MMW-96 -- Mobile Music and the KDDI Turnaround

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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. 96
Wednesday, April 5, 2006
Tokyo
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CONTENTS

++ FEATURE: Mobile Music and the KDDI Turnaround

++ NOTEWORTHY NEWS:
** Faith Subsidiary Purchases Giga Networks Ringtone Site for US$10 Million
** Kadokawa Sues music.jp Over Trademark
** NTT DoCoMo Set to Release 'MUSIC PORTER X'
** New Version of Vodafone live! BB Software Released
** King Records Starts New Chaku-uta Site

++ FEATURE: Mobile Music and the KDDI Turnaround

Regular readers of this newsletter may notice that we've been spending a lot of time
talking about KDDI lately. This is mainly because they've been the ones setting the
pace over the past few years in terms of mobile music innovation. The carrier is also
giving NTT DoCoMo a serious run for its money in the 3G space and has emerged
as the only real threat to DoCoMo's dominance of Japan's wireless market.

This wasn't always the case, though. I remember working on a service for the KDDI
platform five years ago and being dismayed at the poor handset quality and painfully
slow network. 'Why do these guys even bother?' was a common sentiment among
mobile developers for KDDI services at the time, and it seemed incomprehensible that
anyone would choose a KDDI 'EZWeb' phone over an NTT DoCoMo 'i-mode' model.
At a luncheon for foreign journalists in Japan last month, NTT DoCoMo President
Masao Nakamura confided that 'back then, in terms of competition, we were mainly
just worried about J-Phone' (now Vodafone).

Fast forward to April 2006. Vodafone is now packing up and leaving Japan, having sold
its assets to Softbank. KDDI has outpaced DoCoMo in new 3G features and content
for the last three years and shows no signs of slowing down. And now that Japanese
mobile customers are finally able to switch carriers without changing their phone
numbers, the carrier is poised to grab even more of DoCoMo's market share as it loudly
promotes its new LISMO full-song download service.

How did KDDI achieve this dramatic turnaround?

Market experts have pointed out that while its competitors were spread thin setting up
services around the globe, KDDI was focused like a laser on the domestic market. The
company was free to innovate specifically for Japan without having to worry about how
its products and services would fit into a global strategy. This resulted in KDDI being
the first to offer features such as flat-rate data plans, GPS, mobile blogging, and the like.

And what of mobile music and its role in the turnaround process? Somewhere along the
way, KDDI came to be the carrier most closely associated with music services in Japan.
Here are some of the ways that its music innovations helped propel it to its current
position:

1. Chaku-uta (mastertones) - KDDI was the first to offer these in late 2002, and built a
strong marketing campaign around the theme of 'real music' ringtones.

2. EZ FM - By including an FM radio tuner with several handset models (and a software
application for navigating the stations), KDDI has received a wealth of low-cost publicity
from the FM radio stations here.

3. Chaku-uta Full (full song mobile downloads) - With no full-song response from DoCoMo
yet, and no real 3G competition from Vodafone, KDDI has held a lock on this market for
nearly a year-and-a-half now.

4. LISMO - Taking it one step further, KDDI is now starting to integrate mobile downloads
with PC-based file management and its own online music store. Once again, a strong
marketing effort is reinforcing the general perception that KDDI phones are the best for
music.

5. Music Content Lineup - This is probably the least visible factor, but nonetheless a vital
one in cementing KDDI's lead in the mobile music space. Among the three carriers, KDDI
has been by far the most open and accepting of a wide variety of music sites. Music lovers
can find a wealth of genre- and instrument-specific services not available on the other two
carriers. Taking chaku-uta sites as one example, KDDI offers nearly twice the number
offered by DoCoMo, which itself has nearly twice as many as Vodafone.

Although it was NTT DoCoMo that pioneered the idea of the wireless carrier providing an
'open playing field' for content providers, it seems that in recent years KDDI has taken this
concept to another level. With a highly transparent and streamlined process for becoming
an 'official' site, KDDI has become the favorite of content providers, especially those with
music content.

