Can Motorola attract the youth market through music?

Strategy may need better library and partners

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BEIJING -- Motorola Corp. is reaching out to China's youth market with a music-optimized Rokr model and a web site ( that lets users download ringtones, MP3s, music videos and other exclusive content -- a move that could alter the country's entire music industry.

“By monetizing digital content, mobile music is going to save the music industry in China,” said Ian Chapman-Banks, Motorola's VP-Asia/Pacific and general manager, marketing and business development for mobile devices, North Asia, based in Beijing.

The company says it operates the largest digital-rights-management music-download site in mainland China, with full track and ringtone downloads for up to 15,000 songs costing 25 cents each. In a market known for rampant piracy, the site offers international music labels such as EMI, Warner Music Group, Sony BMG and Universal a format to easily, legally sell tracks through a method that compensates for the country's unique challenges.

In a market where credit cards remain scarce, for instance, users pay for downloads (or phone-to-phone transfers via Bluetooth technology) through their mobile-phone-service plan. Charges can also be deducted automatically from Motorola phones installed with prepaid SIM cards.

While Chinese may not be used to paying for services with credit cards, they are used to downloading data with their phones. In fact, they lead the world in that, with 97% of Chinese mobile-phone users downloading data, compared with fewer than half of American users, according to the global research company GMI. In a price-sensitive market, mobile handsets also are less expensive than popular MP3 players like Apple's iPod.

Redefining Motorola's image
Playing to the popularity of music in China as a form of self-expression meets Motorola's primary goal, making its brand more appealing to the youth market in one of the largest and fastest-growing mobile-phone markets in the world. Motorola was once the market leader but has lost that position to Nokia.

“We're trying to redefine what we are. We're repositioning ourselves from the consumer perspective,” said Mr. Chapman-Banks. Chinese youth “are not buying phones for calling, they are buying them for functions like SMS messaging, cameras, music, Internet surfing, games, even as a personalized fashion statements.”

Motorola's latest Rokr model, the E2, has a built-in MP3 player with dedicated music keys on the handset's side and front that let users navigate playlists, play/pause, skip backward/forward and hold. Users can transfer songs from a PC to the handset with a USB cable and listen to songs via a standard 3.5mm headset or wirelessly via the built-in stereo Bluetooth audio connection. It also has a 1.3 megapixel camera for pictures, video capture and playback.

Ads star edgy young Chinese, not models
The U.S. company is marketing the E2, which was launched in China and Hong Kong in May, with an ad campaign featuring young Chinese who fit the target market -- young, cool and funky. None are professional models; they were discovered by Motorola and its ad agency, Ogilvy & Mather, walking around Chinese cities such as Shanghai and Hong Kong. The TV campaign will air through the end of September, while the print and outdoor ads will run until through July. The campaign may eventually run outside Greater China.

Youthful consumers in China are now as edgy and sophisticated as their Western counteparts, however, and experts warn that the music-download site may not live up to their expectations and demands. Although it is easy to navigate and has a contemporary feel, it appears to offer far fewer titles than claimed by Motorola and most of the foreign artists are represented by one label, Sony BMG. Almost a quarter of the site's content comprises Maoist-style folk, revolutionary and ethnic tunes that appeal to a much older audience.

“It is all the more surprising given this is supposed to be a cutting-edge youth targeted site and Motorola's killer app toward youth. Real music fans will not find the selection compelling,” said a branded-entertainment executive in Beijing. “The site illustrates the problem hardware manufacturers have going into content. Does Motorola risk being caught between service providers and true music services?”

While the company's music strategy “puts them in the game with Nokia and Sony Ericsson, long-term success will be contingent on its willingness and ability to broaden selection and create new functions. It will be difficult to compete long-term with Apple's iTunes software, Microsoft's upcoming Live Wi-Fi service and music-oriented mobile virtual network operators such as Virgin Mobile. Motorola will have to work harder to match titles to target audiences tastes or risk reinforcing the traditional Motorola brand perception as older, conservative and not with it,” he added.

$513M in digital music sales
Motorola isn't the only company trying to appeal to music lovers in China. Nokia, Sony Ericsson, and Samsung have also introduced music handsets and domestic brands are trying to improve tone quality, storage capacity, and layout design to catch up with foreign brands.

Also, there is speculation that China Mobile, the country's dominant service provider, will wake up to the potential of music downloads and move to control the market directly. China's digital-music sales will reach $513 million this year, according to the China Audio-Video Association, up from $450 million last year. Annual sales are expected to reach $1.02 billion by 2008, and $1.6 billion by 2010.

Total sales volume of music handsets reached 10.26 million units in China in 2005, according to Analysys International. The number of mobile subscribers in China continues to increase, passing 400 million in February 2006, but the market is still growing by 4 million to 5 million each month. Once 3G services are rolled into the market starting next year, take-up of value-added services such as music and video downloads could skyrocket. Half of all new mobile subscribers will have 3G phones with greater bandwith capacity for data transmissions by 2008, and 3G subscribers will account for 13.7% of the total mobile telecommunication subscribers in China by then.

Creating music ecosystem
Eventually, said Mr. Chapman-Banks, “70% of the handsets in China will be mobile music phones. From the marketing perspective, it's a dream. Motorola is creating an ecosystem for everybody in a way that fundamentally changes the music industry.”

The company is teaming up with individual artists, labels and music broadcasters such as Viacom's MTV Networks, for example, to offer unique content on its site. It is also working with labels on integrated-marketing campaigns to help drive awareness about new album releases and concert dates.

“The services are good, but it remains to be seen whether they can be rolled out and [is Motorola] too far behind to catch up? If they can get those [music] services out in time, it will be really good [for the company] but the marketer partnerships are not very exciting,” said Shaun Rein, Shanghai-based managing director of China Market Research Group. ”If they want youth market like the people in the ads, they should be trying to partner with more hip and cool Chinese companies, not typical large foreign firms.”

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