Mobile phone music creates new supply chain

Marco Quatorze, Director at Claro: attention to countries’ preferences when adapting the music selection in this type of service

Stimulating consumers to listen to music on their mobile phones has become an important business not only to the companies in the telecommunications industry, such as mobile operators and manufacturers of handsets. At least another two categories of companies are working actively toward the organization of the latest online music store chains. Media and entertainment companies, such as record companies and TV channels, and an up-to-date version of what was known as syndicates – agencies that supply photographs or other material to newspapers and magazines for simultaneous publication. The novelty is that instead of news articles they now

“If we were not ready and any of the elements were missing, I would be in doubt regarding the success of this business", said Felippe Llerena, CEO of iMusica. The company was created in 2000 and is one of the best examples of the new syndicate format in the Internet era. Partnering with Claro in this online music business, iMusica is currently talking to record companies and trying to get licenses for other companies, in addition to selling music contents directly to consumers via the Internet. “We have contracts with 350 independent labels from Brazil in addition to four other large multinational labels: EMI and Warner for mobile and Internet content, and Universal and Sony BMG for the web content”, said Llerena.

After seven years of activities, iMusic is not exactly a newbie in this industry, but it had to wait for a long time until the major labels licensed their contents. “We were only able to sign the contracts last year”, said Llerena.

It took a long time for the record companies to provide this download facility because they were afraid this new trend could cannibalize their core business, which was already struggling: the sale of CDs. “There are 105 million handsets in Brazil and one store open 24/7 is a golden opportunity for us and for the record companies”, said Llerena.

The iMusica-Claro agreement opens doors for internationalization because the contract is valid in 15 countries in which América Móvil, which controls the operator, has operations. “We will surely have to work on the expansion of the business, by opening new branches abroad”, said Rodin Spielmann, financial director at IdeiasNet, which controls iMusica.

Focused on investments in technology companies, IdeiasNet improved its stake in the capital of iMusica two months ago: its equity interest increased to 93% from 75%. Currently, in addition to the direct impact one digital distribution companies, the agreement with Claro might provide further advantages to the other companies under the group's umbrella, said Spielmann.

This is the case of Padtec. The company, of which IdeiasNet holds a 34.2% stake, manufactures equipment which is sold to operators for incrementing data traffic. “This is a business which is growing because companies such as iMusica are ever more offering services capable of using the band capabilities of telecommunication operators", he said.

This Claro agreement sets forth a song portfolio adjusted to the preferences of each country within the América Móvil operations. The company is cautious for not making mistakes in approaching local consumers: someone like Madonna, for instance, sells anywhere, while trying to sell an Argentinean rock band in Chile, or the other way around, might not make the trick. “Our song portfolio is not a one-size-fits-all type of product”, said Marco Quatroze, roaming and value-added services director at Claro. “Each country picks what they like the best in iMusica.” While in Brazil there is a specific category for Brazilian Popular Music, which exists nowhere else, the Mexican consumers have another category for salsa, for instance.

Being successful regarding consumer preference relates to concepts such as audience, which is a daily concern at the entertainment companies in all industries, apart from songs.

Fox Latin America Channels, which represents pay-TV channels in the region such as Fox, FX and National Geographic is going to resume its My Fox division activities. The purpose of this operation? To provide mobile users with products related to its TV series, especially those with large audience, such as “24” and “Prison Break”.

“We have renewed our contract with mobile operator Oi and we are conducting talks with the other mobile operators”, said Patrícia Brito, manager of My Fox division. In this new phase, strategy is to go beyond TV series and supply products related to its own channels, such as FX which is focused on male and adult audience. Products include wallpapers, ring tones and 30-second-length videos. Consumers pay prices ranging from R$2.30 to 5.99 for each file downloaded, and R$10 for videos.

Fox pins its hopes on an assortment of products related to animated television series “the Simpsons” – which recently premiered in the big screen - whose release is expected in November. “We have projected a growth of 60% in downloads because of ‘the Simpsons’”, said Brito.

In the long run, selling downloadable video for mobiles may become an important business, just like music is today, but it depends on operators defining a series of technological standards, she said.

Considering some recent experiences, however, it is likely that some globally known cartoons, such as “the Simpsons”, will have to run for market space with almost anonymous products.

TIM has launched TIM Studio, where users can share and download photos, videos and audio files. Altogether, 30% of traffic generated in this environment is music or audio files created by users. Authors receive R$0.15 for each file downloaded. The outcome of this operation is that new stars emerged out of this new froth of excitement: some clients have accumulated over R$2,000 in credits with the mobile operator.