Shift in mobile music landscape favors MNOs

David Yeh
05 Sep 2007

Chinese mobile network operators and service providers have benefited from the popularity of music-centric services such as ringtones and ringback tones in recent years. As operators and service providers continue to expand their portfolios in the music space, together with the move to music-capable handsets by the device manufacturers, the Chinese mobile music market is evolving into full-track music downloads and streaming.

At the same time, the popularity and the upside potential of mobile music is also crowding the ecosystem. Each company is trying to build a brand consumers associate with the overarching digital music segment, given the lack of a clear market leader. However, two stakeholders in the mobile music ecosystem stand out in the pack with their unique positions and resources.

First, the content providers have strong influences in shaping the nascent Chinese full-track mobile music business because of their content ownership and origination. Traditionally, service providers act as the link between content providers and portals or MNOs in providing the various types of wireless value-added services. But content providers and MNOs are now bypassing the service providers as full-track music becomes a long-term strategy for them. The established mobile music partnerships such as the ones between the record companies and China Mobile and China Unicom demonstrate the significance of content providers and the decline of service providers. The ownership of content gives content providers a unique position in the value chain and enables them to diversify the distribution channels.

Second, the MNOs - namely China Mobile and China Unicom - look to increase their presence within the mobile music ecosystem after seeing the success of ringtones and ringback tones. For example, the 2006 launch of China Mobile's M.Music portal shows that Chinese MNOs are leveraging their duopolistic position in the value chain to build storefronts end-users associate with music - by partnering directly with content providers.

The significance of network operators also rises as consolidation, competition and integration simplifies the entire value chain. On the other hand, the upcoming 3G mobile license issuance will introduce new competitors such as China Telecom and China Netcom which will negatively impact the market share and positions of China Mobile and China Unicom.

But mobile music consumption in China remains primarily through side-loading of PC-downloaded legal or illegal downloads, because of the dissatisfactory business models, slow mobile data networks and widespread pirating of content. For the mobile music market to grow, consumers need simple solutions with competitively priced music and the flexibility to choose the platform for both purchase and consumption of the music.

Still breathing room

Service providers will not be eliminated - at least in the next 24 to 36 months. In particular, those that also have presence in the portal space, such as 9Sky, A8, Sina, KongZhong and TOM Online, will survive.

The trend is clear: Chinese network operators will continue to muscle their way up the mobile music value chain into the traditional territories of service providers, portals and even content providers, while content providers increasingly embrace partnerships that bypass the service providers. MNOs will ultimately leverage their natural advantage of over-the-air delivery for full-track music downloads as they continue to develop and market their own branded online/mobile portals to enable dual delivery.

David Yeh is an analyst for Asia-Pacific research at Yankee Group

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