Master Thesis Report: Business Models for Mobile Broadband Media Services – Case Study Indonesia Telecom Market
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Master Thesis Report: Business Models for Mobile Broadband Media Services – Case Study Indonesia Telecom Market

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The increase mobile data traffic from the emerging Internet services, especially multimedia, has posed considerable challenges for the telecom industry. Their initial mobile data services business......

The increase mobile data traffic from the emerging Internet services, especially multimedia, has posed considerable challenges for the telecom industry. Their initial mobile data services business models are generally not compatible with these emerging Internet services. Thus, there is a substantial need to investigate the suitable options to make media as a profitable telecom business sector. However, there are different challenges and opportunity factors in developing sustainable mobile media business in each market, due to the unique circumstances applied as the result of customer characteristics, mobile market situation and regulatory/law enforcement.

The first purpose of this thesis is to explore the business model options to deliver media services on top of mobile broadband. Although, we limit our focus to Indonesia, we first analyzed the worldwide patterns toward the media services in order to get a broader view of the current trend. We mapped multitudes of actor involved in digital online / on the top (OTT) media service, which together they form different types of constellation in the value network, as well as service, delivery and revenue model. We also put our focus to get the lessons learned from Spotify’s business model, by framing it using Chesbrough and Rosenbloom’s model.

The second purpose is to understand the Indonesian mobile user's characteristic toward the mobile media services. We conducted survey to 119 Indonesians, analyzed and validated the result with the correlation tests (Cronbach Alpha and Pearson correlation), within the Unified theory of acceptance and use of technology (UTAUT) framework. Our findings confirm the low willingness to pay, but an open attitude for the services. The mobile device and network quality are not the barriers for them to adopt the services, and there is a tight connection between the decisions to adopt the services with the perception that the service is popular.

Through those findings, we assessed the feasibility of the identified options and formulated the recommendations. We used our understanding about Indonesian market structure (telecom and media), regulation, and mobile user, as well as the lesson that we got from media services provisioning in Sweden and worldwide trend. We found that the pricing tiers, adjustable pricing, and differentiated features are some of the key success factors. Meanwhile, being part in the point-to-multipoint partnership with the well-known OTT player is the potential position that the Mobile network operators (MNOs) in Indonesia should take in provisioning OTT media services, rather than deliver the services by their own.

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  • 1. Business Modelsfor Mobile Broadband Media Services – Case Study Indonesia Telecom Market LAILI AIDI Degree project in Communication Systems Second level, 30.0 HEC Stockholm, Sweden
  • 2. Business Models for Mobile Broadband Media Services – Case Study Indonesia Telecom Market Master of Science Thesis Student: Laili Aidi (aidi@kth.se) Supervisors: Jan I. Markendahl (janmar@kth.se), KTH Royal Institute of Technology Greger Blennerud (greger.blennerud@ericsson.com), Ericsson Sweden Examiner: Konrad Tollmar (konrad@kth.se), KTH Royal Institute of Technology Communication Systems School of Information and Communication Technology KTH Royal Institute of Technology Stockholm, Sweden 2012
  • 3. Abstract The increase mobile data traffic from the emerging Internet services, especiallymultimedia, has posed considerable challenges for the telecom industry. Their initial mobiledata services business models are generally not compatible with these emerging Internetservices. Thus, there is a substantial need to investigate the suitable options to make media asa profitable telecom business sector. However, there are different challenges and opportunityfactors in developing sustainable mobile media business in each market, due to the uniquecircumstances applied as the result of customer characteristics, mobile market situation andregulatory/law enforcement. The first purpose of this thesis is to explore the business model options to deliver mediaservices on top of mobile broadband. Although, we limit our focus to Indonesia, we firstanalyzed the worldwide patterns toward the media services in order to get a broader view ofthe current trend. We mapped multitudes of actor involved in digital online / on the top (OTT)media service, which together they form different types of constellation in the value network,as well as service, delivery and revenue model. We also put our focus to get the lessonslearned from Spotify’s business model, by framing it using Chesbrough and Rosenbloom’smodel. The second purpose is to understand the Indonesian mobile users characteristic toward themobile media services. We conducted survey to 119 Indonesians, analyzed and validated theresult with the correlation tests (Cronbach Alpha and Pearson correlation), within the Unifiedtheory of acceptance and use of technology (UTAUT) framework. Our findings confirm thelow willingness to pay, but an open attitude for the services. The mobile device and networkquality are not the barriers for them to adopt the services, and there is a tight connectionbetween the decisions to adopt the services with the perception that the service is popular. Through those findings, we assessed the feasibility of the identified options andformulated the recommendations. We used our understanding about Indonesian marketstructure (telecom and media), regulation, and mobile user, as well as the lesson that we gotfrom media services provisioning in Sweden and worldwide trend. We found that the pricingtiers, adjustable pricing, and differentiated features are some of the key success factors.Meanwhile, being part in the point-to-multipoint partnership with the well-known OTT playeris the potential position that the Mobile network operators (MNOs) in Indonesia should takein provisioning OTT media services, rather than deliver the services by their own.Key words: business model, mobile Internet, multimedia services, mobile broadband I!
