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Digital Music Meets Mobile MusicProduct Type: Market Research ReportPublished by: Generator Research Limited Published: September 2004 Product Code: R625-5 Description This major undertaking running to 489 pages covers the digital music arena in detail, both fixed and mobile. Our focus has been on providing a clear understanding of all the very latest developments and an in-depth picture of how this fascinating market will evolve in the coming years. This report explains all the major developments and market trends in detail, providing for the first time a total picture that will be equally valuable to professionals working in the mobile industry, the music business as well as related industries. You will find detailed profiles of the very latest developments in the digital music business up to September 2004 following a flurry of activity and announcements in 1H04. We have built on these developments to explain in detail what the next wave of announcements are likely to be and, in addition, what this means for the various players in the market. The report contains the results of a detailed test program carried on a wide range of digital music services in several categories both online and mobile that will allow you to clearly see how the various services work and how they compare. Our test results are supplemented by in-depth strategic analysis drawing upon on many years of operational and consulting experience in the technology industry to provide you with a unique 'birds-eye' view of how the market will evolve. The report contains detailed projections of the value of the digital music market as well as the proportion of this that will be realised via mobile devices. In addition, we provide very detailed explanations of the basis for all forecasts that will allow you to clearly understand the market drivers. Supporting the forecasts are numerous frameworks that clarify some of the most contentious and intractable issues in both digital music and mobile communications.
Because the mobile channel will have an increasingly important role as the digital music market develops, we have carried out a detailed analysis of the European 3G market over the next 10 years. In addition, we address the mobile Internet and explain in detail how this will develop and what the implications will be for mobile operators and, in particular, WAP portals. With this one report you will be able compare projections for fixed and mobile broadband with smartphone rollout - and with 3G and digital music rollouts. You will also be able to understand how these parallel markets are inter-related from the perspective of digital music. We have gone well beyond the usual forecasting boundaries and provide many specific examples of how the digital music market will develop - both online and offline - even including in some cases actual product mock-ups. This report will open your eyes to the most likely developments in the coming years so you can better identify business opportunities and assess the competitiveness of your own position in the market. Table of Contents 1 INTRODUCTION 2 THE MUSIC BUSINESS: PHYSICAL FORMAT 2.1 Introduction Record Labels: Late Starters, Quick Learners Mobile Operators: Early Success, Now Doing Their Own Thing 2.2 Industry Operation 2.2.1 Writers: Songwriters and Composers 2.2.2 Performers: Artist, Acts and Talent 2.2.3 Agents and Professionals 2.2.4 Music Publishers 2.2.5 Record Labels Talent Prospecting Recording Contracts Writing and Recording Songs Manufacturing and Distribution Tour Support Marketing Website Clubs New Media Channels Media Relations Television and Radio Agencies Advertisements Formatting Artist Image Direct Mail Store Events and Promos Music Video Retail Placement Strategic Aspects of the Marketing Process Investment Function 2.2.6 Manufacturers 