J@pan Inc presents
W I R E L E S S W A T C H
Commentary on Japan's Wireless World
Wireless Watch Newsletter
Issue No. 154
Friday July 14, 2006
++ Viewpoint: Japanese Content Provider Bubble Is Over
When the mobile Internet in Japan took off in 1999, new companies
emerged to distribute such content as wallpaper, ring-tones and games
to mobile subscribers. The carriers introduced an attractive business
model that allowed these content providers to keep about 90% of the
price paid by the end user. Companies like Cybird, Index, Bandai
Networks and For-side.com set up dozens of mobile sites in the carrier
portals -- a lucrative business.
After their initial successes, Japanese mobile content providers went
public, and the markets drove up their share prices to enormous heights.
Companies were profitable and with the growing mobile phone
penetration the sky was the limit. Unfortunately for shareholders, the
mobile bubble burst. Most of the large mobile content providers share
prices are now between 25 and 40% of their peak value. For-side.com
got the largest hit - its shares were at their top, around 200,000 yen,
in 2004 and are now traded for 10,100 yen. The end to the downward
trend is not in sight. What happened?
Distributing ring-tones through carrier portals was a good business.
Music rights could be obtained through JASRAC, who handled payments
to artists. When real music was introduced, the model changed - the
rights had to be obtained from the record labels, who were much tougher
to deal with as they wanted to distribute their own music, bypassing
the mobile content providers. Royalty payments for real music are also
much higher than for ring-tones, putting the mobile content provider
margins under pressure.
The portals of the carriers became very crowded, and there are currently
so many sites it is difficult to find your way. Nowadays, new sites are
regarded as very successful if they gather more than ten thousand
subscribers. It is difficult to be profitable with such numbers.
Today lots of free content is available outside the carrier portals.
Since the carriers introduced ‘flat fee data’ subscriptions, users do not
mind to browse through the public mobile Internet for content.
With their pockets loaded with money, Japanese mobile content
providers went shopping for overseas companies. For-side.com
bought many companies in the US and Europe. They sometimes
bought companies that were even competing with each other in their
own markets. Earlier this year it became clear that For-side.com was
reconsidering its global strategy and looking for buyers for its overseas
A final downward push was given when the Livedoor scandal broke out
in January. The markets had doubts regarding the aggressive M&A strategies
of the mobile Internet providers in the period 2003 and 2004, and investors
sold their mobile content provider portfolios.
Will there be a revival of the mobile content industry? We are not sure there
will be. If share prices continue to drop, we expect a consolidation to take
place where media companies acquire stakes in content providers to obtain
their mobile market know-how. The precursors are visible. Earlier this year,
Japanese record label AVEX bought part of mobile content provider Dwango.
Expect more to happen in the months ahead.
Written by Arjen van Blokland; Edited by Burritt Sabin
(C) Copyright 2006 Japan Inc Communications KK. All Rights Reserved.