Over the past 24 hours, one piece of news seems to take the centre stage: Virgin Media to partner with BPI, the British Polyphonic Industry, to combat illegal music sharing. As the official announcement states, Virgin Media is piloting an education campaign, during which, customers found illegally distributing music will receive a notification letter from both Virgin Media and the BPI. The accounts will be identified by the BPI which in turn notifies Virgin Media that has the responsibility of distributing the notification letters. For our "piece of mind" none of the personal customer information will be disclosed to the BPI, or at least that's what the official announcement declares.

Lets take a closer look in the official announcement:

As part of the campaign, customers whose accounts appear to have been used to distribute music in breach of copyright will receive informative letters, one from Virgin Media and one from the BPI. Accounts will be identified to Virgin Media on the basis of information supplied by the BPI. Both letters will be distributed by Virgin Media, without the need to disclose customer names and addresses to the BPI. (source)

As per the official BPI statistics, over 6 million UK users have used Peer-to-Peer (Wikipedia) services to illegally access music. The number is most definitely not small, considering that the total number of broadband connections in the UK is estimated around 13.3 million (Ofcom). Basic statistics instruct that 50% of broadband users have conducted illegal activities with their broadband connections, according to BPI.

Before looking into the announcement in more detail, lets take a quick look over the past year's news regarding piracy. In February 2008, the UK public was warned that they may have their internet access cut as part of a three-strike scheme, which is to be enforced by government legislation (BBC UK). A similar move was suggested in France, with the newly elected president Nicolas Sarkozy looking to pass legislation that would warn and eventually cut off repeated pirates from the internet (The NY Times).

Looking back at the announcement, there are a number of obvious flaws to BPI's approach. Initially, the letter is addressed to the account holder. However, with the proliferation of WiFi (Wikipedia) which is inherently insecure (the most commonly used encryption algorithm can break within 60 seconds (source) it is hard for the end user to be 100% certain of who is connected and using his line. Moreover, a recent study from the University of Washington demonstrated how a printer can be framed and accused of illegally downloading content via the popular BitTorrent protocol. Quoting:

Practically any Internet user can be framed for copyright infringement today. By profiling copyright enforcement in the popular BitTorrent file sharing system, we were able to generate hundreds of real DMCA takedown notices for computers at the University of Washington that never downloaded nor shared any content whatsoever. (source)

Finally, the phrase "distribute music" in the original announcement can be interpreted in various ways; Download music? Upload music? Which services are monitored and how is illegal content identified and filtered from legitimate content? What is the financial cost of those efforts?

Considering that high speed, unlimited broadband is in popular demand with P2P users, clamping down on piracy will most definitely hurt the revenue stream of the Internet Service Providers (ISP). However, at the same time it will reduce congestion on their core networks, alleviating the need for infrastructure upgrades. A recent survey, approximately 50 to 95% of all network traffic is caused by P2P networks, depending on time of the day (Timesonline). Considering that some ISPs have voiced capacity concerns, even with legitimate traffic, as seen by Tiscali's, BT's and Carephone Warehouse announcement regarding the BBC iPlayer (The Independent), making the first move to block P2P networks instead of investing in infrastructure makes financial sense.

Over the past year, we have also witnessed a change in the digital music distribution business models. Starting with an announcement from Steve Jobs in February 2007, pleading music firms to rid their digital content ofDRM limitations (Apple), EMI allowed distribution of DRM-free content via the iTunes store (EMI). This move was closely followed by the opening of the Amazon Music store that enabled users to download DRM free MP3 tracks and other music providers, shifting away from the Windows Media encryption technologies. For sure, the popularity of the iPod, the integration with iTunes and reasonable pricing drove the iTunes Music service to be the number one music retailer, in both physical and online stores in the US (Apple).

A more radical change to music distribution business models represents the music subscription service from Nokia, targeting the mobile user (Nokia). However, the lack of integration with computers and lack of interoperability with digital music players are obvious flaws of the implementation, but the subscription model is looking promising. Finally the free provisioning of TV shows by services like the BBC iPlayer (link) and its integration with gaming consoles is opening up the world of on-demand video streaming.

Concluding, Virgin Media's announcement was a bold move that is expected to pave the ground for other ISP's to follow, especially as the hard work of monitoring the users falls under BPI's responsibilities. At the same time, investment in the correct business models has the potential to offer the consumer all the benefits of illegal downloading (interoperability, ease of use, ease of acquisition) and the removal of DRM has the potential to create a true competitive market, with pricing adapted to follow demand and competitive offers.

Piracy has been the key for this transformation as it has put financial pressure on the music and movie industry. The ingredients are here, lets just hope that the timing is going to be right and the market ready. Until then:

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Update:

So the first 800 threatening letters from Virgin Media are out. Also, BT has signed up with BPI. At present it seems that only Bittorrent and Gnutela networks are monitored, not the much used Rapidshare. It begs to wonder if this intimidation technique is used to push customers on premium "music" broadband, i.e. higher price broadband connections that allow users to legally download music. But will this work with my iPod in my Mac...? Doubt so...

Links:

BBC: Virgin Media issues 800 warning letters

The Register: BT Threatening music downloaders