Putting the mobile music pieces in place

19 Jun 2006
00:00
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Once the scourge of the music industry, digital downloads are now officially 'the way forward' for the 'Big Four' record labels - EMI, SonyBMG, Universal and Warner Music, which together control over 70% of the world's recorded music - now that they have numbers to justify it, anyway.

Two years ago, music labels were making virtually nothing from digital music. By the end of 2005, digital music generated $1.1 billion in revenues in 2005 - almost triple from 2004 - which accounted for 6% of revenues earned that year, according to the International Federation of Phonogram and Videogram Producers' (IFPI) 2006 Digital Music Report.

What's more interesting is that the music industry is well aware that digital music is increasingly becoming a mobile phone play, not least because ringtones - which count as digital music - accounted for 40% of digital music dollars last year. And it's only going to get bigger.

Certainly this isn't news to the mobile industry. The iPod has shown the value of porting digital music to media players, and handset makers have long since set their sights on making phones the default media player of choice for users (see 'One of these is the future of digital music', p. 16).

Meanwhile, 2006 has seen a rash of new music services launched by cellcos worldwide. In Asia alone, all cellcos in China, Korea and Japan have music download services, as do most cellcos in Hong Kong, and in markets from Indonesia to Australia. SK Telecom went as far as launching a groundbreaking joint venture with Warner Music last month for a South Korean mobile download service. Others have partnered with third-party music services like Soundbuzz, which has cellco partners in Australia, Singapore, India and Hong Kong.

That's the good news.

The catch is that while demand for digital music is skyrocketing, the business case is still rickety for mobile operators, as well as other service providers that want to offer music download services. Few doubt that there's money to be made from mobile music services. What's less certain is how big everyone's slice of the pie will be, and how the music labels can balance consumer demand with copyright controls that may not always work in the consumers' interests.

Blood on the full-tracks

The monetization issue is tricky not least because at the end of the day music is just one content purchase option among many, says Marcel Fenez, Asia-Pacific leader of Entertainment & Media Practices at PriceWaterhouseCoopers.

'Music is competing for consumer entertainment dollars from other sectors, and they are all growing much faster,' he says.

For example, video games will grow 13% CAGR in the next few years, driven by online and wireless sales, while pay TV content revenues will grow 10%. Sports revenues will grow 8%, and film 6%.

'In terms of content growth, you're in a competitive world, and it's all being delivered the same way - via broadband and mobile,' Fenez says, though he does point out that mobile music will be a $1 billion business in Asia by 2010.

However, one chief issue for mobile music services is that mobile music is driven largely by ringtones, not full track downloads.

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