Mobile music and mobile TV market overview

1
Mobile music and mobile TV market overview
October 18th, 2006
UPM061018
2
Table of contents
Mobile music
1
Mobile TV
2
3
There are two distinct segments in real M-Music
personalization and consumption
Mobile music 1
Mobile music - user experience -
Personalization
Consumption
Low quality Ring tones (monophonic, polyphonic)

• High quality
• (real music)
• True tones
• Ring back tones

Download of a song
Streaming of a song, personalized radio

• Other services
• Karaoke
• Shorties

• Personalization is a way to send to others a
  message on oneself which explains why people are
  willing to pay a premium for it
• Consumption is the private affair of enjoying
  music for oneself, listening to a track or a
  series of tracks

4
Despite it is forecasted that new services will
take place, currently ringtones and logos
represent the bulk of the market
Mobile music 1
Personalization and entertainment revenues- Europe
(in billions)
Personalization Revenues
Information Entertainment Revenues
Source JupiterResearch 2005
5
Agenda
Mobile music
1
Personalization
1.1
Music consumption
1.2
Value chain
1.3
6
With the arrival of real tones and real music,
labels and operators are trying to by-pass the
aggregators
Mobile music Personalization 1
Current situation of the ring tones market

• Ring tones is a recent but well established
  business Ring tones accounted for around 1,24
  bi in Europe in 2004 (Jupiter estimate, 2004),
  i-e 40 of content services (without messaging)
• Ring tones are evolving from monophonic, to
  polyphonic and recently to True Tones (higher
  quality). Already 60 of downloaded ring tones
  from Wap portals are true tones (source Jupiter)

Complications

• The evolution to Master Tones and Ring back tones
  implies an additional fee to the music labels, as
  master right, which reduces gross margin
  (gross margin drops to 50 from 80)
• Lower margin collides with the aggregators
  business model of high marketing spend so they
  are lukewarm on Master tones or use covers of
  the real artists, which is legally shady

Consequences

• Labels tend to by-pass the aggregators and
  prefer to license their content directly to
  operators
• Aggregators migrate to non-music high margin
  products (chat, charm etc) and use music only as
  an acquisition tool
• Aggregators likely to concentrate/ disappear

7
The exit of the aggregators from the value chain
redefines the role of operators
Mobile music Personalization 1
Key success factors in personalization
Content production
Content negotiation
Technical platform
Portal animation / editorials
Marketing
Branding
Service definition
Customer care/ billing
Record or produce melodies
Negotiate content price/ Advance payment
Provide the servers, portal, DRM
Select, update, present content
Online and offline advertising to bring traffic
Brand to end user
Design end user offer (portal)
Send bill to customer
-
Acquires rights
Own/ Technical partner
content specialists
Mass market advertising
Own brand
Define client offering
-
B2C player
Key activities
8
Agenda
Mobile music
1
Personalization
1.1
Music consumption
1.2
Value chain
1.3
9
The worldwide music market changed its positive
growing trend in 1999-00, continuing this decline
until the present time
Mobile music Music consumption 1
Mio USD
Mio. units
Source IFPI The Recording Industry World Sales
2003 (April 2004), 2001 09 Credit Suisse
10
On-line music first started as free and is now
slowly getting into pay models
Mobile music Music consumption 1
Fixed on-line music distribution
Forecast of the worldwide music market

• A huge activity in free, illegitimate P2P 250 M
  Kazaa programs downloads, over 100 billions songs
  transferred in 2004
• Many initiatives but a still developing business
  in pay, legitimate download
• Music majors initiatives (Sony, Universal,
  Warner, BMG have all failed)
• I Tunes from Apple the only successful
  initiative 200 M downloads in 2004 25 Million
  downloads / weak in Q1 2006
• Lot of noise but few results from other
  initiatives Microsoft, Yahoo!, Sony, etc..
• Fixed players and handset makers are entering the
  mobile business iTunes iPod Motorola, Loudeye
  Nokia

