The Virgin Group quietly closed down the US bit of its Virgin Digital download service over the Christmas break, encouraging those signed up to its subscription music service to move over to their rivals Napster. The UK version of the Virgin Digital service doesn't seem to be affected by the move, and is currently fully operational.
Virgin entered the digital music market in the US in September 2004. As in the UK, while cross-promoted through sister company Virgin Megastore, the digital music service was separate from the high street operation and its online mail order website, with a subscription offer rather than an a la carte platform at the heart of its business. Although relatively late to market, Virgin hoped their existing profile in the music space would help them gain a share of the market as downloading went mainstream. But in a market so dominated by the Apple's iPod, for which the computer firm's rivals cannot supply major label content, and with subscription based digital music services still to gain mainstream appeal, it seems Virgin is no longer confident that the long term potential of a Virgin Digital style offer merits continued investment in a difficult sector.
Whether the closure means the Virgin Group is stepping out of the digital music market completely in the US (their attempts at launching a Virgin MP3 player there, which preceded the launch of Virgin Digital, were also short lived) remains to be seen. It has always seemed odd that both Virgin and HMV's digital operations are not better integrated with their high street and mail order businesses, so perhaps Virgin will look to reenter the market with a new service that boasts such integration. Although in the US Virgin Megastore's online store is simply a Virgin branded version of Amazon, who are, themselves, rumoured to be planning an entry into the digital music space. What that might mean for Virgin's future in digital music isn't clear - though some kind of joint venture Virgin/Amazon a la carte download platform could be mutually beneficial for both companies.
Virgin Digital's US exit also throws further doubt on the viability of the subscription model download service, where users pay a monthly fee to access a massive catalogue of music (Virgin offered 2 million tracks), but which they can only access while their subscription is valid. At least one other major purveyor of a subscription based download service is rumoured to be considering other models for its future digital music business, making some question whether the subscription model will ever take off in the mainstream marketplace.
That said, the flagship subscription based service, Napster, has just reported a better-than-expected increase in its subscriber base as well as confirming Virgin Digital have handed over their entire subscriber list who Napster will now approach directly. All of which has enabled the digital music firm to raise its financial forecast for revenues in the third quarter of its financial year. Napster bosses say they reckon total revenues for the quarter ending 31 Dec will now exceed $28 million, a million up on initial forecasts. With further global expansion and mobile offers in development, the recent boost in subscribers means Napster boss Chris Gorog has been even more upbeat than usual this week. That said, given the complete dominance of Apple's a la carte service in the digital music space and the slow take up of the subscription model in general, it remains to seen if Napster's backers can continue to justify their considerable investment in the developing digital market place.