MMW-79 -- Mobile Music Lessons from 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. 79
Tuesday, June 7, 2005
Tokyo

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CONTENTS

++ FEATURE: Mobile Music Lessons from Japan

++ NOTEWORTHY NEWS:
** Oricon to Add Support For Sony Audio Format
** MTV Announces New Mobile Music Video Service in Japan
** New Undergraph Single Offered as Chaku-uta ahead of Album Release
** Dwango Adds Sports Program to Pakeraji
** Yamaha Net Music Town Officially Opens

============= Entrepreneur Association of Tokyo ============
2-Year Anniversary Panel Discussion "Raising Capital For Your
Business." The panelists will include Hitoshi Suga, Vice Chairman
and Board Member - Tully's Coffee Japan/FoodX Globe Co. LTD.
and Mike Alfant, President of Building 2. Our moderator will
be Michael Korver, Daiwa Securities Group Chaired Visiting
Associate Professor International Business Strategy for the
MBA program at Hitotsubashi University.
Date/Time: Tuesday, June 7th 7:00 pm
Location: City Club of Tokyo - Maple Room(Canadian Embassy Complex)
Language: English Website: http://www.ea-tokyo.com
Email: info@ea-tokyo.com
============================================================
++ FEATURE: Mobile Music Lessons from Japan

-----
NOTE: For this edition of MMW, we are proud to present a
'special guest' feature article, by Benjamin Joffe,
an independent consultant on web and mobile services in
Japan, Korea and China.
-----

About a year ago, already amazed at the early success of
"chaku uta," my company, Vectis International, decided to
take a closer look at the mobile music market in Asia.
In particular, we were interested in how the market was
organized, how leading players achieved success, how they
positioned themselves, and how much from Asia could be
applied to operators, content providers, music labels,
Internet portals and observers alike in other markets.

We researched for several months and interviewed many
companies in Japan and South Korea to come up with a set
of "best practices" for mobile music services such as
ringtones, ringback tones and full-song downloads. We
examined their business models and looked at them from
a service and marketing point of view.

As a result of this research, we came to the following
conclusions:

1. The same services will be successful worldwide.
2. The subscription model is extremely powerful.
3. Building a reasonably comprehensive offer triggers the
market.
4. The ability to build a brand is critical in the long
run.

I will comment here on those aspects:

1. The same services will be successful worldwide

Messaging, ringtones, screensavers, mobile games...
All these services were successful in Japan two years
before becoming hits in other countries. Their success
has nothing to do with cultural aspects or technological
choices. The question is more about how to organize the
value chain to have the market grow to its full
potential. Music has no boundaries.

2. The subscription model is extremely powerful.

While in most markets the pay-per-download model is the
only one available, there are some very strong advantages
to the subscription model:

a) it ensures repeat customers
b) it helps build a brand
c) it builds a subscriber base that can be leveraged to
sell other things.
d) According to many companies (I heard this from CPs
like Dwango, For-Side and Label Mobile), about 60% of
subscribers remain "dormant." They subscribe, but end
up using the service very little or just forgetting
about it. It is also possible to see the service as a
commodity users want to keep even for a small fee.

In comparison, pay-per-download has the following
drawbacks:
a) It drives prices (and margins) down
b) It makes brand building more costly
c) It does not favor repeat customers

From the perspective of the content provider, it is
much better to have a subscriber, even for a "one
download per month" package, than a single download
with no subscription.

3. Building a reasonably comprehensive catalog
triggers the market.

The huge success of Label Mobile's Chaku-uta service is
a good example of this. Label Mobile is a consortium of
music labels (about 30, including all majors ) dealing
with mobile music in Japan. Label Mobile proposed the
chaku-uta service to pioneering operator KDDI, which
launched the service in December 2002. They are expecting
a total of 200 million downloads in 2005, and sales of
US$200 million, 80 percent of which is passed on to the
corresponding music labels. Due to copyrights, competition
is limited mainly to indies and cover bands.

Label Mobile's success is largely attributed to the size
of their song catalog. Unlike sites run by record labels,
Label Mobile is able to offer a fairly comprehensive
selection from all of the major record companies, and
this has proven highly attractive to customers.

