Mobile music

20.04.2004

Sandro Grech <sandro@cc.hut.fi>

Helsinki University of TechnologyT-109.551: Research Seminar on Telecommunications Business

II

Overview

• Music industry overview

• Mobile music, state of the art

• A service architecture for Mobile Music downloads OTA– Analysis

• Conclusions

Taxonomy of mobile music

Audio/ video clips streaming

Ringtones

download

Music downloa

d

Playback from physical media

Digital media

playbackFM radio reception

Music playback over

portable devices

Multimedia mobile terminal mobile music capabilities

Super-distribution

Music content delivered

through mobile networks

Mobile music

Music industry in a nutshell

• Mature oligopoly (“big five” record labels)• In 1947 six labels controlled 90% of the music industry• In 1999 five of their successors still controlled 84% of the

industry• Market size: 40 billion euros annually• Music = information

– Intangible, inexhaustible– public good = non-rival, non-excludable– Experience good– Repetitive good

• Declining sales attributed to online piracy

Music industry in a nutshell

• Continuous wave of innovations:

1870’s

1880’s

1890’s

1900’s

1950’s

1960’s

1970’s

1980’s

1990’s

2000’s

…

1877 – First music recording (Thomas Edison)

First record catalogues

First mass production of records (12´´)

1951 – First tape recorder

1963 – Introduction of audiocasette (Philips)

Sony releases the Sony Walkman

CD format introduced (overtook LP sales in 1988)1987 – mp3 digital compression (Fraunhofer Institut)

1997 – First mp3 player

p2p file sharing

RetailerDistr

ibutor,

wholesale dealer

Recording studio,

CD manufacturer

Record labelComposer,

performer

Value chain and cost structure

Development Production Marketing Distribution Retail Consumer

Roy

alti

es a

nd

adva

nces

(16

%)

Man

ufac

turi

ng (

7%)

Mar

keti

ng (

16%

)

Ove

rhea

d (2

0%)

Lab

el’s

pro

fit (

3%)

Dis

trib

utio

n (1

0%)

Ret

aile

r m

arku

p (2

8%)

Mobile music, state of the art

• Monophonic ringtones

• Polyphonic ringtones

• 2002 global ring tone sales of $1.5 billion

• 3rd party content providers take up vast part of the revenue– Operators missed a sizeable revenue

opportunity (keeping only SMS revenue)

Mobile music download OTA

• Mobile music downloads have the potential to succeed if:

– the service is capable of meeting consumer requirements that cannot be met by download services in the fixed Internet, or

– the mobile download service is more convenient to use than its fixed Internet equivalent.

A service architecture for Mobile Music downloads OTA

Radio broadcast

Synchronized GPRS portal (including “reverse channel”)

Synchronized portal

Mobile Terminal- FM broadcast reception- application client- 2.5/3G data- DRM client- media player Mobile Operator

- 2.5/3G infrastructure- billing platform- DRM platform

Radio station- GPRS content synchronized with radio broadcast

Content aggregation- hosting of encoded audio content

Reco

rd L

ab

els

Music download

Business model

Synchronized portal

Consumer

Mobile Operator

Radio station

Content aggregation

Reco

rd

Lab

els

1. Pays bill to mobile operator,

including music download fees

(content + bearer charges)

3b. Royalties

3a. comm

ission

$ (bearer charges + commission)

$ (content fees - operator commission- radio station commission- record label royalties)

$ Royalties

2. Content fees - commission

$ “Marketing Commission”

• M

obile

pho

ne ve

ndor

s

• Con

sumer

elec

troni

cs

manuf

actu

rers

• Netw

ork o

pera

tors

• M

VNOs

• Netw

ork v

endo

rs

• Dev

ice ve

ndor

s

• So

ftwar

e

vend

ors/i

nteg

rato

rs

• Com

pose

r, pe

rform

er•

Recor

ding

labe

ls

• M

usic

publ

isher

s•

Radio

& T

V bro

adca

sters

• M

usic

porta

ls

• Rin

gton

e pro

vider

sDevelopment

Mobile platform/ application provider

Network operators

Service provider/ portal

Consumer Device manufacturer

Sig

ns, r

ecor

ds, m

arke

ts

and

dist

ribu

tes

mus

ic.

