Media Analysis: Virgin gets in tune

If any company has the credentials to create a credible challenger channel, it is Virgin. Given its strength in music retail, live events, digital downloads and radio, its lack of a branded TV offering seems an oversight.

But what does it take to compete in a world of converged media where AOL, Apple, Google, MySpace, Napster and the music labels are already encroaching on MTV's turf?

Patrick Johnston, head of business development at Entertainment Media Research, says there is a business case for Virgin to launch a TV channel, but not if it expects it to be a stand-alone profit centre. 'Virgin could try the basic video-channel approach,' he says. 'But the audiences are so small and fickle that there is hardly any ad money there, unless it sells across channels or media like Emap, whose channels are manifestations of its magazine and radio brands.'

Alternatively, Virgin could adopt the MTV model, with a flagship entertainment channel and supporting channels viewers can default to. 'But the programming needed for that is incredibly expensive, even for a company like MTV that can amortise its costs across dozens of international markets,' says Johnston.

Brand benefits
Branson will know this, because he has owned a 24-hour music channel before, which he sold to ITV in 1987 (see box). So instead, Johnston believes that a Virgin TV channel would be focused on harnessing the brand for the benefit of the whole business. 'Branson is a master at this. Audiences visit the Virgin Radio website even if they don't like the music, simply because of the brand,' says Johnston. 'And Branson defied expectations by (making a success of the) Virgin Mobile business.'

Viewed this way, a Virgin TV channel could do two key things. First, a Virgin channel exclusive to NTL - complementing, not replacing, MTV - might encourage customers to subscribe to NTL rather than SkyDigital.

Second, it would give Virgin a chance to drive audiences back to cash-generating businesses such as shops or digital downloads, says Mark Cullen, chief executive of branded TV company Enteraction.

'If it can pick up video rights for a decent price, it might be worth running a channel as a 24/7 branding exercise,' he adds.

A spokesman for Virgin says it is too early to comment on its plans, but maybe Branson is not thinking in terms of a linear music channel, says Cullen.

'For the Virgin Group, a transactional service could work. It would be possible to design an interactive shop front that is entertaining but also sells tickets to events, for example.' It might even offer on-demand music in the mould of BT Vision, the hybrid broadband TV platform launching later this year, which plans to offer 500 concerts and performances as an on-demand service.

Even if Virgin does not become a direct competitor to MTV as a TV channel, there is no doubt that any new offering will contribute to the pressure being piled on the broadcaster.

Channels such as Emap's The Box - one of 12 non-MTV music channels on the Sky EPG - may not have the same scale of ambition as MTV, but they drain audience.

This also applies to companies offering music content via non-TV platforms.

Napster and iTunes are obvious competitors, but so is mobile operator 3, which claims its customers accounted for 17% of all digital audio downloads purchased last month. It would not be a great leap for a company that is ostensibly a mobile operator to develop as a frontline music video provider.

Angel Gambino, MTV Networks' UK vice-president, commercial, strategy and digital media, respects the threat posed by Virgin, but views digital channel E4's music activity as a bigger threat to MTV's audience share. But she sees her company as going on the offensive to counter this. 'MTV has been in this business for 25 years and we are as progressive as anyone in providing services across multiple platforms,' she argues.

A snapshot of MTV's business underlines the point. It responded to the rise of Freeview by introducing music channel TMF to the platform and brought MTV Overdrive, a broadband channel, to the UK in April. In mobile TV, MTV Snax and MTV Trax are leading music services on Vodafone and 3.

And the recently-announced MTV Urge - a joint-venture with Microsoft, offering music across all genres via blogs, radio and paid-for downloads, backed by state-of-the-art search and navigation tools - is widely viewed as MTV's answer to iTunes.

The International Federation of the Phonographic Industry (IFPI) estimated that digital music sales in 2005 accounted for 6% of the $13.2bn (£7bn) global recorded music market, three times the 2004 figure, and all the signs are that this growth will continue.

Whatever MTV loses in terms of TV channel ad revenue, it will seek to recoup through new subscription and transactional services. 'MTV is content-led,' says Gambino. 'But if we are quick, clever and commercially aggressive, we have an opportunity to massively expand these new revenue streams.'

Viewed this way, the real story is not about Virgin competing with MTV in the TV space, as the two would need each other as platform and content provider. Rather, the question is which brand will benefit most from the shift to the digital music arena.

TIMELINE - THE CHANGING MUSIC LANDSCAPE
1981: MTV launches in US

1984: Virgin launches The Music Channel 1987 MTV Europe starts; Virgin sells TMC

1994: VH1 launches

1996: EMAP launches The Box

1997: MTV Europe launches UK service 1998 MTV2 launch starts digital roll-out

1999 Three more MTV digital channels launch; Virgin Mobile launches

2000: Emap launches Q Television

2001: MTV Dance launches; Emap launches four more music channels

2002: Emap's The Hits airs on Freeview

2003: Online music file-sharing service Napster goes legit; Sky launches Scuzz, The Amp and Flaunt

2004: Apple launches iTunes in Europe

2005: Rupert Murdoch buys MySpace; MTV Overdrive launches; MTV launches Snax and Trax on mobile; iTunes adds video content; AOL debuts music service

2006: MTV takes on iTunes with Urge; Virgin Mobile launches live digital TV, hits 4m customers and merges with NTL.