2.2.7 Distributors 2.2.8 Retailers: Record Stores 2.3 Music Copyright 2.3.1 Creation of Musical Rights 2.3.2 Mechanical Rights 2.3.3 Sound Recording Rights Soundalike Ringtones 2.3.4 Examples of Usage Rights: Mechanical and Sound Recording Rights 2.3.5 Additional Licenses: Performance Elements 2.3.6 Summary: License Rates for Various Music Formats 2.4 The European Music Market 2.4.1 Size of European Major Recorded Music Markets Illegitimate Downloads The Good News 2.4.2 Unit Sales: Total Songs 2.4.3 Structure of European Retail Market 2.4.4 Repertoire Mix: The Importance of Local Content 2.4.5 Music Videos 2.4.6 Consumer Demographics 3 DIGITAL MUSIC: OVERVIEW 3.1 Value Propostion: Digital Music 3.1.1 Comparison with the CD 3.1.2 Lack of Tangibility 3.2 Is Digital Music Simply Another dot.com Fiasco? 3.2.1 Strong, Proven Customer Proposition 3.2.2 Tangible Distribution Advantages 3.2.3 Large Market 3.3 Format Replacement: The Compact Disc 3.3.1 Successful Formats Offer Clear Consumer Benefits Reduced Sound Quality 3.3.2 New Formats Are About Value, Not Price 3.3.3 Digital Music is Unique: Demand-Led Market 3.3.4 Summary 3.4 The Value of Music 3.4.1 Value Prespective 1: Absolute Value of Recorded Music The Sony-BMG Case Generator’s Analysis 3.4.2 Value Perspective 2: Underlying Need for Musical Entertainment Limits Demand 3.4.3 Value Perspective 3: Content Drives Demand, Not Price 3.4.4 Value Perspective 4: Price is a Secondary Consideration for Most Consumers 3.4.5 Value Perspective 5: High Margins Do Not Mean Prices Are Too High 3.5 Pricing: Digital Music 3.5.1 Long-Run Album Pricing The Cost of CDs 3.6 Pricing: Benchmarking Digital Song Pricing 3.6.1 Per-Song Prices: Compact Disc Albums 3.6.2 Per Song Prices: Compact Disc Singles 3.6.3 Complicating Factors Relative Worth: Hit Songs and Fillers Differences Between Genres The Effect of Digitisation on Product Formatting Extra Value Offered by Digital Music Price Plays: Bundling and Promotions Commoditisation 3.7 Music Subscription Services 3.7.1 Consumer Benefits 3.7.2 Future Potential 3.7.3 Premium Pricing 3.8 The Role of the Player 3.8.1 Example: The iPod 3.8.2 Discussion Corporate Priority iTunes: A Simple Loss Leader? Bundling 3.9 Evolution to Digital Movies 3.9.1 Players: Personal Media Centers 3.9.2 The Personal Movie Market 3.9.3 Comparison Between Portable Movie and Music Markets Personal Market Home Market 4 THE MUSIC BUSINESS: DIGITAL FORMAT 4.1 Consumer Experience 4.1.1 Discovering Music Infomediaries: MP3 Blogs, Chatrooms, Messageboards Equal Stakeholders Trusted: Impartial Quality Intermediaries Into Music Artistlaunch Vitaminic Buongiorno Interent Undeground Music Association - IUMA Peoplesound Vitaminic Soundclick.com Textone Magnatune 4.1.2 Obtaining and Consuming Music 4.2 Music Production 4.2.1 Tilly and The Wall 4.2.2 Impact on Established Record Labels 4.2.3 Impact on Wannabe Acts 4.2.4 Talent Supply 4.3 Industry Structure and Operation 4.3.1 Artists 4.3.2 Record Labels 4.3.3 New Entrants Capital Providers Artist Marketing Services 4.3.4 Virgin Music 4.3.5 General Retailers: Wal-Mart Music Downloads 4.3.6 Consumer Brands: Coca Cola 4.3.7 Event Organisers 4.3.8 Summary 5 THE RINGTONE MARKET 5.1 Erosion of The Ringtone Premium 5.1.1 Alternative 1: Use a Digital Song Purchased From an Online Store Situation 1: Customer goes looking for a specific ringtone Situation 2: Customer wants to use already-purchased digital songs as ringtones Situation 3: Customer uses mobile to access an online digital music store directly Situation 4: Operators’ bespoke digital music stores 5.1.2 Alternative 2: Visit Online Store to Buy a Ringtone Possible Service Implementation Pricing 5.2 Pricing 5.3 Changes in the Ringtone Value Chain 6 DIGITAL MUSIC SERVICES: ONLINE 6.1 Apple Computer 6.1.1 iTunes Sync With the iPod Importing Windows WMA Song Files Party