December 6 ,1999
Online music strikes chord with Sony
Group hopes timing right, but Softbank lurks
Shigeo Maruyama is keenly aware that in the brutally competitive world of Internet-related business, being first matters. That's why the president of Sony Music Entertainment (Japan) Inc. announced that his company will begin selling music via the Internet on Dec. 20, making it the first Japanese company to enter the business.
"If we had not moved to start the service, outside companies would have entered the business and shaken the industry," Maruyama said in an interview with The Nihon Keizai Shimbun (See article on Page 19).
But then again, being first out of the gate is no guarantee of winning the race, say industry watchers.
The company faces an uphill battle turning a profit on the business. Pirate Internet sites have already created the notion that music is free on the World Wide Web, so persuading consumers to pay for music off the Internet could be a tough sell.
Sony Music could also face stiff competition from Softbank Corp., which is approaching the market with a different business model.
Starting on the afternoon of Dec. 20, users will be able to point their browsers to bit.sonymusic.co.jp and select songs to download. The company plans to begin with a group of 44 songs. Each song will cost 350 yen ($3.43), payable by credit card or with prepaid cards available at convenience stores. The songs can be downloaded to a computer or to Sony Corp.'s new Memory Stick Walkman that will go on sale Dec. 21.
The new Walkman can be connected to a personal computer and stores data on a memory chip.
"The music service is a first step in Sony's strategy to genuinely start its electronic-commerce business by using its memory-stick technology," said Kazuharu Miura, an analyst for Daiwa Institute of Research.
The Internet already features a number of sites where people can download music. But because of the problems of copyright violations and illegal distribution, most of the music available is largely that of new artists and independent musicians.
Considering Sony Music's vast collection of popular artists and well-defined copyright protection, the company's move represents an important step forward in the evolution of the Internet music-distribution business.
The industry is hardly rejoicing at the news, however. Even within Sony Music some are questioning whether this is really a good idea. "When it takes nearly 20 minutes to download a four minute song, who's going to like doing that?" asked one employee.
Most Japanese Internet users connect to the Web over phone lines that can handle data speeds of no more than 30 kilobits per second. Even when data is compressed so each song is only around 4 megabytes, downloading an entire album would take over two hours.
Given these numbers, it is obvious that distributing music over the Internet is not going to be an immediate financial success. "This business is going to bleed red ink in the beginning," the Sony Music employee said.
Free music
Still, the company could not just sit by and watch as free music sites popped up on the Internet. As the record industry leader, a reluctant Sony Music felt the need to get involved and impress upon consumers that music is not a free commodity, even on the Internet, observers said.
Some think Sony's 350 yen price for a song is too high. "We had presumed the price would be around 200 yen. This is not an attractive price for consumers," said Fumiaki Sato, head of technology research for Deutsche Securities Ltd.
If free sites are the lions at Sony Music's front gate, then the new Net distribution business being developed by Softbank is the wolf lurking out back. Working with Yahoo! Japan Corp. and musician Minoru Mukaiya, Softbank recently established a new company called eS! Music Corp. that intends to offer service from next summer charging just 100 yen to download songs.
"At 100 yen, I can't see how they expect to turn a profit," said Manabu Kondo, manager of planning and promotion at Sony Music.
But according to Softbank President Masayoshi Son, "We can reach 85% of the 15 million Net surfers in Japan." For one thing, Softbank holds a huge stake in Yahoo! Japan, a major Internet portal. In addition, the company is working with Tokyo Electric Power Co., among others, to launch a high-speed network communications service. With a huge potential user base, eS! Music may be able to squeeze out a profit from the sheer scale of its activity.
Unlike Sony Music, eS! Music does not have any artists. It is not yet clear which or how many songs will be available for distribution, but the company is cooperating with the Japan Society for Rights of Authors, Composers and Publishers, the only society in Japan that administers music copyrights.
As investor musician Minoru Mukaiya explained, "You can't get customers to your site if all you have are CDs from one particular record company." The plan is to reach beyond the record companies and appeal directly to the copyright holders to supply their songs, thereby offering a much broader range than Sony Music could.
"From a consumer's viewpoint, they want to download as many songs as they like, no matter what record labels the artists belong to," said Deutsche Securities' Sato. "Alliances among music companies will be necessary to provide a better service."
Business paradigms
It remains to be seen how this battle in business paradigms between Sony and Softbank will play out. The copyright holders who supply the songs will cast the deciding votes. But as of now, with Internet distribution of music still in its infancy, musicians are keeping a wary eye on developments, still unsure how they like the new kids on the block.
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