MMW-108 -- Mobile Music Moves Off-Portal

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J@pan Inc Magazine Presents:
M U S I C M E D I A W A T C H
Commentary on Japan's music technology news
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Issue No. 108
Thursday February 15, 2007
Tokyo

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CONTENTS

++ FEATURE: Mobile Music Moves Off-Portal

++ NOTEWORTHY NEWS:
** Major shakeups at Faith Inc., Moderati and Digiplug
** YouTube CEO, execs meet with JASRAC
** RIAJ releases survey on illegal chaku-uta sites
** Axel Mark starts new mobile service for searching
songs by lyrics
** NTT Com and NTT Resonant to merge online music stores

++ FEATURE: Mobile Music Moves Off-Portal

Ever since the first ringtone sites began appearing on NTT
DoCoMo's i-mode menu back in 1999, most mobile music content
providers in Japan have pushed to have their services appear
on the 'main menu' of the wireless carriers. This approach
has become known as the 'official service' model, and works
something like this:

1. Content providers (CPs) first submit an 'official service'
proposal to a wireless carrier.
2. If accepted, the CP's service is listed on the carrier's
'official' portal menu.
3. The CP charges customers a monthly subscription fee
(typically around US$2.50) to use the service - for
example $2.50/month to download 3 mastertones.
4. The carrier takes 9% of the total sales, with the rest
going to the CP.

This 'closed garden' model has been widely criticized for
putting too much power in the hands of the wireless carrier.
However, it has still been attractive to CPs because of the
enormous traffic that comes from the carrier's menu, as
well as the convenience of having customer billing handled
by the carrier.

For the past seven years, CPs have flooded Japan's three
major wireless carriers with thick, 150-page proposals,
in the hopes of getting their ringtone, mastertone, or
other content listed on the menu. Despite the high barrier
of entry and heavy restrictions, this method has until
recently been the preferred way to operate a mobile music
service in Japan.

Recently, however, there has been a sharp increase in the
number of music content providers choosing to forego the
'official portal service' option, instead opting for a
'non-official' site off the carrier's main menu. Most of
these sites rely on revenue from banner ads, and an entire
industry has sprung up to match advertisers with the most
appropriate non-official mobile sites. Because these non-
official, ad-supported sites have no access to the carrier's
billing system, most of the content is essentially free to
users, provided they subscribe to the service (also free).
Alternatively, some services are point-based, allowing users
to obtain points clicking on ads or introducing friends to
the service.

Yamaha was one of the first ringtone companies to experiment
with the non-official model, launching its 'Gorgonzola'
service in late 2004. Interestingly, the company chose not
to use its name or corporate brand anywhere on the site.
Rather, the idea was to make the site look as though it
was created and run by a young, highly-motivated musician
named 'Gonzo' who just wants to make the highest quality
ringtones he possibly can, and is asking other people to
help support his efforts by getting their friends to subscribe
and click on the ads.

In order to download ringtones and other content, users must
first get points by spreading the word to their friends.
Although it took a while to build a subscriber base,
Gorgonzola now boasts over 1.3 million registered users,
and its success has prompted several other mobile music
content providers to follow suit with their own non-official
offerings.

Oricon operates its 'Oricon Style' site off-portal, offering
chaku-uta (mastertones) and general music information.
Oricon drives traffic to its non-official site through ads
and promotions in its popular music magazines. Vibe, another
company that runs several official ringtone, mastertone and
full-song services, started a new mobile SNS last year called
GAMOW, which also entices users to earn points for downloading
content. Adding more fuel to the off-portal movement, On-Q has
recently started selling an 'instant chaku-uta site' starter
kit that supplies the would-be off-portal content provider
with templates, admin tools and a full catalog of well-known
J-Pop songs for making a quick and dirty ad-supported chaku-uta
download site.

The success of off-portal sites in Japan was made possible
largely by the convergence in the past year of:

1. Powerful mobile search engines (including Google and Yahoo)
that include off-portal content in their results
2. QR-codes (which allow quick access to mobile sites from
paper media)
3. Mobile blogs and SNS sites, which help drive traffic to
off-portal services

Together, these factors have created an environment that
allows a well-made off-portal site to quickly establish a
user base with a focused demographic. CPs also like this
model, because it frees them from annoying restrictions
imposed by the wireless carriers. It is not yet clear how
many more CPs can succeed with this type of model, but with
revenues shrinking from their official services, it's a safe
bet that many are going to take a shot at setting up off-portal
services this year.