Shuffle CD Jewel Case Inserts 6.1.2 iTunes Music Store (iTMS) User Experience Key Features Music Videos Movie Trailers Audiobooks Radio Stations Value-Added Information and Features iMix Usage Restrictions Catalog Payment New Updates: Direct Marketing Additional Features of the Music Store 6.1.3 Accessories 6.1.4 Peripherals 6.1.5 iPod Hard Disc Drive Storage Technology Future Evolution: Enabling Technology Possible Product Line Extensions Personal Stereo Products Home Entertainment Products iMac G5: Analysis and Implications (Update 2 September 2004) 6.1.6 Summary 6.2 Microsoft 6.2.1 Platform Licensing or Retail Services? 6.2.2 Windows Media DRM10 (WM DRM10) Outline Technical Description - WM DRM10 System Operation and Terminology Key Licensing Features: WM DRM10 Protected Live Streaming Superdistribution Time-based Playback Play Counter Portable Device Transfer Copy Limits CD Burning Different Licenses for the Same File Discussion: Comparison With Mobile-Focussed DRM Solutions 6.2.3 Digital Music Jukebox: Windows Media Player 9 6.2.4 Digital Music Jukebox: Windows Media Player 10 - Beta (WMP10b) Device Synchronisation Digital Media Mall Analysis - Microsoft Digital Media Mall (DMM) Music Search Music Search: The Bigger Picture Reduced Entry Barriers 6.3 Sony 6.3.1 Online Store: Sony Connect 6.3.2 Jukebox: SonicStage 6.3.3 Usage Restrictions 6.3.4 Devices MiniDisc (MD) Products High Capacity MiniDisc (Hi-MD) Products FLASH Products HDD Products Portable Media Players Digital Music Players 6.3.5 Supplementary Services Music Radio Services Movie Downloads 6.3.6 Mobile Phones 6.3.7 Discussion : Why MiniDisc? The History of the MiniDisc Deciding on a Device Strategy for the Connect Music Store 6.4 Hewlett Packard 6.4.1 iPod 6.4.2 iTunes 6.4.3 Device Portfolio 6.5 Napster 6.5.1 Business Analysis 6.5.2 Marketing 6.5.3 Service Outline Usage Restrictions General Comments 6.6 Loudeye 6.6.1 The Digital Music Platform Business 6.6.2 Mobile Music Platform: Nokia Deal Marketing Strategy Technical Solution 6.6.3 Other European Digital Music Platform Providers 6.7 Real Networks 6.7.1 Rational for Inclusion 6.7.2 Current Business Focus 6.7.3 Importance of Subscription Services 6.7.4 Review of Music Services Subscription Music Service: RealRhapsody Subscription-based Streaming Music Radio Service: RadioPass Analysis: Extension to Mobile Subscription-based Streaming Music Video Services Digital Downloads: RealPlayer Music Store 6.7.5 RealPlayer 10 (RP10) 6.7.6 Harmony History and Rationale for Harmony Analysis Legal Challenge Licensing of Harmony Backwards Compatibility A Zero Sum Game: Apple’s Loss = Real Networks Gain Outline Operation Significance for the Mobile Operators and Third Party Service Providers 6.7.7 Helix DRM 6.7.8 Mobile Offering: Helix Mobile Platform Platform Description Helix Mobile Producer Helix Universal Server - Mobile Helix Universal Gateway - Mobile RealPlayer Mobile Current Position in the Mobile Media Market 6.8 MusicMatch 6.8.1 Digital Music Jukebox - MusicMatch Jukebox Device Compatibility Portable Devices: Song Transfer and Synchronisation 6.8.2 Online Digital Music Store - MusicMatch Downloads 6.8.3 Internet Radio - MusicMatch MX Genre Radio Stations Artist OnDemand Radio 6.8.4 Marketing Shipping Player with PCs and Smartphones Purchasing Music 7 MARKETING: PROMOTION AND BRANDING 7.1 The Role of Branding in Digital Music 7.1.1 Apple iPod 7.1.2 iPod: Brand Leverage by Others 7.2 Promotion 7.3 Competitive Analysis 7.3.1 Brand Extension: Strategies Used in Other Industries Alcoholic Beverages Soft Drinks Software 7.3.2 Brand Extension: Four Strategies Being Used in the Mobile Industry 7.3.3 Virgin Group 7.3.4 Nokia 7.3.5 Mobile Network Operators Mobile Operator Brand Development McDonald’s Branding a MNO-Provided Digital Music Service: The Options Summary 8 DIGITAL MUSIC SERVICES: MOBILE OPERATORS 