  • 4. Acknowledgements I would like to acknowledge my academic supervisor, Associate Professor Jan I.Markendahl at KTH. Jan’s consistent insightful comments on numerous occasions areinvaluable for me to improve this work. In addition, the extraordinary dedication andencouragements that he has shown to his students through the whole process of the researchare ones that inspire me. I thank my industrial supervisor, Greger Blennerud at Ericsson. Greger openedpossibilities to discuss with important people in the industry and gave access to the valuablemarket-related reading materials. He also exposed me to a valuable experience in realindustrial environment and provided help in many aspects of this research. I am also thankful to Associate Professor Konrad Tollmar at KTH, for accepting role as anexaminer for this thesis research. Konrad has also given helpful feedbacks and directions,even during the process of this research. I am also grateful to Jan, Greger, and Konrad for thechances that they have given to authoring together with them in conferences, which laterencouraged me to explore fascinating things within this field. I also have to address my appreciation to researchers and staffs at Wireless@KTH andEricsson Sweden and Indonesia, especially the team of Marketing and Communicationdepartment, Kajsa Arvidsson, Mattias Engvall, and Dharma Simorangkir. I thank them forhelping in conducting interview with several contacts in the industry, providing supportingenvironment for me while doing this research, as well as sharing valuable ideas in numerousdiscussions and presentations. Last but not least, a special grateful to my family for their support that makes me possiblereach this stage. I specially dedicate this work for my beloved one, in loving memory.Stockholm, October 5, 2012Laili Aidi II!
  • 5. ContentsAbstract .......................................................................................................................................iAcknowledgements ....................................................................................................................iiContents.....................................................................................................................................iiiList of Figures ............................................................................................................................ vList of Tables.............................................................................................................................viList of Abbreviations................................................................................................................viiChapter 1 – Introduction ............................................................................................................ 1 1.1. Background.................................................................................................................. 1 1.2. Problem Definition ...................................................................................................... 2 1.3. Contribution................................................................................................................. 2 1.4. Thesis Outline.............................................................................................................. 3Chapter 2 – Literature Study ...................................................................................................... 4 2.1. Business Model............................................................................................................ 4 2.2. Technology Acceptance .............................................................................................. 6 2.3. Mobile Multimedia Services ....................................................................................... 7Chapter 3 – Methodology........................................................................................................... 8 3.1. Research Approach...................................................................................................... 8 3.1.1. Literature Study .................................................................................................... 8 3.1.2. Data Collection ..................................................................................................... 8 3.1.3. Data Analysis........................................................................................................ 9 3.2. Quality of the Study................................................................................................... 10 3.2.1 Reliability............................................................................................................. 10 3.2.2 Validity ................................................................................................................ 11Chapter 4 – The Digital Music Industry .................................................................................. 12 4.1. Industrial landscape ................................................................................................... 12 4.2. Actors, Relations, and Networks ............................................................................... 12 4.2.1 Actors................................................................................................................... 13 4.2.2 Value Network of the Core Actors ...................................................................... 14 4.2.3 Value Network in OTT Distribution.................................................................... 15 4.3. Service, Distribution, and Revenue Models .............................................................. 18Chapter 5 – The Digital TV/Video Industry ............................................................................ 21 5.1. Industrial landscape ................................................................................................... 21 5.2. Actors, Relations, and Networks ............................................................................... 21 5.2.1 Actors................................................................................................................... 21 5.2.2 Value Network of the Core Actors ...................................................................... 22 5.2.3 Value Network in OTT Distribution.................................................................... 23 5.3. Service, Distribution, and Revenue Models .............................................................. 27Chapter 6 – Spotify Business Model........................................................................................ 29 6.1. Value Proposition ...................................................................................................... 29 6.2. Revenue Generation and Market Segment ................................................................ 30 6.3. Competitive Strategy ................................................................................................. 31 6.4. Value Network........................................................................................................... 32 6.4.1 Relation with the core actors of the music industry............................................. 32 6.4.2 Relation with the Telecom actors ........................................................................ 33Chapter 7 – The Indonesian Market......................................................................................... 36 7.1. Regulatory Framework .............................................................................................. 36 7.1.1 QoS and Technology Convergence ..................................................................... 36 7.2. Telecom Market......................................................................................................... 37 7.2.1 Structure and Characteristic................................................................................. 37 7.2.2 Mobile broadband ................................................................................................ 38 7.3. Media Services Market .............................................................................................. 40 7.4. Mobile user ................................................................................................................ 41 III!
