KDDI Music Downloads: $70mn Annual Revenue?
KDDI Music Downloads: $70mn Annual Revenue?

KDDI Music Downloads: $70mn Annual Revenue?

KDDI Music Downloads: $70mn Annual Revenue?

According to a 15 December report on IT Media (Japanese), KDDI’s Chaku-uta Full music download service has achieved over 360,000 downloads in the first 3 weeks — great results based on only about 200,000 supporting handsets. A keen WWJ reader has taken this data and extrapolated into the future to estimate that the 3G music service could be generating revenues of US $70 million annually after 2 years — and that’s assuming very conservative terminal penetration. (WWJ subscribers login for full analysis and details).

Joe Heitzeberg, a long-time friend of WWJ and an all-round Japan mobile enthusiast, dropped me a note yesterday to announce some interesting analysis of KDDI’s results to date with their new Chaku-uta Full full-track download service.

Joe pointed to last week’s Japanese language report on IT Media that cited KDDI as having delivered 360,000 downloads in the first 3 weeks, with some 200,000 Chaku-uta Full-capable handsets in mobilers’ hands. Joe wrote: “I played with the numbers using data such as previous reports that indicated the average song price was 280 yen, and found that KDDI can expect to generate roughly US$70mn annual revenue for Chaku-uta Full in 2 years.”

To start, he assumed that 80 percent of KDDI subscribers decide to upgrade to a Chaku-uta Full phone over the next 24 months and that these phones remain at 80% penetration thereafter; these are the high-speed 1X EV-DO phones carrying the WIN brand and able to use flat-rate packet data billing.

His assumption is pretty good, I think, given the rate at which KDDI can build-out the new EV-DO network and the tremendous appeal of the super-sexy, ubercool new terminals. I would also add that after 2 years, the penetration rate of WIN handsets will go to more than 80% as new high-bandwidth data services (Chaku-uta Full, EZ Channel, etc.) become more popular — and all consumers in the market starts using some form of flat rate billing (all three 3G carriers now have it).

Joe further assumed that all new users of a Chaku-uta Full phone buy 1.8 songs during their first 3 weeks of use (he calls this the “honeymoon period”) and that 10 percent of these users go on to use the service habitually thereafter (he assumes that a habitual user would use about 10 songs per year).

Again, I believe these assumptions to be very conservative.

His results? The generation of US$100mn cumulative revenue over 2 years stabilizing at around US$70mn annually thereafter (exchange rates may affect this, obviously). “You can see how these numbers go up dramatically if more than 10 songs/year are downloaded by habitual users, or more than 10 percent become habitual users,” adds Joe.

All in all, I find his analysis to be pretty solid and indicative of at least US$70 mn per year in revenue for the CDMA carrier’s music service. Now the question is: how do these revenues compare to anything that a competitor like DoCoMo or Apple Japan will be able to generate?

Note also that this rough analysis says nothing about who will receive the revenues. In fact, the content fee split is somewhat complex, with content providers getting most and the carrier getting a percentage; the provider also has to pay a stiff royalty fee to the song’s master rights holder (if the song is not from independent artists nor produced as a cover version).

Finally, KDDI themselves can expect a nice payoff for the data traffic for all those downloads given that most if not all of the flat-rate-capable handset users will indeed opt for flat-rate billing; the new “Double Flat” two-tiered system has two usage levels (at approximately 2,000 yen and 4,000 yen). Many users may find themselves (perhaps unintentionally) paying more under flat-rate than they otherwise would under per-packet billing.

Mobile music via 3G is looking like a pretty nice business — for carriers, terminal makers, content providers, and artists alike. Oh — and the mobile listeners appear to be having fun as well.

— Daniel Scuka

PS: Watch our video interview with Joe when he was with Openwave here in Tokyo.