MMW-40 -- Three Mobile Music Venture Success Stories

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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. 40
Thursday, March 13, 2003
Tokyo

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CONTENTS

++ FEATURE: Three Mobile Music Venture Success Stories

++ NOTEWORTHY NEWS:
- BT Starts Music Download Service
- MakeMusic! Raises $3 Million
- Grokster CEO Says Lawsuits Help Business

++ FEATURE: Three Mobile Music Venture Success Stories

Many of our previous features have focused on the larger ringtone
content providers and huge success stories such as Yamaha, Xing and
Faith. In addition to these high-profile companies, several Japanese
startups have also managed to amass huge bases of paying subscribers,
giving them both a healthy cash flow and a strong foundation upon
which to grow. In fact, "healthy" is a bit of an understatement. At
present, the biggest problem faced by some of these companies is
figuring out how to spend their enormous cash surplus in order to
avoid paying excessive taxes on it. In this feature, we'll introduce
three Japanese startup companies that have flourished in the market
for mobile music.

For-side.com
This company operates a total of 37 different ringtone download sites
across the three main carriers, including the i-mode sites "Rock
Beat," "Indies Melo," and "TV Hits Melo." In addition, the company
produces ringtone files for other services. For-side has become
well-known in the industry for the extremely fast pace at which it is
able to produce new songs and for the sheer size of its complete song
catalog. The company was established in March 2000 and went public
last October. Like Cybird, For-side was able to get in the door early
with several ringtone sites for the DoCoMo and KDDI services, and has
since created sites for many different musical genres. Although none
of these individual services are very high up on the i-mode menu,
For-side has nonetheless managed to attract a combined total of nearly
three million paying subscribers. Furthermore, the company shows no
signs of slowing down, with six new services set to open over the next
month.

Vibe
This company was started in April 2000 as Music On-Line, but is
better-known by its brand name of "Vibe." In contrast to For-side,
Vibe operates only seven services, the largest of which is "Vibe
beep!!", a ringtone site featuring songs primarily by US and European
artists. In addition, Vibe also operates a hip-hop and R&B site called
"Hip Hop Styla," and "Guitarheadz," a site for guitarists similar to
Yamaha's "Guitar Hearts," but with more emphasis on hard rock. Whereas
For-side has built its business around diversity and producing large
numbers of songs, Vibe has taken a more focused approach, putting more
effort into fewer sites and carefully targeting each site at a
specific segment such as music news and information, artist photos, et
cetera. Each of Vibe's services is available on all three Japanese
carriers (i-mode, J-Sky and ez). Like For-side and Cybird, Vibe was
one of the first i-mode ringtone providers and has benefited
tremendously from its early start.

Composite
This company was established in April 2001, bursting onto the Japanese
ringtone menus with the first automated "remix" ringtone site. The
company's flagship service is called "40 Melo Mix," and allows users
to rearrange their favorite songs by changing the volume of each
track, changing the tempo and adding effects. "40 Melo Mix" turned out
to be surprisingly popular, and is now the No. 5 site on the official
i-mode menu. Although exact subscriber figures are not available, it
is estimated that the service has over five million subscribers.
Unlike For-side and Vibe, Composite has put nearly all of its energy
into the "remix" concept, adding remix sites for rap, anime and
oldies. Despite its relatively late start, Composite managed to post
2.2 billion yen in sales for fiscal 2002.

In summary, while the Japanese press has reported extensively on the
financial success of companies such as Xing (which currently boasts
over seven million paying ringtone subscribers for its Pokemelo
Joysound site), startup companies such as For-side, Vibe and Composite
have also fared extremely well in mobile music contents. As we've
seen, these companies have managed through a combination of technical
expertise, market savvy, connections and extremely good timing to cash
in big on the four-year ringtone boom in Japan. While many in the
industry expect a shakeout of content providers in 2003, we're willing
to bet that the three companies profiled here will be among the ones
left standing when the dust clears.

-- Steve Myers

Link:
An interview with Cybird president Robert Hori, from our Investor
Insight insert of April 2002
http://www.japaninc.com/article.php?articleID=782

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++ NOTEWORTHY NEWS

** BT Starts Music Download Service

In Brief: Following hot on the heels of AOL's MusicNet launch, British
telecommunications giant BT Group recently announced the opening of a
new music download service called Dotmusic.com. The new subscription-
based service will begin with a catalog of 155,000 songs of all
genres.

The service represents a partnership between BT and OD2, the
technology company founded by Peter Gabriel. Subscriptions to the
audio-streaming service cost 10 pounds (about 1,900 yen), and each
burned download is 1 pound.

Source:
http://news.com.com/2100-1027-991416.html?tag=lh

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** MakeMusic! Raises $3 Million

In Brief: Minneapolis-based MakeMusic! announced last week that it had
succeeded in completing a $3 million private placement of its common
stock. The proceeds are expected to help the company increase
subscriptions to its SmartMusic service, which is aimed at schools.
MakeMusic! also markets the Finale music notation software package.

Source:
http://biz.yahoo.com/bw/030303/35133_1.html

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** Grokster CEO Says Lawsuits Help Business

In Brief: At a recent conference in London, Wayne Rosso, president of
online file-swapping service Grokster, said that lawsuits by large
record companies seeking to close P2P sites have actually helped raise
Grokster's profile and attracted new users to the service. "Every time
they attack file-sharing software in any way, users rush to download
the program, just to see what's going on, and become hooked. As a
result, we prosper, and revenues grow," said Rosso. Along with Kazaa
and Morpheus, Grokster is being sued by a coalition of major record
and movie companies. All three companies have seen huge increases in
their user base since the beginning of the lawsuit, which in turn has
led to a considerable jump in advertising revenue.

Source:
http://news.com.com/2100-1027-991013.html

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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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