see any problem in downloading music, so it might end up cannibalising a proportion of the audience that's still buying CDs. For the major labels, newspapers are now their biggest distributors, followed by supermarkets. Sky is now effectively competing with Asda, where the price of CDs is continuing to fall. So, its pricing policy will be interesting, especially as it's now inevitable that rivals such as BT will want to launch similar services."

Andy Wasef, the emerging platforms director at Mediaedge:cia, agrees with some of that - he's somewhat sceptical about the subscription model too. He concludes: "It might be because of the vast number of sources of free-to-stream music available online, or the thought of another monthly commitment - on top of Sky subscription, broadband, phone contract and other domestic bills - but whatever the reason, I think Sky may need to look at a conventional track download model too."

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YES - Matt Jagger, managing director, Naked Ventures

"In Sky, Universal is going with a company that already has a presence in 8.9 million homes. I think it really has to bring the other music giants on board too. But I can't see any risk for Sky here either. I think this is great news."

MAYBE - Paul Richards, media analyst, Numis

"It will have to attract the other major music companies but, from Sky's point of view, the risks are relatively small. In general, you can never underestimate Sky."

NO - Jean-Paul Edwards, executive director, futures, MG OMD

"Sky and Universal will have to do something good to rival iTunes. Sky won't be the only media owner looking at this. An interesting experiment but I can't see it changing things in a major way."

MAYBE - Andy Wasef, emerging platforms director, Mediaedge:cia

"It's interesting, given this week's announcements from ISPs (on fighting music piracy), but this venture will need all the record labels on board and a dollop of luck if it's to make any inroads into Apple's default position in music."