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Virgin Media Close To Deal To Pave Way For Digital Music Service

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Virgin Media (NSDQ: VMED) is close to announcing a deal with Spotify and four record companies to launch a new digital music service – more than two years after first unveiling plans to do so.

The negotiations, with a deal now agreed in principle and “all but signed” according to sources, have taken such a protracted amount of time to complete because Virgin Media also had to separately agree terms with Universal Music, EMI, Sony (NYSE: SNE) Music and Warner Music as they have the power to veto any deal Spotify does.

Assuming the final details are smoothed out it is understood that Virgin Media plans a limited trial of the service over the summer with a full consumer launch planned for the fourth quarter this year.

Virgin Media originally announced plans for an unlimited music download subscription service in partnership with Universal Music – home to artists including Amy Winehouse, U2, Kanye West and Elton John – in early 2009 but the proposals did not attract the backing of the other major labels.

It is understood that one option Virgin Media is considering is offering the new digital music service as a “bundle” with other products such as TV, broadband and telephone.

In December BSkyB (NYSE: BSY) shut its digital music service, Sky Songs, a little more than a year after its high-profile launch.

Sky Songs offered a premium service of advertisement-free streaming of up to 5m songs for £4.99 a month, a price steadily reduced after its ambitious launch in October 2009.

The Sky service launched with the backing of all four major record labels but unlike many of its competitors, including Spotify, it was a subscription-only offering and did not attempt to woo users with a “freemium” model.

Virgin Media’s launch of an as-yet-unnamed service will mark a significant milestone for the music industry, which has lobbied for major media companies to launch legal music download services to reach the mass market and provide alternatives to pirate sites.

The cable company is one of the major broadband providers in the UK with more than 4 million customers, and assuming it is not beaten to market would be the first of the “big five” internet service providers – the others are BT (NYSE: BT), TalkTalk, Orange and Sky – to launch a service.

BT has also reportedly held talks with Spotify, although no deal has yet been forthcoming.

This article originally appeared in MediaGuardian.