Content

Hitting The Right Groove

9/22/2006 8:00 PM Eastern

From cable and broadband to wireless and iTunes, there is no lack of ways consumers now get music. But the competitive scene has made it more difficult than ever for providers to stand out from the pack.

Will cable operators and telcos be able to use music services to differentiate themselves from their rivals? And with so many options, what are consumers willing to pay for? A strong brand, incumbency, exclusivity and a willingness to take risks all figure into the answer.

Take MTV Networks, which sees its library as a key market differentiator and a long-term revenue opportunity. “No one has a more valuable music library than CMT, MTV and VH1,” said Van Toffler, president of MTVN’s Music, Logo and Films Group. “We’re just opening the door to digitizing all of that.”

One possibility is a video-on-demand or broadband service, which for a fee offers exclusive content such as the first Video Music Awards or, say, all of Madonna’s VMA performances. Today, it’s possible to find bootleg copies of old performances on Web sites like YouTube, and networks see that as a sign of an untapped market. “The Internet has shown that people want to go back in time,” Toffler said. “They want to go back and get all they can about their favorite artists.”

Relative newcomers such as Rainbow Media Holdings Inc.’s Fuse see edgy and offbeat programming as a way to make their mark. “It’s important to experiment and take risks,” said Fuse executive vice president and general manager Catherine Mullen. “That’s something that a lot of channels — in some ways, due largely to their success and becoming the establishment — aren’t doing anymore.”

BEYOND UNDER-30

Cable operators and telcos say they’re generally satisfied with the music programming currently available. Nevertheless, they’re always looking for ways to serve demographics other than the under-30 set.

“I’m trying to source music that will appeal to different areas,” said Tricia Lynch, director of FiOS TV programming at Verizon Communications Inc.

Besides staples CMT, MTV, Music Choice and VH1, FiOS also carries the older-skewing Soundtrack Channel, two gospel channels, a $7.95-per-month Karaoke VOD channel, and Havoc Television, which focuses on indie music.

FiOS launched International Music Feed (IMF) as a linear channel in August, and this month debuted an on-demand version. The world-music service is wholly funded by Universal Music Group, although it also plays music videos by artists from rival labels.

“By January, we’ll have over 110 hours of music videos and long-form programming [from IMF],” Lynch said. “That’s a big differentiator for us. EchoStar [Communications Corp.’s Dish Network] carries IMF, but they don’t have the VOD offering.” Verizon is in discussions to extend IMF programming to the company’s broadband and wireless outlets.

Incumbent operators see music as an opportunity to differentiate themselves, particularly when it involves content that rivals can’t offer.

THE EXCLUSIVE FACTOR

In June 2003, Comcast Corp. partnered with Universal Music Group for an on-demand package that featured 8 Mile and a 40-minute music-video showcase of rapper Eminem and protégés such as 50 Cent. Comcast says the videos were its most-played offering.

Since then, Comcast has had similar showcases for artists such as Bon Jovi and, most recently, Christina Aguilera.

But identifying and producing exclusive content falls beyond the scope of what most cable operators consider their core competency. Not surprisingly, networks are looking to help out.

“We talk to Comcast every week about providing them compelling content and in some cases exclusives,” said Toffler. “I think they’ll admit that they don’t know how to produce a concert and say: 'Will you do it for us? What does it mean for the consumer? Do we put it on on-demand for free? Is it high-definition?’ They often turn to brands that have been making events and concerts for 25 years to do it for them, because they think it looks better.”

In terms of exclusives, Comcast also pointed to the success of its home-grown “Karaoke On Demand.” In the first two weeks after its late 2005 debut, Karaoke received more than 1.1 million views. “It continues to be one of our top 15 on-demand networks, generating 2.5 million to 4 million views every month,” said Page Thompson, Comcast senior vice president of video services.

Across the board, music videos continue to be one of the most popular types of on-demand programming. “Music Choice is our No. 1 on-demand network in terms of views,” Thompson said. “This past month, usage was up 19%. We have approximately 46 million views of music every month.”

For music networks that target younger demographics, on demand is ideal. “Music appeals to the type of people who embrace VOD,” said Verizon’s Lynch. “VOD becomes a first choice over linear for them, and it also becomes a filler between other things that they’re watching.”

