MMW-74 -- FTC Sends Warning to Japanese Record Labels

J@pan Inc Magazine Presents:
Commentary on Japan's music technology news

Issue No. 74
Tuesday, March 29, 2005



++ FEATURE: FTC Sends Warning to Japanese Record Labels

** Usen Online Music Store Adds Western Songs
** Excite Music Store Teams with NetCash for Campaign
** Faith West Changes Name to Moderati
** New Digital Music Tag Editor Includes AAC and MP4 Support
** New Book Covers Music and Video on Japanese Phones

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++ FEATURE: FTC Sends Warning to Japanese Record Labels

On March 24, the Japanese Fair Trade Commission (JFTC)
issued an official advisory notice (kankokusho) to five
of Japan's major record labels over their refusal to grant
licenses to third-party chaku-uta (master ringtone)

The five companies listed in the notice - Sony Music
Entertainment, Avex Network, Toshiba EMI, Universal Music
and Victor Entertainment - were advised that several of
their current business practices are in violation of
Japanese Anti-Monopoly law. In particular, the JFTC found
that the labels have been unfairly denying master license
requests from mobile music content providers other than
Label Mobile, which itself is a joint venture between the
record labels.


The JFTC advisory notice is the result of a nine-month
investigation which included a raid on the offices of
several record companies back in August 2004. This
investigation was reportedly triggered by complaints
from mobile music providers charging that the record
companies were working together to exclude other mobile
music providers from the highly lucrative market for
chaku-uta in Japan.

The labels are suspected of setting up a cozy arrangement
whereby licenses are granted automatically to Label Mobile,
but generally denied to would-be competitors. Label Mobile
keeps a small percentage of the revenue from each song
download, while the bulk of the money is passed back to the
record label owning the rights to the song. The board of
Label Mobile is comprised entirely of executives from the
record labels, who together set strategy, pricing and
direction for Label Mobile's chaku-uta service.

The advisory notice spells out the sequence of collusive
actions taken by the five labels. Among the specific
findings listed in the notice are:

1. Due to their dissatisfaction at losing income
to providers of MIDI-based ringtones, the five record
companies decided in 2001 to collaborate on development of
a new mobile music service that would take advantage of their
control over the master rights to popular songs.

2. Because any provider of MIDI-based ringtones can
obtain song rights by paying a standard royalty to JASRAC,
there are a large number of providers and much competition
based on price. In order to avoid this situation, the
labels established a joint venture called Label Mobile
which would be the exclusive content provider for the new

3. From its inception, the Label Mobile Board of Directors
has consisted solely of executives from the five labels.

4. At a Label Mobile management meeting in May 2002, Sony
Music proposed to the other labels the idea of a "chaku-uta"
service requiring the master rights to songs. The service
would be inaccessible to companies other than record labels,
thereby avoiding price competition.

5. The five labels agreed to make Label Mobile the
exclusive provider of songs for the chaku-uta service and
to refuse license requests made to any of the five companies
by other chaku-uta providers.

6. Chaku-uta providers other than Label Mobile have since
been denied song license requests for no justifiable reason.

The Five Recommendations

The JFTC's advisory notice lists five specific "recommendations"
for the labels to follow:

1. Stop the practice of refusing licenses to companies other
than Label Mobile.

2. Report to each of the other four labels and to Label
Mobile the specific measures taken with regards to
Recommendation 1.

3. Start making individual licensing decisions independently.

4. Arrange training sessions about Anti-Monopoly law for those
in charge of licensing decisions, and set up a system to allow
for internal audits of the licensing process.

5. Quickly notify the JFTC of the specific measures taken to
ensure compliance with recommendations 1 2, and 4.

Next steps

The five labels named in the advisory notice have until
April 4 to decide whether or not they will comply with the
recommendations spelled out in the notice. Sony Music
Entertainment and Avex have already issued statements
refuting the facts listed in the notice and denying any

Should the case wind up in the courts, it will be interesting
to see what kind of defense strategy the labels adopt. Some
of the findings listed in the advisory notice are not only
hard to refute, they have actually been inadvertently
substantiated by Label Mobile in the past. In early 2003,
Masakatsu Ueda - CEO of Label Mobile at the time - made
several comments to the Japanese press indicating that his
company's exclusive access to master rights was a unique
advantage that ensured minimal competition.

The JFTC has made it clear that if the record labels do not
comply with the recommendations, they will move to initiate
legal procedings.

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** Usen Online Music Store Adds Western Songs
In brief: On March 25, Usen's online music service 'OnGen
Usen Music Server' added 7,000 new songs from western
artists. The new songs are all from Warner Music's catalog
and sell for 210 yen (about US$2.00) per song.

** Excite Music Store Teams with NetCash for Campaign
In brief: Excite Music Store, which offers songs in WMA
format, has recently launched a promotional campaign in
Japan in which they are giving away 500-yen prepaid cards
from NetCash to 1,000 people.

** Faith West Changes Name to Moderati
In brief: Faith West Inc., a wholly owned subsidiary of
Tokyo-based Faith Inc., announced earlier this month that
it has formally changed its name to Moderati. The change
was made to better align the company name with its Modtones
consumer brand.

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** New Digital Music Tag Editor Includes AAC and MP4 Support
In brief: Softpointer has recently released a new digital
music tag editor called Audioshell v1.0 for Windows. With
support for AAC and MP4, as well as other standard audio
file formats, Audioshell allows users to edit metadata
associated with their music files.

** New Book Covers Music and Video on Japanese Phones
In brief: Softbank Publishing has just released a combination
magazine/book (these are actually called 'mooks' in Japanese)
providing detailed information about the music and video
capabilities of all the mobile phone models currently on
the market in Japan.

Theta Music Technologies, a leading provider of music-
related software and technology, is currently accepting
applications for the following position:

Title: Software Developer
Status: Full time
Location: Tokyo
Requirements: BS in Computer Science or equivalent; strong
Java and object-oriented software design skills; fluent
English ability
Other desired skills:
- C/C++
- Mobile development (J2ME, BREW)
- Interest in music
- Japanese language skill

Salary and remuneration are commensurate with experience.
To arrange for an interview, please contact Steve Myers

Subscribers: 3,751 as of March 29, 2005

Written by: Steve Myers (
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: (


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