Virgin President Zack Zalon on Digital Music

INTERVIEW Since the "dark days" of the late 1990's, the music industry has wrestled with illegal peer-to-peer file sharing, often seeming to be diametrically opposed to the very idea of digital music that lacked rigid restrictions.

Over time, technology improved and new legal alternatives began to spring up and are today continuing to gain popularity. As record labels warm up to the idea of legitimate online music stores, questions about what pricing models are most appropriate for customers and what constitutes fair use remain unanswered.

BetaNews took the opportunity to sit down with Virgin Digital president Zack Zalon to discuss Virgin's Internet music store, the issues surrounding digital rights management and Virgin's belief that digital music has reignited the passion around music amid a "mentality of flavor-of-the-week pop stars" and is "lifting up" the entire music industry into an exciting new era.

BetaNews: Let's start with a conversation about Virgin's goals. Is it feasible that Virgin wants to compete on the same level as iTunes or Napster? Apple surpassed 250 million iTunes downloads in January.

Zack Zalon: I should start by saying that it is and isn't. Virgin Digital is really an extension of the very platform that launched Virgin over 35 years ago, which is delivering innovative and entertaining music experiences to consumers. We began in the late 1960's by setting up a retail shop in Central London and our goal at the time was to be able to bring music fans closer to music.

One of the ways that Richard Branson did that was by setting up beanbag chairs all around the store and allowing customers to listen for absolutely free to everything that they had in the store. At the time, that seemed counter intuitive to doing business successfully. In fact, everyone -- both his competitors, friends and people in the record business -- were absolutely shocked by it and asked him the question: "Richard how do you expect to make a dime if you are giving everything away for free?"

And of course time has shown that in fact listening stations are one of the greatest drivers to in-store retail sales that have helped substantially to increase sales and repeat traffic in almost every music retail location around the world. So, that very counter intuitive and extremely innovative way of providing music entertainment to customers worked really well for him.

But we just don't sit on our history and expect that is going to drive our growth.

BetaNews: So, what is it all about? Is it just about brand loyalty?

Zack Zalon: Virgin has re-innovated itself and rediscovered itself many times, and has constantly innovated its way into new models. The latest model has been what's known as the Virgin Megastores, which really started in the mid 1980's and took advantage of the fact that there was a lot of replacement happening between cassettes and LPs into the CD market.

To get back to the original question, "Is this just about brand loyalty," I point to our history and now I can point to the future and say if you see what we have done over time to continue to establish ourselves and to keep our credibility with consumers, then Virgin Digital is the next logical extension of that.

It's another way for us to innovate our way into the future and continue to communicate with customers our deep passion for music and hopefully giving them the kind of music and entertainment experience that we think they want.

BN: As far as the online music store goes, Virgin offers 24/7 support. Can that be done for a mass audience?

Zalon: Let me answer that very directly. Not only is it feasible, it's absolutely necessary. You know one of the tricks we believe -- the secret sauce to this -- is to take the actual experience of being in a great retail store, or Virgin Megastore for that matter, and bring it into the digital space. One of the things that establishes a Virgin presence in any market that we enter whether it be music retail, airline, or mobile phone is that the customer experience has to be second to none. And that really is the lynchpin for everything that we do as a company.

So for us it's just not a matter of having it; it's a matter of recognizing its importance. And everything that we do from a growth standpoint stems from the belief that customer service has to be the number one priority. So, for us, yes, we have 24/7 customer support and we don't hide it like I think just about every other software product in the world that we've seen. They do not have a direct link to live customer service agents.

For us it's absolutely essential to have that, so we put a big link on the face of the player called "Ask the Expert." Not only can people ask questions about technical support, but they can ask questions about music support as well. If there's a piece of music that they maybe heard on the way into the office today and they don't know where to find it, we can literally offer up the experience that thousands of Virgin employees around the world have. We can help in identifying music for customers and help them to explore and experience new music that they may not have looked for in the first place. That is a critical component of what we do.

BN: But how is Virgin able to do that for each customer in the mass market?

Zalon: To answer the second part of your question pretty directly, it is in fact quite scalable. The touch point between customer and customer service representative is incredibly important to us so obviously we put the requisite amount of funding and resources behind that to ensure that it is scalable.

BN: How many downloads has Virgin Digital had? Also, what experience does Virgin actually have developing software, especially when quality software is of the foremost importance?

Zalon: We do not release numbers on Virgin Digital yet as we are still in the beta phase of our launch. We are not heavily marketing the product yet.

That actually does tie into the next question which is, "What experience do we have developing software?" It is not the core competency of most music companies to have great software development experience, and so it is something that we invested in heavily over five years ago to ensure that we did. And, in fact, you point out something that is very interesting that is a key differentiator between us and any other service that is on the market today.

We are a music company. That is what we do; we have been doing it for 35 years. We just happen to use technology to connect directly to our consumer base, and so for us the need to have that core competency of technology development is something that we invested in extremely heavily about five years ago.

As an example, one of our test platforms is a very successful product under the Virgin brand called Radio Free Virgin, which has been downloaded and installed by over 7 million people around the world over the past 5 years. That kind of experience developing software, as well as the kind of infrastructure development that is required gives us some really unique skills.

When you look at most software products on the market, what happens when they have the need to update their software is unfortunately a pop-up window that says there is a new version available. And in the case of media management software, this could be 20 or even 30 megabytes, and that's not really a great experience for consumers as far as we are concerned.

So what we did is develop a patented technology, which we affectionately refer to as auto-updating and self-healing technology. What that allows us to do is to simplify the update process, make it completely automatic, seamless and in the background for customers. We are able to patch the smallest component of the software if we find that there is a reason to upgrade it. In this manner, it does not clog bandwidth for customers and it doesn't ever require them to do anything except use the software.

This removes so much complication for consumers and it makes for a much more robust and stable experience in the long run. Anytime something changes, whether there are new builds of Windows XP, whether there is a new DRM update, or if there's something that we found that isn't working as well as we think that it should, we can patch those things literally in 5 or 10 seconds. The next time users run the application, it is the most up-to-date piece of software that it can be.

It's only through the significant resources that we dedicated to our software development skills as a group five years ago that we are able to come up with really robust and what we think are really modern technologies such as that. And that's the right way to treat people online, so we are happy that we did it.

BN: As far as treating people online goes, there's always the issue of fair use and digital rights management. My understanding is that Virgin Digital music downloads are only licensed on the machine were the purchase was made. As far as DRM goes, how flexible is Virgin willing to be and is it willing to look beyond Microsoft and its Janus secure clock technology?