INSPIRING VIEWERS

Other programmers are also using music to attract eyeballs: The Inspiration Networks, for example, is trying to draw viewers interested in seeing Christian artists.

“The key thing is partnerships,” said John Roos, INSP senior vice president of corporate communications and research. “We try to work very closely with record labels, managers, artists and promoters.”

INSP partnered with the National Quartet Convention to tape the event, conduct interviews with performers and promote its concerts through its linear, VOD and broadband outlets. At the same time, the concerts also are an opportunity to market INSP as the turn-to outlet for Christian music.

“We’re going to be promoting the living daylights out of INSP.net, Inspiration and iLife,” Roos said. “All that’s going to drive people to our broadband site and linear network.”

INSP also leverages its music shows to build a following among Christian artists and their record labels. “When [artists] go back to their labels, they say, 'I was on iGospel, which can be seen on Inspiration and on broadband,’” Roos said. “The Christian market urgently needs visibility for its artists.”

Ross also sees great opportunities in music offerings via on demand and broadband. “We see the music genre exploding through new media because it has the advantage of everything: selectivity, archiving, unlimited quantity, video,” he said.

As if there wasn’t already enough competition in the music space, there’s also an increasingly formidable new rival: wireless carriers.

In March 2006, Verizon Wireless’s V Cast service had the exclusive rights to debut Shakira’s “Hips Don’t Lie” music video and song download, as well as behind-the-scenes footage and ringtones. For two months, no cable, satellite or broadcast outlet could offer the video.

“We’re hearing very positive comments about the fact that they can download a full music video straight to their handset wherever they are,” said Verizon Wireless manager of music content programming Matt Schwartz. “People really appreciate that.”

Video providers may be noticing that appreciation, but they’ve been slow to capitalize on it. One exception is Charter Communications Inc., which launched “Music To-Go” in January 2006. The $9.99-per-month service for broadband customers includes the ability to download unlimited songs to an MP3 player. Music To-Go includes “Music to Burn,” where subscribers can buy a song and burn it to a CD for 99 cents per song.

Wireless carriers also are finding success with song-snippet ringback tones. Some cable operators see ringback tones for telephony customers as well-suited to the under-25 demographic known as Echo Boomers.

“We believe that ringback tones may be especially appealing to the growing Echo Boomer segment,” said Cox Communications Inc. director of wireless and enhanced voice marketing Keith Davis. “Our expectation is that ringback tones might yield modest incremental revenue. The feature’s real value is as part of a larger suite of services/features, which [together] give Cox and truly differentiated consumer offering.”

MAKING MONEY

One challenge to monetizing music is setting up the necessary back-office mechanisms and establishing partnerships. That’s where networks believe they can help. For example, MTV touts its new Urge service as a way to streamline the music-finding and purchasing processes for consumers and multichannel providers.

Programmers see even more opportunities in the near future: For example, a viewer watching MTV’s Laguna Beach series will be able to press a button on the remote and order a CD from an artist whose song was featured on the show, or a DVD of the show. “Within 18 months, we’ll see more widespread interactivity so we can get you that Laguna DVD, right when you want it,” said Jessica Heacock, senior vice president of affiliate marketing at MTVN.

On the cable side, those transactions won’t require expensive and time-consuming network overhauls right away. “Not tomorrow, but within the next couple of years, absolutely,” said Comcast’s Thompson. “I don’t believe that it would require major new infrastructure.”

For now, wireless is a convenient way to begin enabling at least basic interactivity and revenue opportunities. For example, Havoc Television is set to leverage wireless’ high penetration of the youth demographics that it serves by using short message service for interactivity and new revenue.

By late October, Havoc’s DirecTV Inc. viewers will be able to send an SMS text message in order to receive a ring tone from a video they’ve just watched. The ring-tone revenue then is divided between the wireless carrier, Havoc, the record label and DirecTV.

When Havoc’s ring tone download service eventually expands to cable, the operators that carry the network will also get a cut.

“I’ve seen some half-hearted attempts at selling downloads,” said Ryan Kresser, Havoc’s founder and CEO. “I think it’s probably just an evolutionary thing: The cable companies are trying to catch up on these digital fronts.

September