MMW-71 -- Online Music Stores in Japan

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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. 71
Tuesday, February 15, 2005
Tokyo

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CONTENTS

++ FEATURE: Online Music Stores in Japan

++ NOTEWORTHY NEWS:

** Chaku-uta Conversion Service To Launch in March
** 2 Million Downloads for Chaku-uta Full Service
** Oricon Delays Launch of Online Music Store
** XING Starts New Mobile Manga Service
** Shogakukan Releases Doraemon-design iPod Mini

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++ FEATURE: Online Music Stores in Japan

While chaku-uta (master ringtones) have received tremendous
coverage over the past year, the media buzz surrounding
online music stores in Japan is still fairly quiet by
comparison. Downloading music to the PC is still nowhere near
as common in Japan as it is in the US and Europe, but there
is a nascent market here, and it is growing steadily. Several
big names, including Microsoft and Excite, launched sites
last year, and others such as Apple and Oricon have announced
their stores will open here in 2005.

The first online store in Japan was launched in 1997 by
Music.co.jp. This service has stayed outside the mainstream,
focusing mainly on indies and anime music. Most of the big
players in the online music market here did not set up shop
until the middle of 2004. By far, the largest of these is
Label Gate's "Mora" service.

As they did with chaku-uta via Label Mobile, the major
record labels in Japan (Sony, Avex, King, BMG, etc.) banded
together to form Label Gate as a joint venture that has
virtual monopoly control over the online market for Japanese
pop. These guys control the rights and (for all intents and
purposes) dictate the pricing and license terms to their
"competitors".

Because of this situation, there is virtually no difference
in price among the various sites for any given song. In
general, the download price for a single song ranges from
150 to 300 yen (US$1.46 to $2.92) depending on the song,
but it is the same on each site. Label Gate offers over
one million songs on its service (ten times the amount of
the second largest store), but only supports Sony's ATRAC3
format.

With virtually no price competition and only one store
able to offer a decent-size catalog, the various services
must try to differentiate themselves based on their
value-added services. Excite offers unreleased concert
video files, while Microsoft touts the ability to easily
use purchased music on other MSN services such as
blogs and chat.

Although its launch has been delayed (see below),
Oricon's Music Town service is expected to make a
splash because of Oricon's popular music-ranking
publications and tie-ups with large sites such as
Asahi Shimbun and Yomiuri Shimbun. Meanwhile NTT
Communications, NTT Resonant and NTT Data Contents
Planning all currently offer separate sites, but
are said to be considering merging into a single
store in order to reduce costs.

Speaking of costs, what can an online music store
expect to pay in terms of license fees for the songs
they offer? According to a representative from one
of the stores offering mainstream J-Pop, the bulk
of the revenue goes to pay for the master license
and publishing royalties. After these have been
deducted, the store operator generally retains about
20% to 25% of the gross sales. Taking into account
operating overhead and server maintenance costs,
it seems unlikely that the remaining income makes
for much of a profit margin.

In addition to the difficulties of high overhead,
online music store operators face stiff competition
in the form of Japan's firmly entrenched market for
rental CDs and the burgeoning market for full-song
master ringtones (chaku-uta). Currently, chains
such as Tsutaya are widely used by younger consumers
for renting and copying CDs, and this is not expected
to change anytime in the near future. Japan has not
yet seen the widespread increase in online music use
that the US experienced following the success of
Apple's iTunes service.

Still, at least one of the current services is
reporting a 20% to 30% increase each month in the
number of downloads. It will be interesting to see how
these sites fare in the coming months in the face
of increasing sites offering full-song chaku-uta.

Here is a survey of some of the top online music
stores in Japan:

1. Music.co.jp
Company: Music.co.jp
Opened: April 1997
Number of songs: 8,500
File formats: MP3, WMA
Focused on indies and anime songs.

2. Mora
Company: Label Gate
Opened: April 1, 2004
Number of songs: 1,000,000
File formats: ATRAC3
Biggest service in Japan; a joint venture
between Japan's largest record companies.

