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A sound revenue model

Next month, digital cable music service Music Choice will bring changes to its service that will give viewers new interactive options, record companies a new TV-commerce option, and Music Choice new revenue sources.

The improved service will provide a new interface to digital subscribers that have Motorola, Pioneer and Sony digital cable set-top boxes. Currently, the Music Choice interface contains text giving the album, song and artist information. The new interface will include an image of the album jacket and a place for banner advertising.

According to President and CEO David Del Beccaro, 7 million of Music Choice's 11 million digital cable subscribers will have the new interface on April 15. Deployment to customers with Scientific-Atlanta boxes will be delayed a couple months.

The new interface is already deployed in 3 million DirecTV homes. DirecTV customers also have a TV-commerce option; De Beccaro says the option will be up and running for cable subs in the third quarter.

"Subscribers won't get the buy button unless they have ITV, either Wink or something else," he says. Charter will be the first to have the purchase option and will offer it to about 2.5 million subscribers.

The advertising opportunity promises to bring Music Choice the real revenue. When the music service lowered its licensing fees to cable MSOs, the deal gave it the right to provide interactivity in all subscriber homes and also take 100% of advertising revenues for 10 years.

He believes that, in five years, 55% to 60% of Music Choice revenues could come from advertising. "We're very optimistic. The nice thing is, we can have advertising without screwing up the consumer proposition, because the music is non-stop. And it's 24 hours, so we have a lot of inventory."

He envisions piggybacking on the VOD technology to offer personalized music. "You can mix formats, determine the mix, influence the play by saying more of this artist. And it's free. Could we charge $5 a month? Sure. But then we need someone to answer the phone, deal with collections, and I have to find subscribers and deal with churn."