8.1 MMO2: O2 Music 8.1.1 Technology 8.1.2 Service Outline 8.1.3 Service Test Methodology 8.1.4 Browsing 8.1.5 Song Downloads 8.1.6 Audio Compression 8.1.7 Music Management 8.1.8 Usage Restrictions 8.1.9 Pricing 8.1.10 Error Messages 8.2 Chaoticom 8.2.1 Orange (UK) Implementation Service Outline Player Download Process Browsing Performance Catalogue Depth Previewing and Downloading Songs Usage Restrictions Pricing 8.2.2 Service Description - Eurotel Czech Republic Pricing Application Download 8.3 AT&T Wireless 9 MOBILE PREMIUM 9.1 Argument 1: The Intrinsic Mobile Premium 9.1.1 The Human Communication Process Voice Calling Text Messaging Mobile Premium: Test Criteria 9.1.2 The Music Purchase Process Customer Awareness Initial Awareness Developing Interest Purchase Effecting The Purchase Product Delivery Consumption 9.1.3 Other Factors 9.2 Argument 2: No Need for a Separate Player 9.2.1 The Argument 9.2.2 Analysis Apples With Apples Shifting Value Benefits Between Songs and Devices Device Performance and Service Features 9.3 Summary 10 MOBILE OPERATOR PORTALS: MUSIC CONTENT 10.1 Events 10.1.1 Information 10.1.2 Ticket Purchase SMS-Based Systems MMS-Based Systems 10.2 Mobile Shop: CDs 10.2.1 Requirement 10.2.2 Summary 10.3 Video Material 10.3.1 3 Quality Usage Rights 10.3.2 Orange 10.3.3 Pricing 10.4 Information 10.4.1 Album Reviews 10.4.2 Alerts Current Activity Potential Opportunities 10.4.3 News Music News Pay-as-you-go News Text and Picture MMS-based Slide Show Alerts 10.4.4 Interaction 10.5 Magazines 10.5.1 The Business Case 10.5.2 Customer Proposition Quality: Rendering Magazine Reading Process Leverage of Channel-Specific Attributes Usage Environment 10.5.3 User Experience 10.5.4 Summary 10.6 Artist Sites 10.6.1 Introduction 10.6.2 Results of Comparative Tests 10.6.3 Mobile Interent: Avril Lavigne Website Functionality 10.6.4 Music: Streaming and Downloads 10.6.5 Music Videos: Streaming and Downloads 10.6.6 Summary 11 RADIO 11.1 Introduction 11.2 Premium Music Radio Services 11.2.1 Key Differences: Commercial Radio Vs. Premium Music Radio Services 11.2.2 Commercial Radio and Premium Music Radio: Competitors? 11.2.3 Sony StreamMan Outline Service Description Billing and Pricing Benchmarking with Online Alternatives GPRS Usage-based Tarrifing Mobile Premium Product Enhancements Discussion: Possible Future Developments 11.2.4 Other Developments in Premium Radio Services Premium Radio Services: Transfer to Portable Devices Within the Home Transfer of Vanilla Radio Stations Transfer of Personalised Music Radio Stations/Playlists Additional Evolution Paths 11.3 Digital Radio (DAB) 11.3.1 Introduction 11.3.2 Current Status Europe DAB: A Clear Growth Market DAB: A Clear Early-Stage Market Leading Receivers: Enabling Future Purchase of Digital Music Comparison With Other Markets: FM Receivers and Smartphones International Markets 11.3.3 Outline Description: DAB Spectrum and Licensing Available Capacity and Station Choices Programme Associated Data 11.3.4 Analysis: The Role of Mobile Phones Selling Digital Music Premium Services Using Digital Radio as a Means to Boost Ad Revenues Other Considerations for DAB Stations Conclusion 11.4 Enhanced Analogue FM Radio 11.4.1 GWR ‘Hear it Buy it Burn it’ Service Description 11.4.2 Future Developments Put Affiliated Stations on the Internet Porting the Service Concept to Mobile Phones Hear it Buy it Burn it on Mobile Phones: Avoiding GPRS Charges 11.4.3 Nokia: Visual Radio Outline Description Usage Scenarios and Cost Implications Comparative Analysis: DAB and Visual Radio 11.4.4 Sony: Any Music 12 MOBILE INTERNET 12.1 Introduction 12.1.1 Accessing Existing Web Resources 12.1.2 Third Party Services 12.1.3 Not More Hype! 12.2 Enabling Factors 12.2.1 Mobile Phone Operating Systems Accessing Existing Web Resources Enabling Technology Operating Systems Standards 12.2.2 Internet Search