Legitimate music hits a higher note
The way we listen to music has come a long way from the old days of iconic British pop music show, "Top of the Pops". Popping down to the local shop to snap up the latest vinyl number one in the singles charts is a fading memory as the digital way of doing things takes hold.
Downloading songs either online or to a mobile phone cuts out all the hassle (and some of the expense) of purchasing the physical product. But while the Asian mobile digital music industry is already pretty well served with competition, online services have yet to rival those in the US or parts of Europe, admits Sudhanshu Sarronwala, chief executive officer (CEO) of Soundbuzz, Asia's largest digital online and mobile music retailer. Soundbuzz boasts a digital library of over 300,000 songs, perhaps just 10 per cent of its ultimate size, says its CEO.
Creating an industry
According to Sarronwala, the challenge for Soundbuzz, at least in the short term, is not so much from Apples' ubiquitous iPod and its closed iTunes online store, but in developing an industry partly undermined by illegal and unlicensed websites. Progress is being made, says Sarronwala.
His optimism has been fuelled by a number of legal rulings against P2P (Peer to Peer) websites and consumers in countries across the globe including the US, Australia and South Korea in the last three months. "(The legal rulings) are not going to directly hit business positively straight away, but I think it's one of two or three things that need to happen," says Sarronwala. "There are a remarkable number of people and parents who had no idea that P2P sites were illegal. In many cases there were P2P sites that were even charging money, which sort of legitimizes it for the average consumer. Many people weren't in favour of going to consumers directly and attacking P2P sites that were encouraging the abuse of copyright, but it just had to be done," he adds.
Sarronwala believes that by 2008 or 2009, 25 to 30 per cent of the total music market will be in a digital format. "In the final analysis, one or two generations down the track, is it going to be all digital? I would think that would be a large percentage which would be digital. I think there will always be a physical market, but I don't think that my eight year old son is ever going to buy a CD."
There is still some way to go before this situation is achieved. Of the top ten online digital music retailers last year in the US, just three were licensed. Moreover, there are around 2 billion songs traded illegally each month worldwide, mostly from the US. This figure dwarfs the legitimate industry which trades only 60 million songs per month, though Sarronwala points out that new business models involving a flat fee for unlimited songs have made the figures harder to compare.
Nevertheless, the rapid growth in the legitimate market is encouraging, he says. "A year and a half ago it was 2 billion versus zero. The emergence of a legitimate music market developing 60 million songs a month is fantastic in under two years."
Sarronwala claims to welcome the success of Apple's iPod and iTunes as a key to building momentum for the entire legitimate industry. "We are not talking about fighting for market share. At this point in time we are talking about the creation of an industry, the creation of a distribution mechanism... We still believe that there are not enough legitimate music services. When we look around the region we are still astonished to find that Soundbuzz is still the only legitimate player across multi-cultures. You need more than one player. You need a critical mass." So far, key markets for Soundbuzz's online business include India, Singapore, Australia, Hong Kong and Taiwan while the company's mobile business covers 13 markets of Asia minus Japan and South Korea.
The growth of the market has seen Soundbuzz outgrow its old strategy. In the early years of the digital and online music industry, companies like Soundbuzz provided the content, licensing, technology platform and then integrated the service with the portal's billing system, leaving the portal to market the product to their subscribers. These days they have become more proactive, looking to strategic alliances with consumer brands like Levis or banks to promote the brand. "Over the last year or so we have started interacting with the consumers directly as Soundbuzz," says Yen Ong, Soundbuzz General Manger in Asia.
In addition, central to their plans is Soundbuzz's forging strategic relationships with MP3 manufacturer Creative Technologies (they hope to have a similar arrangement with iRiver "by early next year"). "We had to go back and ask ourselves what's the music system we want to create in the Asian environment?" says Sarronwala. "The interoperability of the format was pretty much the key to that and the dominant format which is licensed openly across all these formats is Windows Media."
Aside from Apple, all the major device manufacturers, including Creative Technologies, iRiver and Samsung read Windows Media format. The upshot is a system similar to iTunes and with ease of access of critical importance. As soon as the device is connected to a desktop the user is taken directly to the Soundbuzz music store. "All consumers will need the software for sure because they need it to manage the device," says Yen Ong.
Further strategic relationships with IP servers enable the company to sidestep the potentially thorny issue of payments online. Consumers are reluctant to use credit cards for small ticket items and in Asia credit card usage over the Internet is rarer still. Many consumers may also be too young to even own credit cards. Instead, an agreement with IP servers sees charges tagged onto the monthly bill by the IP server in the same way mobile download fees are tagged on to monthly bills. This has been an essential step in Soundbuzz's success, which divides about 50-50 between mobile and online. "Today we differentiate our business as online and mobile. My guess is that by 2007 we won't," says Sarronwala noting that mobile market penetration is much higher, started earlier and technical convergence is likely to make downloading even more widely accessible.
Next step: China's mainland
Meanwhile, Soundbuzz's preparations for a mainland rollout gathers pace. Sarronwala is clearly excited by the 30 million broadband connections and hundreds of millions of Internet users. "The Chinese spend on mobile music, gaming, matchmaking, and all sorts of online services. The culture of paying for products there is not as alien as people would have us believe."
Pricing will have to be got right though, admits Sarronwala. One song in Hong Kong is worth about US$1 while in India it costs about US$0.40 "for you get a full track which you can burn to a CD and port to your device. The pricing for the main China market is going to have to be reflective of that market," says Sarronwala.
Either way, Asia is going to continue to play the central role in the development of the nascent digital music industry. "The new business models in Asia are dramatically different from those in the West." The US$4 billion Ringtone business is being replaced by "Truetones", "Mastertones" and "ring-back tones", all Asian developments. "Interaction with music is changing dramatically. Even ten years ago, the primary aim of music was to entertain. Now with digital music, a lot of music utilization is for expression. Asia is leading that."
(HK Edition 10/07/2005 page4)
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