Blazing the digital trail

By STEVEN PATRICK

We talk to Sandy Monteiro, one of Universal Music’s top men in South-East Asia and find out how he foresees the digital music market evolving this year.

IT HAS been 18 months since 43-year-old Sandy Monteiro became the first Malaysian music executive to get a regional “digital music” post.

Monteiro’s current title is Universal Music South-East Asia’s vice-president of digital.

His hectic schedule has him jetting around the region, figuring out what each individual market wants, in terms of digital music downloads.

In June he added another feather to his cap; Monteiro has also become Universal Music’s senior vice-president of Asean.

“The promotion was based on Universal Malaysia’s performance in 2006. We grew 6% while the local music industry shrank by 15%.

“Most of Universal’s growth came from digital. I’m now supposed to bring this model to other countries in the region,” he said.

In 2007, the biggest digital hit under Universal Music was Smack That by Akon. It sold half a million ringback tones locally in 2007, claims Monteiro.

Monteiro, also the chairman of the Recording Industry Association of Malaysia, explains that this was achieved because Universal is being run like a digital-service provider, rather than an old-school record label.

For all the news about the music industry going to the dumps, Monteiro remains optimistic.

“The problem with certain big music companies is not piracy but the lack of hits and investment in new talent. Universal have hit acts like Gwen Stefani, the Pussycat Dolls and the Black Eyed Peas.

He also enthuses about a revised revenue-sharing deal with a major telecommunications company. He would not reveal details but reveals that the deal will see a huge influx of money back into the industry.

Licensing headaches
When he first took Universal’s digital posting, he inherited a host of licensing issues for digital music. Everybody in the digital download chain wanted their share of the pie...and then some.

They were the music publishing companies, the recording companies and the telecommunication companies.

“I thought the music industry was changing, not dying,” he said.

Today, slowly but surely, these parties are trying to iron out digital licensing issues.

The future of digital music in Malaysia, seem to be in mobile downloads, as handphone penetration is higher than PC penetration in Malaysia. Also, there is still no sign of an iTunes-like model in Malaysia.

The buzz from TMNet’s music download service has fizzled out, where else ringback tones are estimated to be an RM100mil over business.

Sources estimate the ringback tone market to be valued at RM144mil.

The Malaysian Communications and Multimedia Commission (www.mcmc.gov.my) estimates handphone penetration to be 78% while PC penetration is estimated to be a mere14.2%

The Recording Industry Association of Malaysia (RIM) is in the process of cleaning up ringtone piracy and is replacing it with a legal model – download kiosks.

Monteiro took some time off recently to field a few questions from In.Tech about these initiatives as well as his expectations for the digital music download market this year. Here is how it went:

What are your responsibilities as Universal Music South-East Asia vice-president?

My job is to work with each of the territories in South-East Asia to grow the size and scope of the digital music business which includes ringback tones, full track downloads, preload deals (deals where phones come preloaded with tracks) as well as oversee the introduction of new services.

Then, there are also business models such as subscription services, advertising funded deals, Digital Rights Management trials, video and Internet Protocol Television (IPTV) type services and more.

The objective is to create a support structure that allows each territory to maximise its business growth according local market factors but at the same time adopting best business practices to become benchmarks across all markets. The business should be easy and straightforward.

What do you consider major milestones for digital music in Malaysia, over the past year?

I think the closer cooperation amongst rights owners is a major milestone as it allows all parties to focus on growing the business rather than creating conflict and uncertainty.

Before digital came along, it was every man for himself. Now everybody realises its the new business frontier, especially with the revenues from ringback tones.

The recent shift of the ringback tone (RBT) revenue share is also a major milestone that is set to rejuvenate spending in domestic acts, which in turns grows the business.

The deal will see a major influx of money flowing back into the music industry.

The focus of telco partners in launching 3G-based services is also a major milestone as it marks the arrival of rich media services for consumers.

Last but not least, the development of music download kiosks seeks to convert an easy-access mobile music platform that until now has been the domain of music pirates.

What is holding the digital music market back?

I think a certain level of comfort with the incredible success of RBT has made all parties a little less aggressive and persistent in pushing and growing other forms of music services in the digital sphere.

Another reason is the lack of consumer education on how to use their devices.

This means that a large segment of the population has rich media devices which are not actually used to enjoy rich media services because consumers are not familiar with the functionality of their devices and how to access network offerings.

There is also a fairly active pirate market – both commercial and personal – that bypasses the whole legal business framework. This drains away potential growth of services.

How much is the digital music market worth this year?

If you take all parties into consideration, I would estimate in excess of RM200mil but for the recording industry per se I would estimate about RM20mil.

Digital music downloads contributed 16% of revenue to the entire music industry last year. Will there be growth this year? What will drive this growth?

It is expected to contribute 20% to 25% of total business this year with about 50% growth year on year.

