MMW-35 -- Checking in with Faith's American Outpost

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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 the week's music technology news
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Issue No. 35
Tuesday, December 10, 2002
Tokyo

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CONTENTS

++ FEATURE: Checking in with Faith's American Outpost

++ NOTEWORTHY NEWS:
- KDDI Starts Trial Listening Download Service
- Kazaa Tries to Stay Out of US Courts
- Sony Music Entertainment Buys Run Tones

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FEATURE: Checking in with Faith's American Outpost

In several previous features, we examined some of the mobile music
technologies pioneered by Faith and discussed their significance to
the Japanese ringtone market. Late last year, Faith established a US
subsidiary called Faith West, which handles the deployment of Faith's
technology and content in the States. Faith West is one of the very
first companies to offer a polyphonic ringtone download service in the
US. We recently spoke with Carolynne Schloeder, executive vice
president of Faith West, and Cindy Lundin Mesaros, VP of marketing,
about the company's activities and the current state of the US
ringtone market.

MMW: How prominent are polyphonic ringtones now in the US?

Schloeder: It's still early in market development, but the
early market response has been great. There are just two carriers that
have polyphonic ringtones -- Sprint and Verizon Wireless. The consumer
adoption rate has been very strong so far. We have a service with
Verizon Wireless called Modtones, and we're seeing a lot of activity
on that -- strong penetration, enabled handsets, frequent usage -- so
we're really feeling positive about the market potential.

MMW: What are some examples of Faith's mobile music technology that
are in use in the US now?

Schloeder: Our wavetable synthesizer is embedded on the Qualcomm
chips, and we also jointly developed a multimedia file format called
CMX. Through this format, you'll see not just the 16-voice ringtones,
but full multimedia files as well as animated ringtones.

MMW: Do you see problems in synchronizing music and animation across
all the different models?

Schloeder: I believe that one of the benefits of CMX is that it does
take care of the synchronization. We're still early in this, and right
now we're shipping CMX files for about four or five handsets with
Sprint. They've all gone through testing and it was pretty manageable
from a CP (content provider) perspective. You still have all the
challenges of optimizing the sound and worrying about the colors, but
CMX is geared toward solving a lot of those problems, simplifying
things for the CP. And so far so good.

MMW: What is the primary business of Faith West, and how does it
differ from Faith Inc.?

Schloeder: In terms of revenue, the main business of Faith West is
content services. We also have direct consumer products and a brand
such as Modtones, whereas Faith Inc. does not. We represent our parent
company痴 technology in this country and we act as sort of a liaison,
but we don稚 have audio engineers here working on the technology --
that痴 being handled out of Japan and now also out of Digiplug.

MMW: How integrated is your work with that of Faith Inc. and Digiplug?

Lundin Mesaros: It's very integrated. The COO of Faith Inc.,
Nakanishi-san, is basically managing what we池e doing and he's very
involved in our business.

Schloeder: We also work with the chief composer and a lot of the
people in the licensing business unit there who are working on the
global expansion. There痴 a lot of integration of our activities on
the technology side -- someone from our office is actively involved in
integrating Digiplug into the family. We intend to work pretty closely
as a global organization and make sure that we池e leveraging the
assets in different regions.

For example, Digiplug has a large content library of 4-voice ringtones
that were written in SP-MIDI. We may choose to partner with them to
deliver that content in the US. Also, they池e strong in DRM (digital
rights management), so it痴 very likely that we値l take the technology
they池e developing and help introduce it in the US market.

MMW: How do expect the US market to unfold compared to what we've seen
in Japan over the last three years?

Schloeder: What I've seen from the market data from Japan is that the
market took off with polyphonic. It was sort of slowly developing with
monophonic, but then the introduction of polyphonic completely changed
the shape of the curve. I think we're going to see the same thing
here. In the US, you don't have the frenzy over monophonic ringtones
that you have in Europe, but I think that consumers are much more
interested in polyphonic ringtones.

Now the big negating factor there is technology availability. Because
Sprint, Verizon Wireless and the other CDMA carriers are committed to
polyphonic ringtones and to some extent the multimedia format as well,
there will be a broad base of users who can take the technology.
Content providers can then come in and sell to them. That's in the
CDMA world. In the GSM world, we're seeing different technologies, but
a similar evolution where we've got some 4-voice and 16-voice phones
coming out with other carriers. That's going to help expand the market
when consumers can see that there's advertising around it. I think the
next six months are going to be really important as the new handsets
start shipping.