Sales offline, fixed online and mobile online
(billion US)
On-line sales could vary widely around the above
average depending on favorable ecosystem creation
Source Credit Suisse (2006)
11
Major record companies realize that digital music
is the future of their industry but fail to
translate it in their practices and policies
Mobile music Music consumption 1

• Record company have difficulties shaking off
  decades of selling physical products (vinyl,
  tapes and finally CDs). They pay lip service to
  on-line distribution of music but always refer to
  the CD income stream rather to a new on-line
  business model
• Traumatized by the decline in CD sales and by
  peer to peer services competition, they tend to
  consider that on-line services will cannibalize
  their off-line business and react according to
  this obsolete vision in term of agreement and
  pricing
• They do not seem to have realistic ideas on the
  extraordinary level of elasticity in on-line
  distribution of music, and they do not yet
  consider legitimate on-line distributors as
  allies to fight P2P but rather as added
  competition to P2P

12
With a market share of 70, a stable growth trend
in sales and a highly analyzed catalogue, Apples
iTunes is, by far, the leading legal music site
Mobile music Music consumption 1
iTunes sales 2004 (million songs)
Legal music sites market share 2004 -as of
total downloaded songs-
Weekly Sales (m)
A staggering 95 of Apple iTunes online music
catalogue were sold at least once!
Source Piper Jaffray Co. and Apple Computer,
Inc.
Source NPD Group 2004
13
Being an all-in-one music store, offline player
and transfer manager, Itunes is the virtual key
to a successful online global experience
Mobile music Music consumption 1

• All 5 majors Indies 1 million songs
  available

Breath of catalogue
Price point

• 0,99/ song, a little less than a CD song

• Music store
• Friendly and intuitive interface easy browsing
  and searching
• Dynamic access through biographies, images,
  influences of artists/albums
• 30 seconds streaming samples
• One-time registration no credit card needed to
  purchase songs/albums

• Player
• Smart playlists editing by artists/genres/popula
  rity/rating/random
• Easy song tags editing
• Internet radio
• Customizable interface

Simplicity, convenience
Portability on devices and among formats

• Transfer to iPods
• Transfer allowed to an unlimited number of Ipods
• Mp3 AAC can be read, WMA (Microsoft) can be
  transformed into AAC
• Transfers to CD
• Unlimited transfer to CDs but a single playlist
  (typically an album) can only be ripped 5 times
• Transfers to PC
• Transfer allowed to 5 registered PCs a
  registered PCs can be deregistered
• Imix function allowed streaming between
  connected PCs

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The 3G strategy of most operators is based on
music, as a marketing tool short term and as a
revenue source medium term
Mobile music Music consumption 1

• Vodafone
• Vodafone users have downloaded 1 million
  full-track download since the service was
  launched on November 2004. Vodafone is extending
  its full-song catalog to include some 500,000
  tracks. The new catalog must be available first
  to Vodafone Live customers in Germany, Greece,
  Italy, the Netherlands, Portugal, Spain, Sweden
  and the UK.
• Hutchison 3
• Hutchinson 3G UK 's music offer includes
  full-length videos from Sony BMG, audio tracks
  from EMI Music UK and tracks and videos from
  independent label artists through VidZone
• Mobile operator Hutchison 3G UK has entered into
  a partnership with Sony BMG Music Entertainment
  UK to supply full-length audio tracks directly to
  some 3m Hutchinson UK customers who will be able
  to access all the artists for which Sony BMG UK
  has mobile rights (Destiny's Child, Britney
  Spears, Usher and Oasis) and also new releases
  from Sony BMG UK's labels as well as back
  catalogue material

15
Barriers to mobile music are slowly disappearing
which could enable music consumption to generate
revenues in 3-4 years time
Mobile music Music consumption 1
Ergonomics
Price
Network
Handsets
DRM

• Easiness of use
• Search functionalities

• Cost of content labels greed pushing price
  points too high
• Costs of author rights
• Cost of traffic

• Low speed of download
• Slow speed of response

• 7 music compatible in 2005 sales

• Forward to another device
• Backup
• Music labels unwilling to ease their DRM
  conditions

