NOKIA'S opening of an online music store comes against the backdrop of the Singapore digital music market growing at a compounded annual rate of 34.5 per cent till 2011, up from US$28.2 million in 2006, according to research agency IDC.

Speaking to BizIT, IDC Asia Pacific research manager Caludio Checchia noted, however, that despite the apparently healthy growth in digital music, the paid music services market in Singapore proved to be much softer than originally anticipated.

'As a result, most of the existing paid online music stores have been forced to retrench or put their mobile music services on the pedestal,' Mr Checchia, who works for the consumer research section of IDC, noted.

He added that mobile music services in Singapore accounted for 99 per cent of the total digital music revenue generated in Singapore in 2006.

'Ringtones are expected to account for 45.4 per cent of the total mobile music revenue in 2011, while ringback tones are a close second with 40.5 per cent of the total mobile music revenue in Singapore,' Mr Checchia said.

According to the analyst, consumers in Singapore have showed limited interest in online music stores, preferring to spend only on ringtones and ringback tones. Mr Checchia noted that the Nokia Music Store needs to tread carefully in order not to anger mobile operators; in fact, the Nokia service does not offer ringtones or wallpapers, focusing rather on selling full tracks. 'The music store is disjointed from Nokia's traditional core business, but it needs to be viewed as an important experiment by a major player toying in unfamiliar territory.'

He added that the store does offer access to both Western as well Asian content which, in the case of the latter, is not always available through legal online music services.

Mr Checchia observed that by generating an aggregate revenue of US$2.38 billion in 2006 with an 82 per cent increase over the previous year, the success of the primarily mobile as well as online music services in the Asia Pacific excluding Japan (APEJ) region is extremely good news for both music labels and service providers.

He added that although the biggest push for music stores in APEJ is coming from leading telecoms operators and Internet service providers (ISPs), there is still room for new players (such as Nokia) to come in and leave their mark with a largely untested business model. Mr Checchia agreed with the general view that the use of DRM (digital rights management) might affect the long-term viability of the Nokia music service in Singapore and elsewhere in Asia.

DRM is a system for authorising the viewing or playback of copyrighted material on a user's computer or digital music player. Usually DRM places restrictions on how many copies of a file can be made and distributed.

The IDC analyst noted that it was not really Nokia's call on whether or not to support DRM-free files.

'There is no way that the record labels would have agreed to sell DRM-free music on the Nokia store in Singapore, or anywhere else in Asia for that matter, given the widespread piracy around the region and the typical reluctance on the part of the record labels to explore new distribution channels,' Mr Checchia said.

One of the more heated debates in the IP-based music services market in APEJ is the ongoing rivalry between codecs and DRM offerings from different vendors.

'As different parties have developed their proprietary DRM solutions, the end-result is that DRM systems and devices are not compatible with each other, causing additional grief and confusion among consumers,' the IDC analyst said.

He added that not only does DRM confuse potential buyers, but also insistence on pushing its own proprietary DRM can keep consumers away.

In the case of the Nokia Music Store, it uses Microsoft's Windows Media Audio (WMA) codec and works with Microsoft's Windows Media DRM technology.

'As a result, tracks purchased through the Nokia Music Store are not compatible with Apple's iPods, the leading brand of portable MP3 players in Singapore.'

Mr Checchia added that although music labels have started to warm up to the idea of testing the waters selling DRM-free music at least on a limited basis in many US and European online music stores, DRM is still deemed as a necessary evil in APEJ.

This story was first published in The Business Times on 5 May 2008.