March 10, 2006

Beav, you goof, monetization of music in China ends with 3G

Filed under: Regulatory,Wireless — Administrator @ 11:03 am

Today, we received Piper Jaffary’s latest China Analyst research note titled, “Music in China – Monetization Through Mobile Platform.” While we don’t have any major issues with their thesis that “several new developments [in China music industry] suggest that monetization of music, through mobile services, is beginning,” we do want to call them out on how profitable music will be for content providers, distributors and intermediaries.

First, here are some key findings on China’s mobile music market (source: Piper Jaffary 3/06):

We estimate the Chinese mobile music market size to be approximately $200-$400 million in 2006 consisting primarily of ringtone and caller ring back tone sales.

Yet, in both the U.S. and in China, young people who will almost never pay to buy a CD or download legal copies, happily pay $5-$20 per month in the U.S and $1-$4 in China.

What [kids] are telling us and the industry is that they are willing to pay for music, but only on their terms.

Good stuff, yeah? Sure, but wrong conclusion! Kids/adults in China (and everywhere else in the world) aren’t paying for ringtones because they want to, and surely not “happily” – they pay because they have no alternative; the mobile companies control the mobile pipe, the gateway, and without paying for that mobile connectivity kids/adults would be, well, they would have talk to each other a lot more. Come on Piper, get with the game – you guys sound a bit, well, a bit square (“Gee, Beav, I don’t know?”).

This gets us to our point, finally, that content is going to be free, all content that is, the music industry as a content provider will need to own that pipe if they hope to profit from mobile sales; and the reason, moving forward, is one acronym: 3G.

What makes people believe that they can control file sharing through mobile phones anymore then they control it now on PCs? Widespread use of 3G (medium – high end users) in China is a couple years off, maybe 3 years, however we are already witnessing the proliferation of WiFi enabled phones (Dopod 818pro in the house!) and WiFi hotspots in China; we believe this makes any hope of earning a sustainable profit from music in China a pipedream (ex-our carrier friends – love that growing ARPU). And, we haven’t even touch upon “off-line” mobile P2P sharing but that’s out there, too.

For the record, so Piper doesn’t cut us off, we think the guys at Piper do a great job, it is just we don’t agree with them on the medium to long term picture of music in China.

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