  • 6. 7.4.1 Sample Characteristics......................................................................................... 41 7.4.2 Technology Acceptance....................................................................................... 42Chapter 8 – Implications to Indonesia ..................................................................................... 47 8.1. Actors, Relations and Business models ..................................................................... 47 8.2. Indonesian Mobile Media user’s characteristic ......................................................... 49 8.3. Potentials and Challenges for MNOs in Indonesia.................................................... 50 8.4. Positions and Roles for MNOs in Indonesia ............................................................. 51Chapter 9 – End of Discussion................................................................................................. 54 9.1. Criticism of the Study................................................................................................ 54 9.2. Future Work............................................................................................................... 54Bibliography............................................................................................................................. 55Appendix A – Qualitative Interviews .....................................................................................viii A.1. Interviewee List .......................................................................................................viii A.2. Interview Transcripts and Notes................................................................................ixAppendix B – Mobile Network Operator in Indonesia .......................................................xxviiiAppendix C - Quantitative Survey ......................................................................................... xxx C.1. Summary of the Hypotheses and Questions ........................................................... xxx C.2. Summary of Results................................................................................................ xxx IV!
  • 7. List of FiguresFigure 1. Data tsunami trend by various researches [53] ................................................................... 1!Figure 2. Business model concept hierarchy [1] .................................................................................. 4!Figure 3. The Technology Acceptance Model (TAM) [30]............................................................... 6!Figure 4. The Unified theory of acceptance and use of technology (UTAUT) [33] .................... 6!Figure 5. Digital music revenue and its percentage share over total revenue worldwide .........12!Figure 6. Conceptual actors and relations of the music industry’s core network........................14!Figure 7. Actors and relations of “Direct-To-Fan” in the digital music........................................15!Figure 8. Typical actors and relations of the “Point-to-Point” partnership in the digital music .............................................................................................................................................................16!Figure 9. Typical actors and relations of the “Point-to-Multipoint” partnership in the digital music ..................................................................................................................................................17!Figure 10. Revenue stream share from the digital music [68].........................................................20!Figure 11. Actors and relations in the TV/Video industry’s core network...................................22!Figure 12. Typical actors and relations of the “Direct-to-Fan” partnership in the digital TV/Video...........................................................................................................................................23!Figure 13. Typical actors and relations of the “Point-to-Point” partnership in the digital TV/Video...........................................................................................................................................25!Figure 14. Typical actors and relations of the “Point-to-Multipoint” partnership in the digital TV/Video...........................................................................................................................................26!Figure 15. Revenue share from the digital TV/Video [79] ..............................................................28!Figure 16. Spotify’s user based by service type in Europe, Sept 2008 – March 2011 [73] ......31!Figure 17. Spotify monthly revenue by service type in Europe, Sept 2008 – March 2011 [73] .............................................................................................................................................................31!Figure 18. Actors and relations in Spotify point-to-multipoint partnership .................................32!Figure 19. Fixed broadband penetration in the BRICI countries [81] ...........................................37!Figure 20. Mobile phone penetration in the BRICI countries [81].................................................39!Figure 21. Question 1 result..................................................................................................................xxx!Figure 22. Question 2 result..................................................................................................................xxx!Figure 23. Question 3 result..................................................................................................................xxx!Figure 24. Question 4 result..................................................................................................................xxx!Figure 25. Question 5 result..................................................................................................................xxx!Figure 26. Question 6 result..................................................................................................................xxx!Figure 27. Question 7 result................................................................................................................xxxii!Figure 28. Question 8 result................................................................................................................xxxii!Figure 29. Question 9 result................................................................................................................xxxii!Figure 30. Question 10 result..............................................................................................................xxxii!Figure 31. Question 11 result..............................................................................................................xxxii!Figure 32. Question 12 result..............................................................................................................xxxii!Figure 33. Question 13 result.............................................................................................................xxxiii!Figure 34. Question 15 result.............................................................................................................xxxiii!Figure 35. Question 16 result.............................................................................................................xxxiii!Figure 36. Question 17 result.............................................................................................................xxxiii!Figure 37. Question 18 result.............................................................................................................xxxiii!Figure 38. Question 19 result.............................................................................................................xxxiii!Figure 39. Question 20 result.............................................................................................................xxxiv!Figure 40. Question 21 result.............................................................................................................xxxiv!Figure 41. Question 22 result.............................................................................................................xxxiv!Figure 42. Question 23 result.............................................................................................................xxxiv! V!
