Few music companies have pursued mobile as aggressively as The Orchard Enterprises Inc. The New York-based company serves as a kind of digital music aggregator, distributing content from dozens of independent record labels and more than 14.000 artists from Bing Crosby to Bloc Party. It boasts more than 100 carrier customers around the world-including every tier-one operator in the United States-in addition to online customers such as iTunes, eMusic, MSN, RealNetworks’ Rhapsody and Napster. We chatted with Nathan Thompson, Orchard’s manager of mobile marketing.
How important is the mobile music market to The Orchard?
“It’s definitely a priority for us. It has to be-it’s where people are buying content. It’s important for us to have strong carrier partners, just like it’s important for us to have strong retail partners.”
Mobile is becoming increasingly important to the major record labels as well. Does your position as a smaller player allow you to be more aggressive and take more chances in mobile music?
“It’s not so much we’re looking to be on the fringe and roll the dice with consumer-based services. We have a strong series of checks and balances with every new service we sign. It’s not like we’re looking to do these weird deals. . It’s one thing to be innovative, it’s another to be risky.”
Some analysts say the ringtone market is plateauing as the novelty wears off and users learn how to create ringtones from their own music libraries. What’s your take on the market?
“I think when people say ringtones are plateauing, maybe they’re not digging deep enough. One could make the argument that mastertones are plateauing on the hip-hop side, but other genres are growing by leaps and bounds. People who are consuming hip-hop content on their phones tend to have the most advanced phones on the market. But now the fastest-growing genre in ringtones is classic rock. The people who listen to classic rock are getting better and better phones, and they’re buying more ringtones.”
What about full-track downloads? Sprint Nextel Corp. recently slashed its price for over-the-air downloads, but the U.K. operator 3 raised its price to about $2.50 per tune. Can carriers justify charging a premium for their services?
“I think all the carriers, whether it’s tomorrow or six months from now, are finally going to come to the realization that the consumer is not stupid. He’s not going to look at something like a 250% premium for over-the-air downloads; he’ll just go download on his PC. I’m not convinced there’s value there, although we are seeing operators creating value there.
Maybe 3 is taking the stance that they don’t want to compete with iTunes. In both cases, they’re not trying to gouge the consumer or compete with iTunes in the consumer’s mind. The consumer ultimately will decide where ringtones are priced. We might see it tank on 3, and we might see downloads on Sprint go through the roof. We’re glad to see the prices move up or down, because that means that the carriers realize that music is important.”
The U.S. Copyright Office late last year granted a request by the Recording Industry Association of America Inc. that effectively establishes a compulsory licensing model for ringtones. Some music publishers are set for a protracted legal battle. Do you expect any progress in the coming months?
“It’s something we definitely follow. We are very careful with the publishers’ rights we’re exploiting on mobile content; we think it’s very important to pay according to what the law is defined as. As far as theorizing about compulsory licensing, we all know that the U.S. has a flat rate, but all over the world it’s a percentage of retail. I think those battle lines are going to be drawn very soon, and we’ll see how it plays out. I think we’ll see a big step this year. “Right now, because there’s a compulsory model, they’ve established barriers where retailers have to work within those parameters. Maybe if the law changes, you’ll see some flexibility in what they have to offer.”
Do artists care about wireless as a platform for their music?
Different artists will care about different things. Some care about price, some care about the platform, some care about not being represented in certain platforms. But at the end of the day, everybody is looking at the bottom line. They’re saying, ‘How can I replace this lost revenue (from physical sales)?'” Two years ago-I won’t name any specific bands-there were artists that wouldn’t license their music for ringtones, but now they are. Ultimately, you’ve got to replace the decline of physical sales.”
Warner Music Group CEO Edgar Bronfman Jr. slammed the wireless industry at 3GSM World Congress in Spain earlier this year, saying that carriers have not made it simple for users to find and purchase music on their phones. What other hurdles must mobile overcome for music to reach its potential on the platform?
“On a service like iTunes, there’s so much real estate available, but with a mobile phone there’s this tiny little area to look at. And I’m not really looking at the content I want to see-mobile music is great if I want to download (popular artists such as) Gwen Stefani, but not everyone wants to see Gwen Stefani. If we really want to see growth, we have to offer things people want to see, and use things like recommend engines. It’s only when the revenue on the carrier side starts to decline that they’ll start to address that. Today, the carriers think they can sell hits all day long-and that’s good; people are making money-but is the consumer going to get tired of that? I don’t know.”
How aggressively are you pursuing mobile video content?
We have a few small video things that we’re doing, but it’s kind of like a chicken-and-egg scenario right now. There are not a lot of outlets right now, and there’s not a lot of clarity about where the revenues are going to come from, and how it’s going to come. It’s a little unclear at this point. What is consumer demand for these products, other than TV on their phones? Are people really going to sit and watch 20 minutes of music videos on their phones? We don’t know yet.”
What does the near future hold for full-track mobile music services?
Revenue is not going to decline, but the growth is going to slow down. We all think that there’s going to be roaring mobile growth, and there will be, but just like mastertone growth, certain genres are going to level off. Once everyone has a full-track phone, then it’s a matter of selling services.”
