Midem Report: Focus on the Mobile Music Forum

By Paul Hosford, partner, New Media Law

In another crammed auditorium full of music industry and mobile phone industry delegates, keynote speaker, Takeshi Natsuno, MD of i-mode strategy at Japan’s NTT DoCoMo in revealed that its straightforward, entertainment-based service had attracted 40 million users to its subscription based model, because it is an utterly consumer focused offering. He urged his European and North American counterparts to leave behind current industry specific perspectives and to develop viable marketplaces for mobile content, where the key to overall success would be equal roles for all types of hardware manufacturers, content providers, and service providers.

His advice to the music content owners was to translate pricing models into the world of the packaged IT product – lower price higher volume, but to consider that the mobile operators need business models that address their industry’s concerns as well. Service providers should stay user-centric ensuring that even the most unsophisticated user is comfortable with, and enjoys using the product, for it to be properly commercially viable. DoCoMo’s model is to only take 9% commission on sales for themselves – preferring that “the revenue must go to the content providers”. In fact Natsuno said when other people within his organisation had suggested that they took a higher percentage, “I fired them”. This is a refreshingly different approach to current income sharing with many mobile service providers, particularly in the UK, where the operator takes as much as 40% of some services. His expectation is that their 40 million paying subscribers in Japan and 1.5 million active subscribers outside Japan will grow to a target of 100 million by 2010.

“Making Money from Mobile Music, Today” panel
In the panel session “Making Money from Mobile Music Today”, these different industry perspectives were apparent in the lively discussion of how ringtones and their increasingly musical offspring, “Hi-Fi tones”, had proved to be massive money spinners for the mobile operators. HiFi tones are near perfect reproductions of music. Representatives from T-Mobile International (Germany), Comverse (Israel), Musiwave (France), EMI Music Publishing (UK), Sony Music (UK), and Faith West (US) debated the future growth of “real” mobile music content with the development in mobile technology and the increase in personalisable ring-tones of various kinds beyond the mono and polyphonic tones that most of us are used to hearing. From the music industry’s side, as the quality of ringtones reproduction increases, record companies and publishers will overcome their initial reluctance to put their music on what they say has, up to now, been a platform with inadequate reproduction quality (they say they have been protecting their artists from low quality renditions of the music). The operators and service providers view is that it is clear that business models that take into account airtime and subscription considerations may or may not work for the rights owners. The record labels and publishers whilst obviously keen to collect revenues for themselves and artists from this potentially massive distribution opportunity will have to continue to develop open licensing policies across many territories. And if the operators follow Takeshi Natsuno’s advice, they will lower resale rates from the 10 to 40 % currently talked about.

As in the online environment, the on-demand mobile music world that will come to consumers in the near future will require the multiple rights relationships that exist within the music industry to be simplified and standardised – this in itself is a large task. As ever, what is all too apparent is that there are many expecting their slice of the pie – at an extreme the list could be as long as record company/label, music publisher, possibility the artist (depending on their contract), content aggregator, mobile service provider and payment system provider. One of the challenges facing the mobile music industry is whether the pie will be as big enough for everyone to get their slice.


MidemNet 2004 report

By Paul Hosford, partner, New Media Law

The fifth MidemNet 2004 opened the week long international music industry’s conference in Cannes. In heavily attended sessions this year, it appears, at least on the surface, that the industry is at last grasping on-demand digital distribution of music – the legal variety that is.

MidemNet is the music industry’s international forum that attracts players from every corner of the business to get together and discuss the issues confronting an industry severely impacted by the illegal distribution of millions of copies of its product.

Ted Cohen, EMI Music’ s senior VP of digital development and distribution, opened with the positive pro-industry message – commercial downloads represent the ultimate way forward for music consumers. He feels that it will come of age in 2004, and when legal battles are overcome and the consumer is empowered by commercialised P2P delivery, the industry’s bad reputation will begin to improve.

Keynote interviewee Eddy Cue of Apple’s Internet services announced what everyone suspected, the iTunes Music Store would launch in Europe at some point. iTunes throws into relief these challenges for the music business. Launched in April 2003 as a proprietary platform download service, the Music Store leverages Apple’s existing back-end infrastructure to offer a flat fee of 99 cents per track, and now offering 0.5 million tracks, made available by the Major record labels under recent licensing, but only available to US consumers. The delay in the European launch has been put down to resolving licensing across countries.

Setting out to develop “a better Kazaa” by 5 January 2004, iTunes has sold more than 30 million tracks in all kinds of genres, predominantly to an over-21 demographic. This has moved the Majors on from a proposition that only 2 and a half years ago was not on their list of potential licensing opportunities.

Whilst we all know and covet that beautifully packaged piece of must-have hardware that is the iPod, the reality is that Apples share of the 99 cents may not, in isolation, be sufficient to rev-up their share price. What is clear is that sales of iPod are going through the roof.

There has been a lot of discussion here about iTunes downloads not being platform-independent and that ultimately this may become a sticking point for the device-rich consumer who wants the flexibility to listen to their paid-for music on any device they own. In the meantime, iTunes sales still represent small numbers when compared to the world of illegal P2P sharing.

The European iTunes delay has highlighted a major problem. What will remain firmly as the principal challenge for any pan-European initiative is an industry with differing product release dates, differing licensing and rights collection mechanisms across the European territories – and differing price models. The message is clear – the industry must push through change in these licensing and publishing practices across the major markets.

In the panel sessions representatives of OD2, EMI Music, RealNetworks, French ISP Wanadoo and mmO2, debated the very real technical problems of delivering to consumers a single product where the industry’s marketplace and accounting mechanisms are territorially divergent and a very long way from uniformity. Whilst EMI’s goal is obviously, to sell more music by making it available in multiple formats on any platform, corralling all the various rights holders that share in recorded music remains the Major Labels most immediate challenge.

For the content aggregators, the ISP’s mobile networks and digital music intermediaries, the problems are different, but equally complex. They must deal with multiple payment mechanisms, differing pricing regimes and a complex value chain that makes it very challenging to deliver cost effective alternatives to paying consumers demanding of quality content. What will be critical to delivering a successful consumer experience is cross-platform transferability of the downloaded track that is paid for once.

In the meantime, the disc media formats are very much alive and kicking representing over 90 percent of music bought today. Your correspondent for one is looking forward to experiencing SACD recordings – real surround sound.