3. Excite Music Store
Company: Excite
Opened: May 20, 2004
Number of songs: 50,000
File formats: WMA
Offers unreleased video files from live shows,
music news and artist features.

4. Listen Music Store
Company: Listen Japan
Opened: June 9, 2004
Number of songs: 60,000
File formats: WMA
Introductory bios provided for all artists
on the service.

5. MSN Music
Company: Microsoft
Opened: October 20, 2004
Number of songs: 100,000
File formats: WMA
Tied in with other MSN services such as blogs,
mail, shopping.

Others:

OCN Music Store (NTT Communications)
Love Music (NTT Data Contents Planning)
goo Music Store (NTT Resonant)
Ongen (Usen Broad Networks)
Virgin Digital (Virgin Group)

Announced for 2005:

Oricon Music Town (Oricon) - end of March
iTunes (Apple) - "Sometime after Spring"

++ NOTEWORTHY NEWS

** Chaku-uta Conversion Service To Launch in March

In brief: Bell System 24 announced last week that
on March 1, it will launch a new service for batch
conversion of CD data into chaku-uta (master-ringtone)
files that are optimized for each handset. The
web-based service, called "BladeComposer 24", uses
an ASP model whereby customers pay an initial start-up
fee and then pay for each song converted. Customers
first log into the site, choose the models they need
to convert for, then send the song data to the
BladeComposer server. The data is then converted and
stored on the server where it can be accessed by
chaku-uta users. Bell System 24 says that all of the
70+ chaku-uta capable handsets across the three
carriers will be supported. The start-up fee for
the service is JPY 100,000 (US$ 971.00), and each
conversion costs JPY 600 (US$ 5.83) per song per
handset.
Source: Nikkei Sangyou Shimbun (2005/2/7)

** 2 Million Downloads for Chaku-uta Full Servicepar

In brief: KDDI announced on Feb. 5 that its Chaku-uta
Full service for full-song master ringtones recently
achieved 2 million downloads since its start on
November 18. The service hit the 1 million mark on
January 5, and KDDI expects the 1million downloads
per month pace to continue in March. The service
currently features 13,000 songs across 10 sites. At
present, there are only 4 handsets that can play
these files.

Source:
http://www.itmedia.co.jp/mobile/articles/0502/08news037.html

** Oricon Delays Launch of Online Music Storepar

In brief: Oricon announced that the launch of its new
Oricon Music Town online service is being postponed to
March 23. The service was originally scheduled to
open on February 8. Oricon says the delay is due to
technical problems encountered with the system during
its trial launch from Jan. 29 to 31.
Source:
http://www.watch.impress.co.jp/av/docs/20050202/oricon.htmpar

** XING Starts New Mobile Manga Servicepar

In brief: Ringtone giant XING announced last week that
it was launching a new service on KDDI whereby customers
can download manga (Japanese comics) onto their au
phones. Priced at 300 yen per month, users can download
three 20-page issues each month. XING said it also plans
to adapt the service for Docomo and Vodafone.
Source: Nikkei Sangyou Shimbun (2005/2/9)

** Shogakukan Releases Doraemon-design iPod Mini

In brief: Seems U2 aren't the only celebrities act
getting involved in the iPod branding business.
Shogakukan Production announced on Feb. 4 that it
is now taking orders for a limited edition
Doraemon-designed iPod Mini. The "iPod Mini & Doraemon
Set" features original laser-engraved illustrations of
the popular anime character along with a custom
Doraemon case. The limited-edition set is available
via Shogakukan's "Doraemon's Bell" site and sells
for JPY 37,800 (US$ 367.00).
Source:
http://news.goo.ne.jp/news/infostand/it/20050204/1377317.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.

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

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Comments

we are a small independant label based in South Africa, Johannesburg, we are looking to introduce and market our music/albumns to the Japanese Market. Could you reccommend any popular websites where we can adevertise and upload to sell our albumns? Or could you advise on other forms of media which will target the suitable market. We currently have an electro-rock and hip hop albumn that we are looking to promote.

Your assistance would be greatly appreciated.

Many THanks,

Molibeli
Iapetus Productions

business