MMW-57 -- Paying for Digital Music: Subscriptions vs. Singles

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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. 57
Wednesday, March 10, 2004
Tokyo

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CONTENTS

++ FEATURE: Paying for Digital Music: Subscriptions vs. Singles

++ NOTEWORTHY NEWS:
** KDDI Develops Digital Radio Receiver for PDA
** Sony Music and T-Mobile to Partner on Mobile Content
** Yahoo Japan Starts Ringtone Service with 70,000-Plus Songs

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++ FEATURE: Paying for Digital Music: Subscriptions vs. Singles

One of the main themes from last week's Digital Music Forum 2004 in
New York City concerned the relative merits of subscription-based
payment models for online music stores versus single pay-per-download
("a la carte") pricing. While consumers have readily embraced the "99
cents per song" scheme offered by Apple's iTunes for MP3 downloads,
many in the industry are wondering if this is truly a viable business
model for most music providers. At the same time, proponents of the
single download model say that subscription-based services are
unpopular and have no future.

The question repeatedly posed to representatives from Napster,
MusicNow, MusicNet and other providers was, "Can you really make money
with a pay-per-download scheme if that's your only source of income?"
In Apple's case, the iTunes store does not necessarily have to be
profitable on its own, so long as it drives sales of iPod players. For
services like MusicNet, however, it could be difficult to prosper if
the only revenue comes from low-priced song downloads.

As Apple's Steve Jobs has frequently pointed out, subscription-based
systems are often not in the best interest of the consumer. It is far
more convenient and flexible to pay only for the songs you download.
However, from the provider's standpoint, a community of subscribers
paying flat monthly fees makes for a much more stable and scalable
business. Japan's ringtone market flourished in large part because for
the first few years, the only option available was the subscription
model, and the larger providers have built huge subscriber bases. One
ringtone provider here says that a surprising proportion of their
revenue still comes from subscribers who haven't downloaded anything
since 1999.

In Japan, as soon as a few services began offering a pay-per-download
scheme for ringtones (in addition to subscriptions), all the other
services quickly followed suit, and the ringtone market became more of
a "high volume, low margin" business. There are still many services
making a profit, but it is the services that had already established
strong subscriber bases and that effectively combined subscriptions
with pay-per-download which have fared the best. When Label Mobile
started the first *chaku-uta* (song tone) service in late 2002, it was
no surprise that it began with both subscription and pay-per-download
options.

Moving forward, we expect that most successful music download
services, whether mobile or PC-based, will offer both subscription and
single pay-per-download options. Consumers have shown that they will
pay for digital music subscriptions, but there must be a clear
benefit, such as more songs for the money, a better selection, or
additional content. The subscription model is well established in the
entertainment business. It is also the norm for mobile services, and
digital music is marching steadily toward the mobile phone. For these
reasons, we feel that subscription-based services will not only
survive, but will eventually comprise a much bigger part of digital
music sales than single downloads.

-- Steve Myers

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++ NOTEWORTHY NEWS
** KDDI Develops Digital Radio Receiver for PDA

In brief: KDDI, in conjunction with Tokyo FM Broadcasting and Vitec,
announced that it has developed a terrestrial digital radio receiver
which can be attached to a personal digital assistant (PDA) using the
USB1.1 interface. Digital radio broadcasting is in an experimental
phase in Japan and is currently limited to the Tokyo and Osaka areas.

Source:
http://neasia.nikkeibp.com/wcs/leaf?CID=onair/asabt/news/294753

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** Sony Music and T-Mobile to Partner on Mobile Content

In brief: Sony Music and T-Mobile announced late last month that they
would enter into a strategic partnership whereby music and other
content from Sony artists would be offered to T-Mobile subscribers in
the US and Europe. The two companies plan to create a series of
exclusive "Artist Packs," which include artist images, HiFi Ringers
and polyphonic ringtones. The packs will also include text messages
about the artist, as well as contests, promotions and prizes based on
the artist.

Source:
http://biz.yahoo.com/bw/040226/265181_1.html

Link:
"No Longer Sure about Sony" from our January 2004 issue
http://www.japaninc.net/article.php?articleID=1257

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** Yahoo Japan Starts Ringtone Service with 70,000-Plus Songs

In brief: Yahoo Japan announced last week the opening of its own
ringtone download service, called "Yahoo Chakumelo." The service is
offered on all three carriers -- DoCoMo, EZWeb and Vodafone -- and
features a catalog of over 70,000 songs. Users can download 15 songs a
month for 315 yen.

Source (Japanese only):
http://www.mainichi.co.jp/digital/mobile/archive/200403/04/4.html

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Subscribers: 2,439 as of March 10, 2004

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.

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

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