4. The ability to build a brand is critical
in the long run.

The market shift to master-based material will take
place over the next 18 months (chaku-uta represented
25 percent of mobile music sales in FY2004, and is expected
to grow to a US$1 billion market by 2007 - about the
size of the current Japanese mobile music market).
As this master-based content becomes more prevalent,
music content providers unable to secure master rights
will have nothing but their brand and user base to
move on. In Japan, only a few "pure mobile players"
have been able to do this effectively so far. The best
example is probably Dwango, which used celebrities to
create an attractive image for its "Iromelo Mix"
service. They are now leveraging this brand to sell
mobile games via their "Iromelo Games" service as well
as other mobile contents.

Finally, from studying Label Mobile and other content
providers in Japan, we have found:

(1) Mobile music is still growing at a fast pace
(2) New models can emerge even from a market apparently
"locked" with copyrights
(3) A closer look at Japan (and Korea) can provide ideas
that no press release will reveal.
------
This article was written by Benjamin Joffe
(benjamin@akebonobashi.net).

Benjamin has lived in Japan, Korea and China
since 2000, working with mobile operators
and content providers. Since 2004, he has worked
as an independent consultant on mobile and web
services in those three countries. He recently
co-authored with the consulting company Vectis
International the report "Mobile Music Best
Practices from Japan and Korea: The Future of
Ringtones, Ringback Tones, Full-length Song
Download Services From the World's Most Advanced
Mobile Markets" - Vectis Publishing, March 2005
(www.vectis-intl.com). A free presentation is
available on his website: (www.akebonobashi.net)
------
=======================================================
ICA June 16 Event
Speaker - Crissman Loomis - Assistant VP, IT Dept, Provider
Management
Group ・Manulife Insurance Japan
Topic - Vendors, Technology, and Japan!

RSVP required: complete event details at http://www.icajapan.jp/
Date: Thursday, June 16, 2005
Time: 6:30 Doors open, dinner included
Cost: 3,000 yen (members), 5,500 yen (non-members),
Open to all - Location is Foreign Correspondents'
Club http://www.fccj.or.jp/static/aboutus/map.php
============================================================
++ NOTEWORTHY NEWS

** Oricon to Add Support For Sony Audio Format
In brief: Oricon said on May 27 that it will start
offering tracks in Sony's ATRAC3plus audio format
to its 'Oricon Style' online music store. So far,
Oricon has only offered tracks in Microsoft's WMA
format, but says it will now give customers a
choice, and plans to have ATRAC3plus versions of
all songs in its catalog by September. Oricon said
the decision to support Sony's format is mainly
due to the recent increase in Net Walkman users.
Source:
http://www.watch.impress.co.jp/av/docs/20050527/oricon.htm

** MTV Announces New Mobile Music Video Service in Japan
In brief: MTV Networks announced last week that it
would launch a new brand called 'FLUX' in the form
of a new mobile music download service. FLUX will
be subscription based (315 yen per month - about
US$3.00) and features an exclusive partnership with
Utada, one of Japan's most popular female artists.
FLUX is scheduled to launch in Japan on June 30.
Source:
http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=109&STORY=/www/story/0...

** New Undergraph Single Offered as Chaku-uta
Ahead of Album Release
In brief: Continuing the recent trend of using
chaku-uta (master ringtones) as the intro media
for new music, Usen on June 1 began offering
chaku-uta files for three new songs that will
appear on a new album by J-Pop band Undergraph.
The chaku-uta offerings come two weeks ahead
of the album, which is scheduled for release
on June 15 in Japan.
Source:
http://www.itmedia.co.jp/mobile/articles/0506/02/news092.html

** Dwango Adds Sports Program to Pakeraji
In brief: Dwango, which runs the popular 'Iromelo
Mix' ringtone site in Japan, continues to expand
its program offerings for Pakeraji (Packet Radio),
a free streaming radio service for Iromelo Mix
subscribers. This month, Dwango says it will add
a new sports program devoted mainly to reporting
baseball box scores.
Source:
http://www.itmedia.co.jp/mobile/articles/0506/01/news114.html
http://www.dwango.co.jp/press/release/press_r_c20050601.pdf

** Yamaha Net Music Town Officially Opens
In brief: Yamaha announced that on June 1, its
'Net Music Town' online service for music data
downloads officially opened, following a 'trial'
period of several months. The service allows
music data to be downloaded directly to Yamaha's
STAGEA keyboard via a wireless connection, or
transferred from a PC using a USB cable.
Source:
http://electone.jp/product/nmt/

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Subscribers: 4,062 as of June 6, 2005

STAFF
Written by: Benjamin Joffe and 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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