MMW: Who makes the sound generation hardware and software for these
phones?

Schloeder: Our service on Modtones supports various options, one of
which obviously is Faith's software-based solutions, which is shipping
on the Qualcomm chip. But we also support the Yamaha MA-3 chip and
handsets as well. We're trying to stay neutral in terms of that.

MMW: How difficult has it been so far to obtain copyright licenses for
ringtones in the US?

Lundin Mesaros: Well, it痴 a very different situation from what you
have in Japan, where there is just one resource (Jasrac) to go to. In
the US, it's not like that, and the individual music publishers wield
a tremendous amount of power. The end result is that it's a bit more
labor-intensive, and you don稚 have access to every single song that
you want.

I think that in Europe, they're struggling with the moral rights issue
where the songwriter there has the right to approve of how the work is
being used. That痴 why they池e having difficulty centralizing the
copyright clearances, and that痴 how it is in the US. Each of the
publishers has a list of songs that have been approved for ringtone
use. If you want to use something that is not on the list, they have
to contact the songwriter and get permission for the type of use. So,
the library is not as robust, it痴 not as complete.

But some early companies who came in on the monophonic side have paved
the way and we致e found that it痴 been fairly easy. I think it might
be harder to get a song that has just been released for use as a
ringtone. That takes a bit more legwork than it does in Japan, but
it痴 certainly doable. It痴 just a matter of going out and striking
deals with all the different publishers individually.

Schloeder: On the DRM technology side, as the handsets begin to enable
data sharing, whether its removable media or a mechanism for users to
transmit content to each other (such as infrared P2P communication),
more of a technology solution will be required to protect the
copyrights. It will need to enable the sharing but protect the
copyrights and ensure payments, and we池e definitely seeing that trend
right now.

MMW: Have you spoken with the record labels about any of this?

Lundin Mesaros: We致e talked with them about promotional uses of CMX
as a file format, but not specifically about offering music clips as
ringtones, because the market痴 not there yet. However, the
synchronization of images and animation lends itself well to musical
promotion. For example, you could do an animated ringtone in support
of a new release -- they池e very interested in that.

MMW: Do you think Faith West will grow much over the next few years?

Schloeder: We池e growing carefully. We池e in the middle of Silicon
Valley where companies are downsizing all around us now, so we are
careful about managing our growth. We値l hire to build the business,
and we're currently in a growth mode, but I would say it's still
cautious. You know we池e part of a company culture now that is pretty
efficient. They have very high employee productivity numbers and they
will expect us to meet those same high standards.

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++ NOTEWORTHY NEWS

** KDDI Starts Trial Listening Download Service

In brief: KDDI announced recently that in early December it will begin
a music download service for its "au" mobile phones. The new service
will allow EZweb mobile phone users to download 15-30-second CD clips
of the latest hit songs, which can be set as ringtones on their
phones. The company plans to start with around 300 song clips and will
charge from 84 to 105 yen per download.

Source:
http://neasia.nikkeibp.com/wcs/leaf?CID=onair/asabt/news/217646

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** Kazaa Tries to Stay Out of US Courts

In brief: A Los Angeles federal judge is set to rule soon on whether
the parent company of Kazaa can be sued in the US. Kazaa, one of the
most popular services for online file-sharing, is owned by Sharman
Networks, which is headquartered in Australia and incorporated on the
Pacific island of Vanatu. Along with Streamcast Networks and Grokster,
Kazaa is the target of a lawsuit by the RIAA. The company has thus far
managed to stay out of court by virtue of its geographical location.

Source:
http://news.com.com/2100-1023-971086.html?tag=cd_mh

** Sony Music Entertainment Buys Run Tones

In brief: Sony Music Entertainment has expanded further into the
mobile entertainment market with the recent acquisition of Run Tones,
a NY-based wireless entertainment company. Run Tones offers several
wireless services, including the RUNtones ringtone download service.
Sony Music has also announced the creation of the Mobile Products
Group, which will handle the marketing of ringtones and album
previews, among other new services.

Source:
http://www.runtones.com/cgi-bin/run.cgi?siteid=v9&lang=&page=newnews.h
tml&dbmode=onenews&newsid=19

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SUBSCRIBERS: 1,108 as of December 10, 2002

STAFF
Written by: Steve Myers (steve.myers@l8tech.com)
Steve Myers heads the Theta Group at Layer-8 Technologies,
which specializes in the development of music-related
software applications.

Edited by J@pan Inc editors: (editors@japaninc.com)

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