Of course, it is the relative robustness of the carriers network that allows it to offer so much
'heavy' content, and the lack of the same that is currently hampering its competitors. As
one manager from a competing carrier put it, 'with flat-rate data plans, we really don't have
much incentive to increase our service offerings. In fact, we want to *discourage* downloads
of heavy content, since it puts such a burden on the network.'

So to sum it up, innovative music services have been one of the key factors in KDDI's
impressive comeback, and these rely heavily on flat-rate data plans which in turn have
been made possible by investing in a strong network infrastructure. It remains unclear,
however, just how far KDDI can push the bounds of its existing network. As more and more
full-song sites and other 'heavy-data' services come online, we're already starting to see
some signs of strain. At peak times, it often requires several attempts before we're able
to access some sites, and lately there does seem to be an increase in dropped
connections.

Still, the services are beautiful when they work, especially on the most recent handsets.
And if the past few years are any indication, odds are strong that KDDI will hold its edge
and continue to push the envelope with its music services.

++ NOTEWORTHY NEWS

** Faith Subsidiary Purchases Giga Networks Ringtone Site for US$10 Million
In brief: On April 3, Mobile Alliance, a 100% subsidiary of Faith Inc., announced it had
purchased the Giga Networks brand from Sanai (100% subsidiary of Ricoh) for JPY 12
billion (US$10 million). The Giga Networks chakumelo (ringtone) site is one of the largest
in Japan, with a total of over 4 million subscribers.
Source:
http://www.faith.co.jp/ir/doc/mobile_alliance_20060403_F.html

** Kadokawa Sues music.jp Over Trademark
In brief: In late March, Kadokawa Holdings announced it had filed a suit against MTI
(operator of the 'music.jp' mobile sites) for infringing on its trademark rights. Kadokawa
registered the 'Sugo-melo' trademark in March 2004, and the following month MTI
opened a mobile service called 'Sugo-melo Torihoudai'. Although MTI changed the
name of the site to 'music.jp' in April 2005, Kadokawa says MTI is still using the
sugomelo.com domain name.
Source:
http://k-tai.impress.co.jp/cda/article/news_toppage/28386.html

** NTT DoCoMo Set to Release 'MUSIC PORTER X'
In brief: On April 8, NTT docomo will release its new ‘MUSIC PORTER X' 3G handset for
i-mode. The new model supports the ‘Moba HO!’ digital satellite broadcasts (audio only) from
Mobile Broadcasting Corporation. Music features include 1GB internal memory (enough to
store about 700 tracks) and software for transferring songs from PC to the phone. The retail
price of MUSIC PORTER X is expected to be around JPY40,000 - 50,000 (US$340 - $430).
Source:
http://it.nikkei.co.jp/mobile/news/index.aspx?i=20060329fa001fa

** New Version of Vodafone live! BB Software Released
In brief: Last week Vodafone (recently acquired by Softbank) announced the release of a new
version of the PC software used for its Vodafone live! BB video service. Vodafone live! BB
offers full-length mobile music videos and other mobile video content. Encrypted files are first
downloaded to the PC then transferred to the handset. Customers can then purchase a 'key'
for the file from the phone which unlocks the file and enables viewing. The new version of the
software can be downloaded free of charge from the Vodafone live! BB site, and includes new
features such as the display of information related to new content releases on the service.
Source:
http://www.vodafone.jp/japanese/live/bb/software/

** King Records Starts New Chaku-uta Site
In brief: On April 3, King Records, in partnership with Excite Japan, has launched a new mobile
site distributing chaku-uta (mastertones), chaku-voice (voicetones) and image data related to
King artists. The site launched with over 2,000 tracks, priced at 50 to 100 yen each.
Chaku-voice and image downloads are free. King says it will add blog and BBS functionality
later this year.
Source:
http://blog.excite.co.jp/pr/3728338/
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Subscribers: 4,916 as of April 5, 2006

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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