Universal Music Group and Virgin Media announced a new music service yesterday, which will offer unlimited DRM-free MP3 downloads for a monthly subscription fee.  Virgin Media has also agreed to implement a “progressive response” model of infringement enforcement, issuing warnings for alleged illegal downloads and suspensions of users’ ISP accounts for repeat offenders.

This UMG/Virgin deal is somewhat similar to what eMusic.com offers in the US, except that the Virgin/UMG plan will offer unlimited monthly downloads for the subscription fee.  EMusic’s top-level monthly plan offers 50 downloads per month from its catalog of indie-label music for US $20.79.  If pricing of the UMG/Virgin service is in the same ballpark, it will be far higher than any of the monthly “flat tax” levies that have been mentioned, especially the one being proposed in the Isle of Man.

The motivation for this arrangement between UMG and Virgin Digital is clear: to forestall government regulation.  The UK government had been threatening to intervene among content industry and ISP interests if they could not work out their own solution to online copyright infringement.  The government — specifically, the departments of Culture, Media and Sport and Business Innovation and Skills — had been preparing the Digital Britain report, which covers many areas of national broadband adoption; the report was released just today, one day after UMG and Virgin made their announcement.

Sure enough, the Digital Britain recommends that ISPs be required to monitor their networks for illegal sharing of copyrighted files, to issue warnings to users, and to impose bandwidth limitation or protocol blocking measures on those alleged to be repeat offenders.  The recommendations stop short of outright ISP account suspension or termination, which France attempted before that provision of its law was found unconstitutional.

In other words, while it is quite possible that other British ISPs and content owners will offer deals similar to the UMG/Virgin arrangement, this deal is a reaction to UK-specific regulatory initiatives and therefore may not necessarily spread to other countries.

In the press release, UMG and Virgin Media state that “the process [of catching alleged pirates] will not depend on network monitoring or interception of customer traffic by Virgin Media.”  This statement is misleading.  It’s impossible to identify downloaders of copyrighted works without such monitoring… by someone.  It turns out, as CNet News.com found, that the service will indeed use such monitoring, from Copenhagen-based DtecNet, an antipiracy services firm comparable to MediaSentry or MediaDefender in the US.  The statement is not a lie, though: DtecNet is employed by UMG, not Virgin Media.

Addendum: if DtecNet is going to monitor P2P networks for the presence of files that originated from this UMG service through Virgin Media, then the service will have to use watermarking.  Files that users download through the service will need to be embedded with watermarks that, at a minimum, identify Virgin Media as the files’ source.

As for DtecNet’s ability to trace these files to a specific user, the company has an arsenal of techniques for tracing packets to specific IP addresses and so on; but the accuracy of this system would be much improved if Virgin Media used transactional watermarking: that is, if it embedded a reference to the identity of the downloading user into each file.  This would sharply reduce the possibility of false positives when accusing Virgin Media users of unauthorized file use outside the network.  Could this finally be the music industry’s big transactional watermarking pilot initiative?