Barriers

• Optimizing end user value proposition of portal
  (RBT, TT, or FTD portal)

• Negotiations with labels
• Negotiation on lower revenue sharing/ minima on
  streaming as no content property

• It will improve with 3G roll out flow of 380 vs
  40 kbps
• 300 million 3G subscribers forecasted in 2010

• Launch of new phones
• 50 music compatible in 2008 sales

• Shift to OMA 2.0 which will allow to negotiate on
  full-track with Universal (eLabs rule)

Enablers
Sources Strategy Analytics, IDC, iSupply,
Juniper Research, Arthur D. Little Analysis
16
Streaming could be a viable option in the music
consumption segment
Mobile music Music consumption 1

• Streaming could be very attractive for clients
  both with pay per listen micro payments or a
  monthly fix- rate subscription for unlimited
  consumption
• Revenue sharing with labels should evolve from
  70 to 40-50
• Streaming is a content proposition not associated
  with content ownership
• On the net, Yahoo! Music Unlimited launched in
  April 2005 rental subscriptions at 6,99 dollars
  per month or 4,99 dollars for a yearly commitment
• Sony Streamman, the streaming solution of Sony
  Net Services, has been chosen by the Vodafone
  group. It offers
• RealNetworks has launched Rhapsody Radio with US
  operator Sprint Nextel. RealNetworks has more
  than 1.15 million subscribers to its PC-based
  subscription service. RealNetworks is heavily
  focused on the music subscription market. "We
  certainly believe that this is a model that works
  for customers," Kevin Nakao, general manager for
  mobile services for RealNetworks

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We foresee a three steps development of music
consumption on mobiles
Mobile music Music consumption 1
Mobile music offer evolution
100
Community services

• Customized community radios
• Music chats, music messaging, shorties, karaoke

Full Mobile music

• Music is delivered either as streaming or as
  download, both through fixed and mobile with
  seamless interfaces
• Within streaming, many usage and payments are
  offered

Ordering and marketing tool
Music offer mix Mobile Vs. Non mobile

• The mobile handset is used as ordering tool
• Music is delivered mainly as download to fixed
  devices
• Music is mostly a marketing tool for youth (key
  artist, download)

0
6 months
12 months
24 months
-

Time
of the mobile music user experience based
purely on mobile
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Agenda
Mobile music
1
Personalization
1.1
Music consumption
1.2
Value chain
1.3
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The three markets, mobile personalization, mobile
consumption and fixed internet are merging
Mobile music Value chain 1
Mobile personalization

• Groove mobile Siemens
• Melodeo

• Jet Multimedia
• Universal Mobile France
• Mobivillage
• Dwango
• Acqua Media
• Jamba/ Jamster
• 123 multimedia
• iTouch (Movilisto, Jippii)
• Zed
• Buongiorno/ Vitaminic
• Mediafusion
• Monstermob
• Aspiro

Mobile music consumption
Ericsson
Musiwave MS/Nokia/ Loudeye
Fixed music
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We see three different positioning of the handset
manufacturers vis a vis the operators
Mobile music Value chain 1
Stand alone

• The handset is an independent mobile music player
• Mobile operators use it as a marketing tool (eg.
  i-tunes with Motorola RAZR V3i (Rasor) and
  Cingular in the USA Digital cameras)
• No revenue for the mobile operator

Full partnership

• Access to music exclusively through the
  operators network
• The bulk of the revenue goes to the operators
• Three models according to the involvement of the
  equipment manufacturer in content

Complementarity

• New models to develop some functions are done
  through the mobile network, others direct to
  handsets

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Table of contents
Mobile music
1
Mobile TV
2
22
Mobile TV is an element in a broader TV revolution
Mobile TV 2

• A strong diversification of TV access
• A multiplication of receivers
• A radical shift in customer benefit potential

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A brutal diversification of TV access
Mobile TV 2

• Stage 1 Analog Broadcast Free on air
• Stage 2 Same plus cable, satellite Pay
  TV
• Stage 3 Same plus DTT, ADSL, Mobile TV(DVBH
  etc), ITV New models