  • 8. List of TablesTable 1. Interpretation of Internal consistency from Cronbach alpha ...........................................11!Table 2. Interpretation of Correlation coefficient from Pearson Correlation...............................11!Table 3. Revenue models in the digital music ....................................................................................18!Table 4. Service and Distribution models in the digital music........................................................19!Table 5. Revenue models in the digital TV/Video.............................................................................27!Table 6. Service and Distribution models in the digital TV/Video ................................................27!Table 7. Formation changes in Indonesias Telecom Regulation....................................................36!Table 8. Hypothesis 1 result....................................................................................................................41!Table 9. Hypothesis 2 result....................................................................................................................42!Table 10. Average and Internal consistency of respondent’s willingness to use ........................42!Table 11. Internal consistency of respondents’ expectancies ..........................................................42!Table 12. Hypothesis 3 result .................................................................................................................43!Table 13. Hypothesis 4 result .................................................................................................................43!Table 14. Average of respondents’ expectancies ...............................................................................43!Table 15. Internal consistency of respondents’ expectancies ..........................................................44!Table 16. Hypothesis 5 result .................................................................................................................44!Table 17. Average and Internal consistency of respondents’ perceive to MNO network & billing .................................................................................................................................................44!Table 18. Hypothesis 6 result .................................................................................................................45!Table 19. Average and Internal consistency of the respondents’ perceive in mobile device feature and ownership.....................................................................................................................45!Table 20. Hypothesis 7 result .................................................................................................................46!Table 21. Average and Internal consistency of the respondents’ believe about social environment ......................................................................................................................................46!Table 22. Hypothesis 8 result .................................................................................................................46!Table 23. Interviewee List......................................................................................................................viii!Table 24. Interview with Lars Roth........................................................................................................ ix!Table 25. Interview with Andreas Liffgarden.....................................................................................xv!Table 26. Interview with Märta Rydbeck ...........................................................................................xvi!Table 27. Interview with Jockie Heruseon .........................................................................................xxi!Table 28. Interview with Yose Tireza Arizal ...................................................................................xxiii!Table 29. Interview with Didik Akhmadi Usman ............................................................................xxv!Table 30. Interview with Hengky Philip Ginting ............................................................................xxvi!Table 31. MNOs in Indonesia............................................................................................................xxviii!Table 32. Hypothesis and variable.......................................................................................................xxx! VI!
  • 9. List of AbbreviationsTelecom operator Provider of telecommunication services that delivers telephony and data communication access, and mostly functions as internet service provider (ISP) as well.Mobile Network Telecom operator that provides the communications services overOperator (MNO) wireless access that owns or controls necessary elements to deliver cellular services to the end-user, especially radio spectrum license and network infrastructureCommunications Provider that delivers communication services to the end-userservice provider (telecommunications, entertainment and media, and Internet/Web(CSP) services) encompasses telecom operator (landline and mobile), Internet service provider, and cable and satellite provider.Mobile broadband Wireless Internet access through mobile device, using one of the wireless network technologies: CDMA2000 1X EV-DO (EV-DO Rev. A and Rev. B), WCDMA, WCDMA HSPA (HSDPA, HSUPA and HSPA+), TDSCDMA, WiMAX and LTE (FDD-LTE and TDD- LTE).Third-generation Wireless network technology defined by the ITU (International(3G) Telecommunication Union), include all of those listed under ‘Mobile broadband’ as well as CDMA2000 1X, some also includes the LTE and WiMAX which are not classed as 4G (LTE Advanced and WiMAX 2).Average revenue per Revenue divided by weighted average number of customers at theuser (ARPU) same period (e.g. monthly).Blended ARPU Revenue divided by average number of total subscribers at the same period (e.g. monthly).Voice ARPU ARPU from voice servicesData ARPU ARPU from data servicesValue added ARPU from value added services (e.g. ring tones, ring-back tonesservices ARPU (RBT), wallpaper downloads, screensaver downloads, music,(VAS ARPU) TV/Video)Non-voice ARPU ARPU from all non-voice services (Data, Messaging, Value added services)Over-The-Top Services that are utilized over the network, delivered directly to the(OTT) end-user via any connected devices, but the network access operator itself does not offer that. It rides on top of the services already provided and do not require any business or technology affiliations with the underlying network access operatorOTT TV/Video OTT service that range to TV broadcasting to video services, e.g. video conferencing, video chat, video on demand, Live TV broadcasting, etcOTT Music OTT Music services, e.g. music streaming, music download, etc VII!
