Umair Haque / Bubblegeneration
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Design principles for 21st century companies, markets, and economies. Foreword by Gary Hamel. Coming January 4th. Pre-order at Amazon.

Wednesday, July 27, 2005

Mobile Industry + Record Labels = Party Like It's 1999

Some people never learn:

"...At least in the United States, music is likely to be as much as two or three times as expensive on wireless devices, with a smaller selection available for purchase, compared to services such as iTunes, analysts say.

That extra cost is in part because labels and carriers see phone consumers' willingness to pay $3 or more for ring tones--essentially phone rings customized with snippets of hit songs or other audio files--as evidence that they'll pay more than 99 cents for a full song. Carriers also think consumers may pay more for the convenience of instantly buying a song wherever they are."

Sure, the privilege of me not carrying my iPod is worth 2-3x the cost of the library I already paid for. Riiight. There's a value prop many segments are gonna kill themselves for.

It's not for no reason I've been arguing that mobile operators are no real competition for Apple as digital media monopsonist.

Note to strategists - plasticity is about doing more stuff with media you already own, not less. This is pretty important, especially when micromedia and hw/sw convergence mean your universe of substitutes across all nodes of your value network just exploded.

On second thought, forget it. I'm gonnna have fun watch these guys make exactly the same mistake they both made five years ago: creating massive selection pressure exactly for smart users to hack them with a vengeance (viz tariff arbitrage for MNOs, p2p for record labels).

My guess is by enabling devices to do the cool things they should be doing in the first place - smart bets might be (and are already being) put on plays that enable this kind of hw plasticity (akimbo, sling, etc).

-- umair // 4:33 AM // 4 comments


I'm under the impression that one of the reasons keeping the iPod cell phone from coming to market is to prevent users from using their MP3's as ringtones. Apple certainly would like this, but phone companies would not (you can easily make your own MP3 and play it, iTunes songs are $0.99 each for the entire song, where ringtones cost more, etc...).

-Dave Gallagher
// Anonymous Anonymous // 6:54 PM

Interestingly enough, the music labels' strategy of overprized mobile downloads seems to work fine in Japan: KDDI, Japan's nr.2 mobile operator, started with a full song download service in November 2004 and in mid-June, the number of downloads has passed the 10 million mark. The price per song is between 105 and 420 Yen and, of course, there is DRM all over the place.
// Anonymous Andreas Bovens // 3:36 PM

Hi Andreas,

That's a very cool point. I would consider two things.

First, I'm not sure, that there's an iTunes, or iTunes equivalent in J/K.

Second, i-mode moved way first in this market if I recall correctly, so the institutional relationship between labels and MNOs has been built first (versus labels and Apple, for example).

So I'd be interested to hear what you think.
// Blogger umair // 7:28 PM

> First, I'm not sure, that there's an iTunes, or iTunes equivalent in J/K.

There is no iTunes Japan store yet (basically because the Japanese record labels think FairPlay isn't restrictive enough), but there is a lot of speculation that Apple will announce one on a "special music event" in Tokyo next week (with an estimated price of 150 Yen / song).
Sony already has its own download store, Mora, which (if I'm correct) only offers downloads in Sony's own Atrac format - as far as I know, it isn't a big success.

> Second, i-mode moved way first in this market if I recall correctly, so the institutional relationship between labels and MNOs has been built first (versus labels and Apple, for example).

The story is sort of complicated.

In the end of the 1990s, NTT DoCoMo launched i-mode, and competing carriers came up with similar services (KDDI has EZweb, J-Phone/Vodafone has J-Sky/Vodafone Live). Several websites started offering chaku-mero (ringtones), which are basically covers of popular songs (= rights are cleared by simply paying a fixed fee to JASRAC) and often come without DRM.

The music labels didn't like this and launched their own chaku-uta (ringtunes) service in cooperation with KDDI (2002). As chaku-uta are 30 second remixes of songs, also neighboring rights have to be cleared (= the record labels are part of the game). As one could expect, chaku-uta come with very restrictive DRM (making you lose your songs if you buy a new phone). Other operators followed KDDI's move and now all major carriers have support for chaku-uta.

The next big thing then were "chaku-uta full" (again a KDDI move), which are the overpriced and DRMed full song downloads I mentioned earlier.

The whole thing comes with another interesting twist: since last year, there is an investigation going on against the labels as it seems they only license their songs to Label Mobile, which is the music industry's own chaku-uta provider. So far, the labels have rejected the JFTC's warnings. (more info on my blog)

NB: Umair, for some reason, I can only see your comment through the Blogger interface. Any idea why?
// Anonymous Andreas Bovens // 8:40 AM

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