The major drivers for this growth will be the new RBT model, the growth of rich media models in both ala carte and subscription formats, as well as the introduction of more kiosk-type services.

Also, a simplified licensing mechanism for business partners should contribute to significant growth.

What are the unique features/quirks of Malaysia’s digital music market?

We are predominantly a mobile market. The online business is still low. We have a lot of high-end phones in the market but we still use services such as RBT (rather than full song downloads).

Also, despite this being the Malaysian market, some of our biggest sellers are Indonesian artistes. One of our acts, Samson, sold 200,000 ringback tones of Naluri lelaki last year.

Is the industry disappointed with the lack of interest in TMNet’s download service?

Yes and no. Yes, because the TMNet offering is really quite a complete service – i.e. all the current key tracks available on iTunes from Universal Music are also being made available to Malaysians thru the TMNet service. So it is sad that it is not being exploited to its true potential.

No, because we suspected that Malaysians might not quite be ready – broadband penetration is still relatively low and those who are connected are still trying to source their music illegally despite the risks.

I also think that the service has not been marketed in a way that would make it interesting to consumers and as such is not top of mind when someone is looking to download music.

Many aren’t even aware that we actually have a legal download service available locally.

Are we still not ready for iTunes, here? How is the digital market going to grow? Or is the Malaysian digital market going to be mobile-phone specific? How can growth be driven?

We already do have an iTunes type service here with all the functionalities (TMNet) – the lack of progress of that platform would tend to indicate that maybe we aren’t ready.

Having said that, the biggest success of iTunes and Apple in general has been the ability to create desirability and to drive consumer behaviour.

Given the small potential we are seeing for the Malaysian market at the moment, it is unlikely that we’ll be seeing an iTunes services in Malaysia any time soon.

Despite this we do expect a robust growth trend for digital music. It will be mobile driven or by-platform (a service that can be experienced both online and mobile) – the services will mainly be offered by telcos and online services companies as well as device manufacturers.

One such service that will make an impact is the Nokia OVI service and their “Comes with Music” offering that we believe will drive consumer behaviour. (This offering enables customers to download songs from the company’s online music store for free for a year.)

Where else can growth come from?

Growth will be driven by having hit products and hit artistes, an easy to use and easy to access platform, reasonable pricing with no hidden costs, easy payment mechanisms and greater control on piracy.

What’s happening to video ringtones? Shouldn’t it be in the market by now?

It is available in some markets but the inertia of marketing a new service has limited its acceptance.

The service also requires a particular client to be loaded on to the phone and there is no set standard or manner for this to be done hence the relatively slowness in take up.

Having said that, our revenues from video-based service show some of the highest growth among digital services in many other markets and as such we believe we are much closer to seeing widespread usage of video linked ringtones than you might think.

When we spoke last year, there were a few “trial” download kiosks set up in a shopping centre in Petaling Jaya. What was the response?

The trials have shown that the kiosks and over-the-counter digital services are a viable proposition.

We should have 3,000 dealers offering digital services over the counter and kiosk-based systems in operation this year.

Rolling out the service does take some time but we do not see this model going away.

As a result of the trials in Malaysia, we have seen enquiries on the model from countries like England and Russia – so rest assured it will be part of the digital landscape.

The main premise of the business model is that anybody with a compatible handset can get assistance to load any telco services, ringtones, songs and videos from music stores, phone stores and kiosks.

This will tackle the problem of consumers not knowing how to use their devices and will fast track consumer education.

Part of the delay in rolling out the service was to clean out illegal services that were doing substantial business or to convert them to a legal business model.

The actions are ongoing but we do see that we will be able to create a suitable business environment for the over-the-counter service to thrive.

Any chance of lowering the price of digital downloads as legal purchases grow? Is RM1 per download possible?

Yes, the fact that you can buy the latest CDs at RM29.90 rather than RM40 shows that we are flexible with our pricing. So, this also applies in the digital space.

Yes, it will be possible to find tracks at RM1.

We believe that variable pricing is a key component of the music industry and there will always be a need to give incentive to consumers from time to time with lower pricing but at other times premium items may be limited and therefore be at a higher price.

We do not believe that a one price fits all model actually benefits the music industry.

Which artistes have embraced the digital revolution the most?

I think the whole music industry has come a long way in the last five years.

It’s not just the artistes but also the label executives and artiste managers who have all learnt that physical sales are diminishing while the digital medium is offering great potential for revenue generation.

I think everybody is embracing the digital revolution in a big way.

Will the music industry get any revenue from social networking sites like MySpace and Facebook?

I’m not sure when it will happen but yes, there is revenue to be gained. There are too many rights issues to be cleared at the moment.

I also believe the introduction-and-selling-among-friends system, which I anticipate will be introduced in these networks, will be a source of growth for the online retail business of which I think music and music-based content and services will be a key part.

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