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Digital music strikes chord in China

Mobile tunes makes up 30% of market

HONG KONG — Digital music, which almost exclusively means mobile, is driving the market in Asia. It makes up 30% of the Asia-Pacific market, while in China it accounts for 80%, said Nigel Mukherjee, director of the technology, info-communications and entertainment advisory team at PricewaterhouseCoopers in Hong Kong.

Mukherjee was one of many speakers during Music Matters, which took place Wednesday and Thursday.

In 2006, Asia accounted for 48% of the world mobile market and it was almost 70% larger than the U.S. market, he continued.

Indeed, 61% of people said they are listening to more music now that it’s available digitally across the region, according to a Synovate survey commissioned by MTV. And 71% think all or most music will be digital in the next five years.

The music business is the same business, but you do it differently now, said Sandy Monteiro, veep digital of Southeast Asia for Universal Music Group Intl. and managing director of Universal Music, Malaysia.

To that end, mobile manufacturers are trying to make the music experience easier and more streamlined for users.

Less than 10% of its 300 million handsets shipped last year are used for music, said Chris White, Motorola’s senior director for global product marketing music mobile device business. To help boost that number, Motorola is spending billions in research and development to make it easier to get music on handsets, added White, who is based in Libertyville, Ill.

“To date we’ve been pretty bad at replacing” music players, he said. “It’s going to be an interesting next couple of years to see how the trends play out.”

In China, where end-users are actually spending money on digital music, especially ringback tones, content providers are trying to figure out how to get a bigger share of the revenue pie.

The numbers, particularly in China, aren’t always easy to come by because of underreporting. Nevertheless, in 2006, end users in China spent $1.5 billion on mobile music, according to William Bao Bean, partner with early stage venture capital firm SoftBank China & India Holdings; and of that figure, content providers — record companies and publishers — get 2.5%, while the rest of the profit goes to carriers and service providers.

By 2007, Bean said he expected the end user number to be flat and content providers should get up to 4.5%.

The “killer business model” is where everyone who brings value profits, which isn’t how things are working out now, said Michael Nash, senior veep of digital strategy and business development for Warner Music Group in the U.S. He added that he loved the idea that advertising will pay for everything, but at the end of the day someone has to buy a product.

Digital is now seen as the lifeboat for labels and not as much as a threat, said Rob Lewis, chief exec at Omnifone (U.K.).

Nevertheless, piracy issues are still rampant.

In the long run, the consumer is the victim of piracy, said John Kennedy, chairman and chief exec of IFPI in the U.K., during opening comments Wednesday. “We cannot compete with free.”

Part of the problem, Kennedy said, is that ISPs typically do nothing about piracy even though they know about it. He suggested they adopt the same attitude for piracy as for unpaid bills, an offense that results in services being cut.

“Piracy has always been with us; it’s a terrible thing,” said Seymour Stein, chief exec and founder of Sire Records, a highlight of the conference who regaled the audience with anecdotes from his 40 years in the music business. “People have been slow to react always. We’ve always been behind. We’ve always been chasing it.”

Despite the hurdles — ranging from piracy to monetizing digital music — the majors realize that they haven’t made as much progress as they need to in order to get the industry back on track.

“People are scared of change,” said Max Hole, president Asia-Pacific region and exec veep of marketing and A&R for Universal Music Group Intl. (U.K.) “You have to be bold and adventurous … and I think (the industry) will be.”

In other news, Soundbuzz’s dual delivery technology will be launched in Indonesia in June through mobile carrier Hutchison 3.

Soundbuzz is Asia’s largest online and mobile music company. The technology offers full music tracks, including local music from local labels ranging from Universal Music Indonesia to Sony BMG, that can be downloaded simultaneously to mobile handsets and PCs, then paid for via the carrier.

Downloads to mobile phones will cost just more than $1, while downloads to a mobile and PC will be $1.13.

Indonesia is Asia’s third largest mobile market with 60 million subs. Soundbuzz also has launched its dual delivery music service in Australia.

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