Richer sounds

Mobile operators and music content providers can make significant gains by working together and sharing additional revenue streams.

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By  Chris Yeadon Published  July 15, 2008

According to a recent report by UK research firm, Understanding and Solutions, music based mobile services account for around 14% of the global music retail trade and is estimated to rise to around 30% by 2011.

Today both the telecommunications industry and the music industry recognise the huge potential of mobile distribution of music. Record companies, whose revenues have been falling for five years, due to piracy and illegal file-sharing, are keen to promote legitimate digital music services and partner with the mobile network operators. Their huge subscriber bases and ability to market directly to consumers therefore makes mobile carriers highly important distribution partners for music labels and music content aggregators.

At the same time, as voice services are rapidly becoming commoditised, mobile operators are keen to acquire compelling content to offer the value added services, that, as little as two years ago were viewed merely as marketing or customer retention tools, but are now considered by many operators as critical revenue generators.

It therefore appears that for the foreseeable future, both industries shall remain strategic partners. But for communication providers, music based content services still present some significant challenges, particularly for the revenue management and billing processes.

Acquiring music content is not necessarily a simple linear transaction. Music content distributed over mobile networks requires the licensing of multiple rights, including the right to copy and transmit both the musical composition and the sound recording. Depending on the country, an operator may therefore have to work with multiple partners in order to acquire music content, each requiring reporting, settlements and payment.

In many countries, especially in Europe, acquiring music content requires a licence from the various record companies to cover the sound recordings and from a collection society to cover the rights in the musical works.

In the UK this latter body is the MCPS-PRS Alliance who represents the mechanical and performing rights (covering any electronic copies made and transmissions across the network respectively) in the vast majority of the worldwide musical repertoire of music publishers and composers. MCPS-PRS issue licences when their music is recorded or publicly performed in the UK.

For the UK, MCPS/ PRS offer standard licensing schemes to communication providers that they must acquire and comply with, should they wish to distribute music content over their networks. For downloads of full tracks or ringtones, these joint licences are based on a revenue share arrangement including any advertising or sponsorship revenue related to the music service, subject to a transactional minimum royalty per download. These licences are required in addition to any payments to a record company or music provider.

The communication provider's revenue management systems and processes must therefore have the adaptability to support these potentially complex non-negotiable partner licence agreements whether they are based on revenue share, rate per use or combinations of these payment models and associated reporting requirements. A particular challenge is the allocation of the correct proportion of advertising and sponsorship revenues which may have been sold across the whole of the communication provider's portal.

In addition, mobile operators might want to package music content with telecommunications services, such as voice or SMS bundles or with other music related digital content in order to address target specific customer segments, for example, fans of a music artist. Revenue management systems must support such bundling whilst complying with the business terms of the operator's partner agreements.

Music is an example of the many new services being introduced involving multiple parties in the value chain. In order to promote mobile music services, real-time charging and balance management becomes increasingly important to the revenue management process. With the diversification of services, many subscribers are still unfamiliar with new content based services and require reassurance over costs.

Revenue management systems must therefore support real-time charging and balance management to enable real-time advice-of-charge messages ensuring that subscribers are comfortable in using the service. At the same time, they must allow the communications provider to ensure the credit-worthiness of the subscriber with real-time balance authorisation and reservation capabilities. Bad debt resulting from high levels of content consumption, including music, carries the added exposure to 3rd party content licence costs in addition to lost service revenue.

The above are just a few of the challenges facing communications providers seeking to deploy music based services, others include the complex usage reporting requirements by collection societies and record companies and the increasing DRM and piracy issues. However the steps required to meet these challenges are part of the more general, but necessary process to ensure that revenue management systems become more flexible and responsive to tomorrow's markets.

Chris Yeadon, director of product marketing, LHS

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