Hol

ds li

cens

ing

righ

ts to

pe

rfor

man

ces

and

reco

rdin

gs.

Music production/ publishing

Music acquisition/ aggregation

• W

ireles

s por

tals

• Rec

ord

compa

nies

• Rin

gton

e pro

vider

s

• M

usic

MVNOs

• Bro

adca

sters

Supply chain

Acq

uire

s an

d ag

greg

ates

m

usic

rig

hts

for

repr

oduc

tion

on

vari

ous

chan

nels

.

Dev

elop

s ap

plic

atio

ns f

or

mob

ile

plat

form

. Inc

lude

s D

RM

, bil

ling

, MM

S,

etc…

Pro

vide

s de

live

ry, a

cces

s an

d ne

twor

k se

rvic

es. M

ay

offe

r bi

llin

g or

hos

ting

.

Cre

ates

the

inte

rfac

e,

bund

les

and

mar

kets

m

obil

e se

rvic

e. I

nclu

des

cont

ent a

nd s

ubsc

ript

ion

man

agem

ent.

Pro

duce

s ac

cess

dev

ices

ca

pabl

e of

sto

ring

, and

re

play

ing

mus

ic.

Cre

atio

n of

mus

ic p

iece

s

Implications• Music development

– Reducing the control of music sellers?

• Music production and publishing– New source of revenue– Require DRM protection

• Music acquisition and aggregation– Intermediary (e.g. aggregators from fixed Internet) or

carried out by other players in the supply chain

• Mobile platform and application providers– Nokia “Visual Radio”– Ericsson “M-USE”

Implications

• Network operators– Unlike other wireless content and applications,

operators have little or no ownership and control over mobile music offerings

– operators have to position themselves as value-added partners to record companies and labels, with the core role of mobilizing the provision of mobile music.

– Consumer willingness to pay (~ 1€/song)

– Small margins, high volumes

Implications

• Service provider/portal– Possibly a new type of MVNOs?

– Radio stations, music televisions…

• Device manufacturers– Battery life

– DRM fora

– Open platforms

– Possible expansion towards other consumer electronics (e.g. car stereos)

Implications

• Consumer– ubiquity, immediacy, flexibility, convenience

and personalization – unbundling– Better selection?

Mobile music evolution roadmap

OTA Monophonic Ringtones OTA Polyphonic Ringtones

Integrated FM Radio Receiver

SMS, CSD GPRS(30-40kbps)*

EGPRS(100-160kbps)

WCDMA(64-384kbps)

IEEE 802.11(limited by transport)

HSDPA(2xWCDMA)

Interactive FM Radio

Radio reception with synchronized GPRS content.

- ringtone downloads

- interactive polls

- “click to buy”

- interactive marketing

- etc

Radio reception only Radio reception with capability to download selected

tracks over wireless network.

Mob

ile m

usi

c se

rvic

es

Beare

rte

chnolo

gie

sM

obile

musi

c ca

pabili

ties

Streaming audio

2.5 - 4min down to 1 mindown to30 sec

* typical (non-peak) data rates Estimated download time for a 3MB audio file

Conclusions

• Digital music distribution has profound implications on the music industry

• Fixed Internet has showed that consumers are willing to pay for music downloads

• Several variants of mobile music downloads may exist. Time will show which will be the most successful

• Role of incumbents (e.g. broadcasters)

Conclusions

• Enabling technologies already in place or already under development

• Business cases, particularly for mobile operators will be based on thin margins

• Complementary rather than full replacement

Discussion….

Questions?