Proactive Industry Participation and Improved Networks Likely to Create Active Music Experience in theEuropean Mobile Music Markets

Frost: Popularity of Master Tones and Full Track Music will Accelerate Revenue Growth in these Markets over the Next Six Years. Advances in technology have enabled participants in the music industry to participate in a parallel market for audio equipment and thus create the mobile music markets. Innovations ranging from Sony's Walkman to the 'it' gadget of the hour - Apple's iPod avidly market music on the move but, it's the mobile handset which has the added advantage of combining both communication and entertainment (music) while allowing customers to share music in a secure environment.

With mobile handsets playing music as ring tones or message tones or even entire songs through downloadable applications, the music industry's motto of easier accessibility to larger audiences will become a reality. The closed nature of cellular networks make it an ideal environment for secure intellectual entertainment property. This attracts music publishers who will not lose royalties or copyrights as is often the case when sites use loopholes to share music files. In fact, large publishers such as the Warner Music Group and EMI are optimistic about being present in these markets.

The European mobile music markets are expected to grow rapidly. The deployment of general packet radio service (GPRS) and 3G networks by most European operators will be key catalysts to this market growth. From Euro 1.56 billion in 2004, the revenues in these markets are expected to reach Euro 7.85 billion in 2011. In fact, the market is expected to grow to a level where the ringtones segment alone is expected to be worth Euro 3.01 billion with full-track music market likely to exceed ringtones at Euro 4.83 billion by 2011.

This market scenario for music developed when operators and music publishers realised that it was possible to convert songs into concise ringtones and use them on mobile phones to alert customers on incoming calls or message alerts. Today, with a population of approximately 400 million, Western Europe offers a huge opportunity in terms of market size and scope for mobile operators, especially since the markets are mainly addressed through ringtones.

Improved cellular networks that allow the delivery of over the air (OTA) full-track music as well as better quality master ringtones/real tones, are creating a paradigm shift in the way customers experience music. Also, the active involvement of key participants in the music industry is a direct result of the recognition of mobile networks as secure and interactive delivery channels for multiple music applications.

The traditional value chain of content creation, production, manufacturing and its sales and marketing through distributors, wholesalers and retailers adds to the systematic chaos of the music industry. The strong (but slowly declining) market for purchase of physical copies of music, is being simplified by the mobile and online music options revolutionising the music industry's value chain.

Large record companies are still concentrating on the fast moving consumer goods (FMCG) model of selling physical copies but are also today far more comfortable licensing their content to aggregators and third-party labels when it comes to mobile or online music. Also part of the value chain, software companies and mobile handset manufacturers are working closely with these specialist record companies and aggregators to ensure digital rights management compliance on their respective handsets in an attempt to profit from mobile music mania.

The mobile music markets also increasingly benefit independent record companies because it will allow these companies to retain a large part of the distribution chain. Their disadvantage of the lack of a physical distribution chain will be negated in the mobile music medium, which allows them to bundle multiple labels in a single store, thus offering a one-stop shop to their customer.

Although it is a popular opinion, the usage of mobile music services is not restricted only to the youth. While this is the traditional target audience for most mobile operators and independent mobile music service providers as the average age of the first-time mobile customer has dropped to as low as 11-15 years of age, the record labels and operators are looking at older customers as trends in consumer purchase change.

The purchasing patterns of the older customer segments tend to be more consistent with regard to type of content and usage. Operators are now even attempting to reach out to the much oldest customer segment, by customising and innovating service offerings, to include patriotic tunes and songs, gospels/hymns and classical mobile music.

As with any rapidly evolving technology, cannibalisation of mobile music applications are inevitable, seeing older versions such as monophonic ringtones fading out to make way for only polyphonic and master tones market by 2011. Another threat in these markets is the consolidation that could occur among smaller content aggregators and music service providers as large record labels enter these markets. However, by building better relationships with mobile operators through offering bundling of different products and by constantly innovating, participants can flourish in these markets.

Despite certain hiccups, the European mobile music markets are likely to show immense revenue and growth potential. Their case is aided by the overwhelming cooperation from the music industry, technological advances that improve cellular networks and consistent demand for music from all almost age groups. In fact, the demand is going to be so overwhelming, it is expected that the mobile music medium will soon outrun popular mobile entertainment media such as video and TV.

European Mobile Music Markets Publ 20060117