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A multiplication of receivers
Mobile TV 2

• Stage 1 One TV set
• Stage 2 Several TV sets plus peripheral
  equipment (Personal Video Recorder with a hard
  disk)
• Stage 3 Multi equipment including Home Cinema
  plus Hard Disk Drive plus PC plus Mobile Phone
  plus Dedicated Terminals
• Seamless Interoperability

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A quantum jump in customer benefits potential
Mobile TV 2

• Mobility is an element, not the only one
• Watch on the move
• Seamless viewing with smooth transfer between
  terminals
• Individuality more crucial
• TV receiver becomes personal
• Customer is free to choose time, location,
  program
• Interactivity becomes central return channel
  allows intelligent search, queries, alerts

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Mobile TV 1
Mainly at home
Where the users use the mobile TV service most
often
of triallists
Sources Arqiva, NewMediaAge, "One to watch",
March 2006, ZDNet-Feb 06, Arthur D. Little
analysis
27
A huge potential has to be unleashed
Mobile TV 2

• Total TV experience, by increasing dramatically
  consumer value, has a huge potential (move from
  fixed to mobile telecoms)
• Audience
• Fees
• Conditions to reach potential
• Evolution in programs,
• Services
• Business models

28
Mobile TV 2
In Japan, EZ TV by KDDI offers program
scheduling, recording and access to the operator
services via the WAP
KDDI offers EZ TV, analog TV coupled with
services of the operator network

• EZ TV service is adapted to analog television for
  the moment but is positioned as a preparation to
  the mobile DTT (ISDB-T) (validate the best
  cooperation model between television channels and
  mobile operators)
• Services began in mid-June 2005 par KDDI
• Broadcast images but also information dealing
  with the on-going program, on a another window,
  thanks to the WAP. A new service adapted to the
  Electronic Program Guide (EPG) facilitates the
  search programs
• Possibility to record programs in the intern
  memory of the handset
• Some handsets (the W32SA for the moment) have a
  scheduling function using the EPG that
  automatically opens the TV when the desired
  programs starts
• Optional pay services
• Registration of favorite programs or actor's
  names and notifications by e-mail regarding
  programs matching these key words (210 yens, 1,55
  per month)
• Possible remote recording allows users to make
  recording while away from home (315 yens, 2,33
  per month)

Screen capture of EZ TV
Source Arthur D. Little analysis
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Mobile TV 2
Users often prefer flat-fees, as indicated by the
increase in subscriber adoption rates of 3G
services after flat-fees were introduced in Japan
Services competition has replace price competition
Comments

• The competition on the Japanese market was done
  according to three steps of different maturities
  
• At the 3G launch, KDDI obtained itself a durable
  advantage by being the first to launch a
  unlimited data fixed price
• DoCoMo imitated the KDDIs offer, limiting thus
  erosion on his part of market
• With the generalization of the limitless data,
  the differentiation levers of the offer swung
  from pricing towards contents. KDDI gained the
  advantage in January 2005 thanks to the launch of
  Chaku-uta-full, first mobile system of integral
  music downloading

Launch
Development
Maturity
AU launches the unlimited Internet tariff
DoCoMo imitates KDDI price offer
AU boosts its multimedia offer (EZ)
M subscribers
60
29
28
50
27
40
26
30
25
20
24
10
23
0
22
Jul. 2003
Jul. 2004
Apr. 2003
May 2003
Jun. 2003
Aug. 2003
Sep. 2003
Oct. 2003
Nov. 2003
Dec. 2003
Jan. 2004
Feb. 2004
Mar. 2004
Apr. 2004
May 2004
Jun. 2004
Aug. 2004
Sep. 2004
Oct. 2004
Nov. 2004
Dec. 2004
Jan. 2005
Feb. 2005
Mar. 2005
Source Operators
30
Mobile TV 2
Mixed demand feedback from trials and surveys
Initial trials underline that consumers may be
interested in mobile TV services but they are
not all ready to pay for it
X
of triallists
of triallists
of triallists
of triallists
of triallists
Would be willing to pay up to X
5
7
10
8
02 trial Oxford DVB-H Results January
2006 375 users Nokia 7710
Nokia/ Sonera and Elisa trial Helsinki DVB-H
Results June 2005 500 users Nokia 7710
Nokia/SFR trial Paris DVB-H Results March
2006 500 users Nokia 7710
BT Movio trial M25 DAB Results March
2006 1000 users Smartphone 2.5G
5
Nokia trial Madrid/ Barcelona DVB-H Results
February 2006 500 users Nokia 7710
Source Publicly available information
(2005/2006), Arthur D. Little analysis
31
Key issues for mobile operators, handsets
manufacturers, TV companies
Mobile TV 2

