Last month, the Isle of Man announced that it was going to try its governmental hand at addressing rampant music piracy. At today's Digital Music Forum East, Ron Berry, the government's e-Commerce Advisor, detailed how the government came to be a pioneer in a field where many larger nations are struggling, and provided some details about how they expect the system to work.

Two things became clear during the conversation. The first is that, for Berry and the government of Man, the dive into digital music is simply part of a larger plan to carve a niche into the global digital economy. For its citizens, however, it will mean that they will be facing an extra fee in their bills for everything from high-speed Internet to basic cell phone service—whether they're interested in music or not.

The grand plan

The Isle of Man is a crown protectorate, a position that keeps it separate from both the UK and the EU, even though the British Queen is technically the head of state. For many years, the country used this position to act as a tax shelter but, a decade ago, its government decided it needed to get off the international banking community's blacklist and diversify its economy. Its position as a banking center had already left it blessed with lots of high-speed network infrastructure—Berry says that it "punches well above its weight"—which led to a decision to focus on electronic business. The first big win has been in electronic betting, where Man has become a hub for a number of international operations; these pay no corporate income tax but agree to maintain a fraction of their earnings in the Manx banking system.

Berry started serving the government several years ago, tasked with expanding Man's digital businesses beyond this industry. One of the markets he's chosen to target is the music business, in part because he recognized that because of rampant piracy throughout Europe, Man found itself "already in the middle of a war." Since Man writes its own copyright law, he felt it was in an unusual position to experiment with potential solutions to rampant copyright violations. In return, it hoped the music industry would view it as a test bed for innovative business approaches—with a fee structure in place, the music business could experiment in Man with things that might cause them to take a bath in other markets.

The fine print

When it comes to the actual plan, Berry was clear that lawsuits and proposed three-strikes plans simply weren't working, a perspective shared with the Distributed Computing Industry Association (DCIA), which is helping line all the interested parties up. There wasn't a significant drop in piracy in response to suits, and three-strikes laws were likely to be extremely difficult to implement.

The alternative, it was decided, was to find a way to legitimize what people were doing anyway, and start developing a revenue stream based on file-sharing. For Berry, the common factor for piracy is the Internet connection, leaving the ISP or MSP (mobile service provider) the place to act. Again, Man's situation—there are only three ISPs, and most subscribers use Manx Telecom—made working through the ISPs/MSPs a relatively uncomplicated matter.

There were lots of potential models for extracting fees through the ISPs, and Berry said that various opt-in and opt-out schemes were considered, but, ultimately, it was decided that the only thing that would realistically work was a flat fee on every ISP user. That means that everyone who accesses the Internet, even if it's done through a prepaid mobile phone plan, will be facing an additional fee, even if the devices they use can't actually play music.

Clearly, that's something that might provoke a bit of public outcry, but Berry mentioned a number of reasons why he didn't expect there would be a significant public pushback. By targeting everyone, the fee would be small—about �1 a month—that would easily disappear into the fine print of a service plan. As for complaints from those who don't use digital music, Berry compared it to situations where people pay for things like public pools as part of their town taxes, even if they don't swim. He also noted that Man's population is familiar with the UK model, where fees are attached to specific services, such as the license fees on television sets that go to support the BBC.

ISPs will be required to install hardware that scans network traffic for fingerprints of shared music files—representatives from noankmedia and Audio Magic, which offer these services, were present at the roundtable. That will allow the appropriate artists to be compensated from the fee pool based on the percentage of their music that was flowing over the Manx network; ISPs will also get a cut to maintain the hardware. Berry was adamant that the system will be set up to accept any compatible hardware, though, so that the government wasn't favoring any specific solution.

Value-added options

That lack of favoritism, at least when the program starts, will have its limits. At its basic level, legitimizing P2P filesharing leaves lots of space for companies like Apple, which already operates in Man. These companies can compete with free by offering a good experience in finding content with guaranteed quality. But Berry says the plan is to go beyond legitimizing existing P2P traffic; ISPs will be given the opportunity to sign their customers up to specific value-added plans.

At launch, customers will have the option of paying extra for a subscription service at �10 a month, which will simply show up on their Internet service bill. There are also plans to provide a third level of service, in which the subscription would come with a portable media player capable of handling the content. Although there are plans to open up these value-added providers to all comers, at launch, each level of service will only be provided by a single company. When more services are added, customers will have the option of managing their service plans through their ISPs—in essence, Internet connections will be treated like cable TV, but with music.

As far as the government is concerned, it doesn't matter who occupies the value-added space, or what service they offer, but it is clearly sanctioning a first-mover advantage, and giving single companies a leg up on their competition. It also has the potential to allow ISPs to cut favorable deals with music service providers, or to enter the business themselves.

Long term, however, it's clear that the Manx government views this space as the primary location of music-industry innovation, and may take steps to ensure a fair playing field. Berry clearly intends that anyone can compete to find the best way to add value to the otherwise chaotic world of P2P, and both Berry and the DCIA representative emphasized that they hope that successful models could emerge from Man and wind up applied to markets in other nations. Just as clearly, they hoped that the companies behind those models would retain a presence in Man once they hit the big time.

It's obviously not a perfect system, and the issues are likely to be even larger when it first launches this summer if all goes to plan. Still, it's at least an attempt to come to terms with music piracy, and you can bet that a lot of people, including many in the film industry, will be anxiously awaiting some indication of how this grand experiment works out.