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Cable Operators

Playing It by Ear On Music Services

3/03/2006 7:01 PM Eastern

The U.S. digital music market will be worth nearly $1.4 billion in 2007, and more than $2.1 billion by 2009, according to a 2006 study by research firm Parks Associates. Yet, so far, only a few cable operators have shown much interest in going after it.

“Several leading MSOs have some type of streaming music on their Web site,” said Mike Paxton, senior analyst of converging markets and technologies, at In-Stat, a sister company to Multichannel News. “It’s probably the same stuff that they’re pumping out over their digital-cable channels. [Music] is not positioned as a service to make them money. It’s just an additional way to use their content.”

Charter Communications Inc. has gone a few steps further. In January 2006, it launched “Music To-Go,” a $9.99-per-month service for broadband customers that includes the ability to download unlimited songs to an MP3 player. Music To-Go also includes “Music to Burn,” where subscribers can buy a song and burn it to a CD for 99 cents per song. But for now, that’s more the exception than the rule.

“There hasn’t been a lot of attention paid to monetizing the music services out there,” Paxton said. “I haven’t heard any rumblings outside of what Charter has been doing.”

VIDEO SUCCESS

That’s surprising, considering some of the successes on the video side. For instance, in June 2003, Comcast Corp. partnered with Universal Studios for a VOD package that featured 8 Mile and a 40-minute music-video showcase of rapper Eminem and protégés such as 50 Cent.

“That music video was our most-played music asset — maybe our most-played asset overall,” said Page Thompson, senior vice president and general manager of video products at Comcast.

“That was our first realization about how powerful music was on the on-demand platform.”

Nearly three years later, that’s still the case, at least at Comcast. “Music — videos and related programming — is a huge hit on the on-demand platform, accounting for about 25% of our total views every month,” Thompson said.

For an encore, Comcast launched “Karaoke On Demand” in late 2005. The on-demand service lets users sing along just as they would in a bar or at a party — albeit with more selections and privacy. In the first two weeks after its debut, Karaoke received more than 1.1 million views.

“What we’re doing on Karaoke is the best indication of where we’re going to be going with music in the future: to try to present music in a way that’s never been presented before on TV,” Thompson said.

BEYOND VOD

The next logical step is to leverage VOD to cultivate a market for a wider range of music services — ones that can be offered for an additional fee rather than just as a perk for existing customers.

“The group that uses on-demand the most is 18 to 34,” Thompson said. “You see heavy use from teenagers, as well. The early adopters of on-demand are a perfect fit for purchases of music content. Record labels are starting to see the potential of working on the on-demand platform.”

Cable also has the opportunity to offer “ringback” tones, sound effects or songs played to incoming callers while they’re waiting for the person to answer, to their digital-phone subscribers. The service is already available from wireless carriers.

“There’s no reason why we couldn’t venture into that,” said Steve Gorman, vice president of high-speed Internet marketing at Cox Communications Inc.

Although the market is significant and growing, cable’s ability to grab a big share is still unclear. There’s also the issue of whether music can serve as a way for MSOs to attract and retain customers who might be wooed away by Internet protocol TV and satellite providers — including satellite radio.

“I’m not convinced — and I don’t think the cable operators are, either — that music is a differentiator,” Paxton said. “On the other hand, if XM [Satellite Radio] and Sirius [Satellite Radio] are making billions of dollars three or four years from now, then the cable operators might say, 'This is something we can do, too.’ ”

September