Don’t expect Bono to descend from a cloud. Or orgasmic praise from the Wall Street Journal’s Walt Mossberg. When PlayLouder quietly rolls out its music service in the UK, it won’t initially match the razzle-dazzle of the iTunes Music Store launch, Rhapsody or the other million dollar marketing blitzes.

But the initial, low-key ‘soft launch’ of the first legal file swapping service to be backed by one of the major labels is deceptive. PlayLouder MSP offers something quite revolutionary, and its fate is more likely to shape the future of digital music distribution than anything we’ve seen to date.

The broadband bundle gives consumers a zippy DSL connection and allows them to listen to and exchange Sony BMG music freely for a single monthly fee. PlayLouder co-founder Paul Sanders tells us that it’s a simple value proposition.

Free music really isn’t free.

“The Total Cost of Ownership of music has really gone up from when all you needed was a £100 CD player and a set of shelves from IKEA,” says Sanders. “Now your cost of enjoying music is a computer – that’s £400 to £1000 – another couple of hundred quid for your iPod, and in the UK, between £20 and £25 a month for broadband.”

“When you’re already paying £25 a month for an ISP to pay another £15 on top of that is really quite painful,” he points out. “When people say they get stuff for free, they’re actually spending quite a lot of money.”

The MSP (Music Service Provider) deal is all inclusive for £26.99 a month ($48.50) and that includes a 1Mbit/s DSL line. But the subscription creates a digital pool which is then divvied up and returned, via the MCPS-PRS collection agency, to the rights holders. PlayLouder will monitor exchanges on the network for two reasons: counting the exchanges to produce a fair tally, and to block Sony BMG content from escaping the walled garden.

“We recognize that no walled garden is going to be 100 per cent safe,” reckons Sanders, “but 100 per cent is a target.” He says that Audible Magic’s watermarking software identifies files exchanged in P2P transfers with 96 per cent accuracy, and that’s more accurate than Neilsen’s TV sampling.

As for blocking, Sanders wouldn’t be drawn into details, and hinted that the firewall would be expected to do its work.

The Sony BMG deal follows a string of deals with indie labels, who have provided music unencumbered by DRM. Sanders wouldn’t say if the Sony content would have DRM or not, but we inferred it would.

“I’ve some sympathy with people who value freedom on the data networks and in everything they do. I’d say with a network such as ours to fulfill our obligations we’d have to report properly and accurately on the music you’re using – so freedom from DRM might not be the best choice.”

Ordinary people who value music, Sanders reckons, are far more likely to struggle with practical issues surrounding today’s music services such as limited format choice; incompatibilities, and login issues rather than the loss of “freedom” implicit in DRM. And he’s probably correct – which shows what a lousy job “digital rights” activists and us hacks have done.

And isn’t having access to the full catalogs and deep treasures of the labels’ back catalogs a “digital right”, too? Right now the only legitimate choices we have are the poorly stocked online services, and material released under the misleadingly-named Creative Commons license. (The largest Clip Art library in the world).

“It’s fine that the activists are there – they’re useful to seed the P2P networks. But it’s a historical quirk. Most people are normal, and quite happy that someone who makes music that they enjoy in turn enjoys some success.”

“The digital rights extremists can go off and set up their own thing and leech off each other – but gradually they will become irrelevant to every day life,” says Sanders.

Then again, just how the rights are to be enforced will be a large factor in PlayLouder MSP’s fate. Will MSP allow CD burning of Sony BMG content? Will the label reserve the right to revoke rights, as Apple has already done with iTMS?

We’ll have to see.

If PlayLouder MSP is successful, it isn’t difficult to see how it might snowball. As other labels want a piece of the action, and more legitimate content is made available, then the attractiveness of iTunes, Napster and the illegal P2P services diminishes. But Sanders acknowledges that a big marketing push will be needed to persuade the public that an MSP is no ordinary ISP.

The Future of ISPs, too?

It’s isn’t just the labels who’ll be watching PlayLouder’s progress. ISPs, Sanders points out, are a major part of the music distribution chain.

In the United States, the FCC has sounded the death knell for the independent ISP. Earlier this month, the regulator ruled that the local Bell monopolies will no longer be obliged to share their lines when current contracts with ISPs expire. All networks fear becoming commoditized, dumb bit pipes, so the MSP route looks like a way to add value.

“It now looks as if VoIP isn’t going to be handled by the ISPs, but by Vonage, Skype and Google – so that’s one opportunity gone. So what’s left for the ISPs is frankly, content”.

“We’re a next generation broadband provider: we add value. If you’re an ISP, you can’t maintain any longer that you’re an agnostic carrier of data.”

As for a compulsory, “blanket” approach, Sanders not surprisingly would rather wait and see.

“I don’t think a mandated solution would necessarily find the right balance between the long term interests of both parties, which are actually very closely aligned. Just because there’s a bit of short to medium-term friction, that doesn’t mean there isn’t ultimately a coincidence of interests in the longer term.”

“If you took the issue to a copyright panel now, the rate would probably be set too low. It would be set to compensate the music companies, instead of how a market would set it as some fair expression of the value of the music. And there’s a very big difference between compensation for revenue leakage, and some expression of the value potential in online music.”

Looking to the future, Sanders sounds as excited as we are by personal area networking: the personal streaming and sharing made possible by a “BluePod” or “AirPod” – an iPod with wireless radio and network device discovery built-in. He notes that Cambridge Silicon have a combined Bluetooth and WiFi chip that’s 8mm² and costs $8.

“That’s cheap enough to embed in a CD. Isn’t that fantastic?”

Indeed it is, and it’s hard to see the rights holders gaining revenue from wireless personal exchanges any other way than through a blanket license. But that’s a discussion for the future.

So a lot of people will be watching PlayLouder MSP’s progress with great interest. One thing’s for sure: by comparison, it suddenly makes Napster, Rhapsody and iTunes seem really, really lousy value for money. And that’s a great way to attract a market.