Virgin Media
Virgin Media bows to pressure from the British Phonographic Institute to rap users over illegal file-sharing

They say it is "about education", but the 800 or so letters sent out to Virgin Media customers by Virgin and the British Phonographic Institute (BPI) carried a warning of disconnection on the envelope.

Sent to users whose IP address, the BPI claim, shows evidence of illegal music downloads, the letters follow increasing pressure from the BPI to force ISPs to police the online behaviour of their customers. They want ISPs to sign up to a 'three strikes' policy, whereby users will receive two warnings and then be cut off.

The BPI's chief executive, Geoff Taylor, has said that he is prepared to take legal action against ISPs who continue to turn a blind eye to their customers' online behaviour. "If we have to go to court, we will go to court and we will win," he said.

And there's a carrot to go with the stick. The BPI's new strategy will also see them doing deals to license content to ISPs who have successfully pursued illegal file-sharers. New subscription models could include the release of DRM-free, transferable tracks.

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However, not all ISPs are willing to play ball with the BPI's demands. Charles Dunstone, head of Carphone Warehouse, whose TalkTalk broadband service is Britain's third biggest, has said it is not his job to police the internet. "I cannot foresee any circumstance in which we would voluntarily disconnect a customer's account on the basis of a third party alleging a wrongdoing," he said.

The record industry which the BPI represents is seen by many as having been slow to change in the face of both the technological innovations of recent years, and changes in customers' behavior, forcing it to now work hard to recover and protect its revenue streams.

CD sales have plummeted, helped, initially, by a lack of workable online charging models, which prompted the rapid growth of online file-sharing. At the same time, revenue generated by concert tours and the sales of merchandise have soared - money which traditionally goes to artist management agencies, rather than to record companies.

That's one reason for the industry's new so-called '360 degree' deals, which encompass touring, merchandise, sponsorship and endorsements. So far they have not proved popular with many big-name artists, but up-and-coming talent may find them harder to resist.

In fact, new figures from the BPI show that British record companies' revenue generated outside direct sales of music increased by 13.8% between 2006 and 2007, boosted, in part, by what the BPI dubbs "extending their relationships with artists to include a broader range of artist services."

Meanwhile, digital music sales, while growing, account for just 8.6% of all UK record company sales income, while it is estimated that a fifth of Europeans are involved in file-sharing. It seems unlikely that the BPI will be able to shut the stable door on illegal downloads, now that the horse has well and truly bolted.