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++ NOTEWORTHY NEWS

** Major shakeups at Faith Inc., Moderati and Digiplug
In brief: Following its board meeting last Friday, Faith Inc.
announced that co-founder and COO Makoto Nakanishi will resign
from the company and acquire 100% of its struggling US
subsidiary Faith Communications. According to the statement,
the US subsidiary is losing money and plagued with problems,
including a postponed trial launch of its Mobile Virtual
Network Operator (MVNO) service and heavy capital
requirements. With Nakanishi's acquisition of the company's
stock, the name will be changed from Faith Communications to
Voce Wireless, and will no longer be affiliated with Faith
Group. Faith also announced a major reorganization of its
overseas subsidiaries, including the sale of its music
distribution businesses in the US (Moderati) and Europe
(Digiplug). A small portion of Moderati devoted to platform
development will remain with the group, with the name of the
company reverting back to Faith, Inc., the name under which
it was originally founded in 2002. Management of the overseas
business will pass from Nakanishi to Faith CEO Hajime Hirasawa.
Source:
http://www.faith.co.jp/ir/doc/20060209board_member_change.html
http://www.faith.co.jp/ir/pdf/070209overseas_realignment.pdf

** YouTube CEO, execs meet with JASRAC
In brief: On February 6, YouTube CEO Chad Hurley, along with
CTO Steve Chen and Google exec David Eun, met with JASRAC to
discuss illegal posting and downloading of copyrighted Japanese
content. According to a statement released by JASRAC, YouTube
has promised to post a notice in Japanese warning users not
to upload copyrighted video, and to suspend the accounts of
users who do so. YouTube also pledged to work with its parent
company Google to look for new technical solutions that would
help restrict illegal downloading. JASRAC reported that the
2-hour meeting was very 'gentleman-like and friendly'.
Source:
http://www.jasrac.or.jp/release/07/01_3.html

** RIAJ releases survey on illegal chaku-uta sites
In brief: The Record Industry Association of Japan (RIAJ)
released results from a survey on the usage of illegal
chaku-uta (mastertones) and full-track downloads. Illegal
sites were defined as those offering free chaku-uta content
(with the exception of corporate campaigns, which often
include free downloads). According to RIAJ 74% of those
who answered know about the existence of illegal sites
and 51% have used such services. RIAJ estimates the number
of illegal downloads to be more than 287 million per year
and concludes that those using illegal sites tend to purchase
fewer CDs or legal chaku-uta tracks.
Source:
http://www.riaj.or.jp/release/2007/pr070129.html

** Axel Mark starts new mobile service for searching songs by
lyrics
In brief: Axel Mark recently started a new mobile site called
Utaken, which allows users to search for mastertones and
full-songs by inputting song lyrics. Utaken is linked with
another mobile site called 'Best Hit J-POP' where the tracks
can be purchased. Utaken is offered as a free service while
'Best Hit J-POP' requires a minimum JPY315 (US$2.50) monthly
subscription.
http://www.axelmark.co.jp/admin/pr/files/01_187_20070129.pdf

** NTT Com and NTT Resonant to merge online music stores
In brief: NTT Communications and NTT Resonant announced they
will combine their online music download stores. On Feb. 5,
NTT Com's 'OCN MUSIC STORE' will be merged with NTT Resonant's
'goo Music Store' to form a new service site called 'MusicOcean
(MUSICO). The new site will be available on mobile as well.
Song files are in WMA format, which is played on Docomo
handsets with WMA support, including the recent 903i series.
On PC and mobile, users can search and sample tracks, and can
purchase via PC or mobile, but the actual song downloads must
be done via PC.
http://www.ntt.com/release/2007NEWS/0001/0129.html

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STAFF
Written by: Steve Myers (steve@thetamusic.com)
Steve Myers is president and chief enthusiast of Theta Music
Technologies, which specializes in the development of
music-related software applications.
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