Tools 12.2.3 Internet Browsers 12.2.4 Media Players 12.2.5 Mobile Broadband - 3G 12.2.6 Data Tariffing 12.2.7 User Interface: Displays and Data Entry Display Size Data Entry 12.2.8 Phone Technology: Memory and Processor Power 12.2.9 Smartphone Penetration 12.3 Market Timing 12.4 Implications for Mobile and Music Industry Executives 13 THE ROLE OF STANDARDS IN DIGITAL MUSIC 13.1 Industry Needs: Supply-side Drivers 13.2 Consumer Needs: Demand-side Drivers 13.3 Self Interest of Industry Players 13.3.1 Company Interests Vs. Consumer Interests Toner Cartridges Printer Driver Software Console Games 13.3.2 Implications for Digital Music Rival Platforms Platform Convergence 13.4 Regulatory Intervention 13.4.1 EC Copyright Directive No Big Issues Copyright Control Technology Circumvention 13.4.2 Collective Licensing of Rights Relating to Digital Media 13.5 Summary 13.5.1 Wider Digital Music Market 13.5.2 Mobile Channel 13.6 Emergence of a Digital Music ‘Standard’? 13.6.1 The DRM Quagmire 13.6.2 Rival Technolgy Platforms 13.6.3 Real Networks 13.6.4 Apple Computer 13.6.5 Sony Corporation 13.6.6 Microsoft 13.7 Consumer View: Meaning of Digital Music Standards 13.7.1 Music Accessibility Focus on a Niche Provide Music Search Features 13.7.2 Format Compatibility 13.7.3 Device Interchangability 14 THE WILD CARD: COLLECTIVE LICENSING 14.1 Introduction 14.2 Arguments For and Against 14.3 Implementation Issues 14.3.1 Infrastructure 14.3.2 Copyright and Related Laws 14.3.3 Collecting Societies 14.3.4 Critical Mass 14.3.5 Tax Laws 14.4 Market Developments 14.4.1 Brazil 14.4.2 Europe 14.5 Making it Happen: Action Plan 15 MARKET FORECAST: DIGITAL MUSIC 15.1 Current Status 15.1.1 The U.S. 15.1.2 Europe 15.2 Overall Market Size 15.2.1 Industry Maturity Format Replacement Interesting Music Improved Format Digital Music Criteria Piracy and Illegitimate Downloads Competition From Other Forms of Entertainment Economic Fundamentals 15.2.2 Demand: The Desire to Listen to Music 15.2.3 Supply: Availability of Interesting Music More Acts and More Songs: Effect of Digitisation and the Internet Tools to Help Creative Process: Creative Commons Music Search Adoption by Intermediaries Music Industry MO Sampling Product Formatting 15.2.4 Leakage 15.2.5 Pricing 15.2.6 Structural Changes in The Music Industry 15.2.7 Summary 15.3 Historic Adoption: Previous Recorded Music Formats 15.4 Future Adoption: Digital Music 15.4.1 Consumer Proposition 15.4.2 Consumer Behaviour 15.4.3 Fundamental Factors 15.4.4 Legacy factors Content Artist Marketing Manufacturing Distribution and Retail Cross Industry Support Standards: Device and Format Plug and Play Industry MO 15.4.5 Format-Specific Factors Fixed Broadband Penetration Realtones Various Mobile Options 15.5 Digital Music Forecast 15.6 Channel Mix 15.6.1 Today: Physical Format Retail Channels 15.6.2 Future: Digital Music Retail Channels Music Retailing Moves into the Home Convergence Device Interaction Channel Separation Channel Separation: Sales and Product Delivery 15.6.3 Forecast: Channel Mix 16 MARKET FORECAST: 3G (WCDMA) 16.1 Status of Current 3G Deployments 16.2 3G Rollout Scenarios 16.2.1 Scenario 1: Consumer Pull 16.2.2 Scenario 2: Operator Push 16.3 Detailed Analysis - Scenario 1: Consumer Pull 16.3.1 Key Success Factors Affecting 3G Rollouts 16.3.2 Supply Side Factors Service Coverage Handset Maturity 16.3.3 Demand Side Factors Customer Proposition End User Pricing 16.3.4 Summary 16.4 Detailed Analysis - Scenario 2: Operator Push 16.5 Conclusion 17 APPENDIX 17.1 Download Speed: 2.5G - GPRS 17.1.1 Coding Scheme 17.1.2 Handset Class (GPRS Class) 17.1.3 Timeslot Allocation (Multislot Class) 17.1.4 Traffic Load Requirement 17.1.5 Summary - What it Means 17.2 Network Capacity 17.2.1 Offered Load 17.2.2 Available Network Capacity 17.2.3 Conclusion |
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