• Operator network vs. Broadcast
• Mobility vs. Individuality
• Dedicated terminals (eg. Ipod) or polyvalent
  mobile phone
• Free vs. Pay
• Operator as bit pipe or producer

32
Mobile TV 2
The increase in video use could lead to a 3G
network overload
SK Telecom launched a broadcast solution to
overcome its 3G overload problems
Number of 3G subscribers('000)
Evolution the 3G subscriber base of SKT
Population share
May 2005 launch of the Satellite TV service
March 2004 satellite launch
25
21
17
9,5 M 3G subscribers (20 of the population)
12
8
4
SK Telecom " But although the June package
appears to have been extremely successful it has
had its problems in causing network congestion
when users, attracted by the prospect of watching
movies on a monthly flat rate of US17 and a per
movie download tariff of US0.85, flocked to the
service and overloaded the network. SK Telecom
subsequently rethought its pricing policy and
upped the price " Rednova online
Sources SK Telecom, Arthur D. Little analysis
33
Mobile TV 2
SKT was the first operator to launch TV
streaming on 3G, and i
s once again
the pioneer in mobile TV broadcasting
From TV on 3G to mobile TV broadcasting
May 2005 SKT offers the TU Media service
November 2002 launch of the portal June by SK
Telecom
of mobile TV broadcasting
Detailed structure
Phone
Animation
TV
Adult
Game
Movie
Music
decoration
June exclusive
Real time
Adult hot
Game play
Mobile exclusive
June exclusive
Ring tones
singer
movie
animation
broadcasting
issues
zone
SK Telecom presents its "Satellite DMB

Mobile version of
service" by TU Media as
Video On
Adult
Music On
Game 3D
Game cinema
Screen savers
movies (15 min
Demand
Demand
animation
summary)
-
A new multimedia mobile
Animation
Mobile adult
3D game
Music video
Film making of
categorized by
TV soap opera
movie
animation
broadcasting service that converges
type
telecommunications and
Game
Bandes
Prize winner
Extra version
Exotic movie
Karaoke / Dance
annonces
broadcasting
broadcasting
Adult
-
The creation of whole new life style
Star Package
technique
Video offers (Live TV or VOD)
Source SK Telecom, Arthur D. Little analysis
34
In Spain, mobile operators have launched a
limited TV offer on 3G (videoclips and streaming)
and are conducting a DVBH trial
Mobile TV Spain 2
TV downloading and streaming on 3G
DVBH trial
Euronews Bloomberg (live) TV3 Cuatro Canal Canal
9 MTV Paramount comedy 50 cents. / min,
including traffic
Antena 3 news in 15 min MTV CNN Reality (Gran
Hermano) 1 0,50 / session (up to 10
min), including traffic

• Regulation is currently being defined
• Participants
• Abertis, TV broadcasting network
• Nokia
• Telefonica Móviles
• Content providers Antena 3, Sogecable,
  Telecinco, Telemadrid, TVE and TV3
• 500 users
• Mix of TV broadcasting and personalized services

Best of Antena 3 Sol Música Nickelodeon History
channel Odisea The Biography Channel 6 / month
(max 40 h) 1 / 15 min
Source operators website Arthur D. Little
analysis Oct. 06
35
Our recommendations to avoid replicating the
music mistakes in TV
Mobile TV 2