MMW-124 -- Japanese Fair Trade Commission Rules Against Label Mobile

Tue Aug 19 10:50:46 JST 2008

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J at pan Inc Magazine Presents:
M U S I C M E D I A W A T C H
Commentary on Japan's music technology news
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Issue No. 124

Tokyo
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CONTENTS

++ FEATURE: Japanese Fair Trade Commission Rules Against Label
Mobile

++ NOTEWORTHY NEWS:
** Eurotechnology says at least 75,000 iPhones sold in Japan
   for July
** Yamaha announces release of Sequel 2
** mF247 to suspend operations at end of August
** Tsutaya to partner with Usen on music service
** JRC becomes first Japanese company to join DDEX consortium

++ FEATURE: Japanese Fair Trade Commission Rules Against Label
Mobile

After nearly four years of investigation, the Japanese Fair
Trade Commission (JFTC) handed down a ruling last month against
the founding companies of Label Mobile, the joint venture that
is Japan's overwhelmingly dominant mobile music content
provider.

As first reported in our feature for MMW #74 (March 2005),
these companies - Sony Music Entertainment, Avex Networks,
Toshiba EMI (now EMI), Universal Music and Victor
Entertainment - were issued an official advisory notice
by the Japan Fair Trade Commission in March 2005 over their
refusal to grant licenses to third-party chaku-uta (master
ringtone) providers. This notice followed a nine-month
preliminary investigation which included a raid on the
offices of several record companies back in August 2004.
The investigation was reportedly triggered by complaints
from mobile music providers accusing the record companies
of colluding to exclude other mobile music providers from
the highly lucrative market for chaku-uta in Japan.

The original notice issued to the five record companies
contained several specific findings, including the following
(initially reported in MMW #74):

1. Due to their dissatisfaction at losing income to providers
of MIDI-based ringtones, the five record companies decided in
2001 to collaborate on the development of a new mobile music
service that would take advantage of their control over the
master rights to popular songs.

2. Because any provider of Musical Instrument Digital Interface
(MIDI)-based ringtones can obtain song rights by paying a
standard royalty to JASRAC (Japanese Society for Rights of
Authors, Composers and Publishers), there are a large number
of providers and a lot of competition based on price. In order
to avoid this situation, the labels established a joint venture
called Label Mobile which would be the exclusive content
provider for the new service.

3. From its inception, the Label Mobile Board of Directors has
consisted solely of executives from the five labels.

4. At a Label Mobile management meeting in May 2002, Sony Music
proposed to the other labels the idea of a "chaku-uta" service
requiring the master rights to songs. The service would be
inaccessible to companies other than record labels, thereby
avoiding price competition.

5. The five labels agreed to make Label Mobile the exclusive
provider of songs for the chaku-uta service and to refuse
license requests made to any of the five companies by other
chaku-uta providers.

6. Chaku-uta providers other than Label Mobile have since been
denied song license requests for no justifiable reason.

Of the five record labels named in the original notice, four of
the companies decided to fight the ruling and subsequently
submitted their counter-arguments to the JFTC. Only Toshiba
EMI opted to accept the findings of the notice and begin
licensing its catalog to other content providers. As the legal
arguments dragged on, Label Mobile further expanded its already
dominant position as the only mobile music content provider
able to offer catalog from all major Japanese labels. In fact,
it is now estimated that 70% to 80% of all paid mobile music
downloads are made from a Label Mobile service.

The JFTC ruling in July was a long time coming, but did not
come as much of a surprise to anyone involved in the mobile
music industry. While Sony and the other labels argued that
they refused third-party license requests based solely on the
business merits of each request, the evidence made it clear
that Label Mobile was established largely for the purpose of
excluding third party providers in order to avoid competition
and save on distribution costs.

Despite all of the time and effort spent in the four-year
investigation, though, it is highly unlikely that the ruling
will have any real impact on the industry. Provided that the
labels agree to comply with the ruling this time, there will
be no penalties or fines levied against any of the companies.
And of course, at this point, it really doesn't matter much
whether or not the labels increase their licensing activity
to outside companies. Simply by keeping other providers out
of the competition for the first six years of real-music mobile
downloads in Japan, the record companies have more than
accomplished their objective of exclusivity and control.

It's hard to imagine this kind of scenario occurring outside
of Japan. Cooperation among business rivals here regularly
approaches levels not often seen in the West, and can be very
effective in keeping outsiders at bay. Even iTunes, after
three years of business here, has been unable to make much
of a dent in Japan's highly exclusive market for mobile music.
Similarly, Napster has had little success in Japan with its
subscription model, due in no small part to a lack of major
Japanese catalog.

Whatever your views on collusive business practices and the
JFTC ruling, the bottom line for the music industry here is
that Japan remains the only major market where digital revenues
have compensated for the decline in physical sales. Because
the labels were able to come up with a system that has worked
for all of them, there has been no real incentive for them to
experiment with other business models and services such as
subscriptions or streaming. And this will likely remain the
case for as long as mobile revenues are able to hold strong.

++ NOTEWORTHY NEWS:

** Eurotechnology says that at least 75,000 iPhones were sold
in Japan during July
In brief: During a panel discussion at the Foreign
Correspondents Club of Japan on August 13, Gerhard Fasol, CEO
of Eurotechnology, estimated that between 75,000 and 125,000
iPhones were sold in Japan from July 11 through July 30. Fasol
went on to predict that Apple will sell between 640,000 and 1
million iPhones in Japan by the end of 2008.
Source:
http://www.eurotechnology.com/blog/

** Yamaha announces release of Sequel 2
In brief: On September 1, Yamaha will begin selling Sequel 2,
the latest version of its music production software developed
by Steinberg. Sequel is a simplified version of Steinberg's
Cubase software, similar in features and functionality to
Apple's GarageBand. Steinberg is a wholly-owned subsidiary
of Yamaha.
Source:
http://www.yamaha.co.jp/news/2008/08080701.html

** mF247 to suspend operations at end of August
In brief: mF247, a site that distributes DRM-free independent
J-Pop music, announced that it will suspend operations after
August 31. Shigeo Maruyama, the president of mF247 and former
president of Sony Music Entertainment, said in a written
statement that mF247 had accomplished its initial objectives.
The site opened in August 2005, and became known for its
realtones that featured complete musical works which were under
47 seconds in length.
Source:
http://www.itmedia.co.jp/news/articles/0808/01/news049.html

** Tsutaya to partner with Usen on music service
In brief: Tsutaya Discas, which operates the large Tsutaya
chain of CD and DVD rental shops throughout Japan, announced on
July 31 that it would team up with Usen to offer its own online
music store called 'Tsutaya Discas Ongaku Haishin.' The new
service will offer essentially the same catalog and pricing
currently found on Usen's 'Ongen' store. In addition, users
will also be able to order CDs for rental from the site.
Source:
http://www.j-cast.com/2008/07/31024369.html

** JRC becomes first Japanese company to join DDEX consortium
In brief: In July, JRC (Japan Rights Clearance) became a member
company of DDEX, a consortium of companies working on
international standards for distribution of digital content and
data. Included among the 14 charter members of DDEX are Apple,
Microsoft and RealNetworks.
Source:
http://www.japanrights.com/whatsnew.html?whatsnewId=20

-- Steve Myers

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