  • 10. Chapter 1 – IntroductionThis chapter presents a brief introduction along with the description of the addressed problemareas of this study. At the end, the expected contributions to the knowledge and solution aredescribed.1.1. BackgroundThe evolution of Internet and growth of smart phone penetration have resulted a paradigm shiftin society. It triggers higher expectation to the user and increases competition level across themarkets. Cisco reported that the typical users using this device consume data traffic ~79MB/month, compared to ~3.3 MB/month from basic feature mobile phone users. This ispredicted to keep increase in the future, reaching ~1.3 GB/month [50]. Mobile data usage wasalso reported to grow to 83 % in 2011, in line with the data traffic tsunami predictions [51], asshown in Figure 1. This poses a considerable challenge for the telecom industry, such asweakening user relationships and diminishing revenue from existing voice and messagingservices [52]. Figure 1. Data tsunami trend by various researches [53] However, this also offers a potential moment for telecom operator to evolve, remaincompetitive, and copes with those challenging situations. The data shows that mobilebroadband subscriptions have increased to almost half of 2.4 million Internet users by 2011[62]. It grew by 45% annually over the last 4-years and reached twice of the fixed broadbandsubscriptions. There are five emerging developing markets (Brazil, Russia, India, China,Indonesia), called as the BRICI countries that represent 45 % of the world population andpredicted to add 1.2 billion more Internet users by 2015 [54]. Mobile broadband likelybecomes a preferred access mechanism there, due to cheap smart phones, low PC penetration,limited fixed broadband, etc [55]. The combination between mobile broadband and media services offers a huge potential tobe a source of revenue and a key to growth for telecom operator in those emerging markets.The digital music revenue, for example, has increased to 8 % for the first time since 2004 [56].It was followed by the growth in the subscription to streaming services, purchasing download,and expansion of digital media services across the globe, especially in the mobile devices. Thisis in contrast to what have happened in the fixed broadband, where the file sharing servicesdominated. The mobile broadband’s role in these emerging markets is important, as it is likelynot just as a substitution for fixed broadband, as we have seen in developed markets [55]. 1!
  • 11. Indonesia is interesting to be a case study due to its market size and potential growth. Themobile penetration has passed 113 %, but it is still expected to grow [61]. In addition, despitethe 3G has been rolled out for more than five years, its penetration is still less than 10%. TheGDP is growing fast compared with neighbors in the region, followed by booming of themiddle-class and young population [98][60]. There are tendencies to watch OTT video throughmobile devices rather than the Internet-TV [57]. The personalization service is still dominatingthe digital music landscape and MNO has a strong position towards the billing relationship, asbank account penetration is extremely low, covering less than 20% of the population [59].1.2. Problem DefinitionThere are different challenges and opportunity factors in developing sustainable business, bothwhen viewing it in the global and local market perspective. The combination of the aspectsabove creates unique circumstances to the Indonesian market. In addition, our findings showthe complexity that the telecom actors should face to offer media services. First, it requiresthem to serve users with a higher demand and to understand the differentiation aspects to suittypes of user segment [42]. Second, there is a trend in the telecom industry, where new actorswith different economic interest enter the ecosystem and introduce changes [37]. Third, thedigital piracy remains a barrier for business growth [56]. In addition, the initial mobile data services business models that the telecom actors usuallyuse are not compatible with these emerging Internet services "#$%. Therefore, there is asubstantial need to investigate and/or analyze suitable options in the existing mobile broadbandbusiness models, in order to make it as a profitable telecom business sector. However, thebusiness model itself is a vast scope of a subject, as it covers broad range of aspects and is seenin different points of view [1][2]. The telecom industry itself also runs in a dynamicenvironment, e.g. in term of demographical, social, economical, and political situation. Despitethe similarities among particular user segments across these emerging markets, there aredifferences in usage habit [54]. Therefore, the strategies used to monetize the potentials and to overcome the challengesmentioned above have to be targeted to a specific service and market. Hence, the universalsolutions would not be suitable. Therefore, the main intention of this thesis is to explore thebusiness model options for mobile broadband media services in the Indonesian telecommarket. In order to do that, the following four questions below are answered in this thesis:1. Who are the actors involved in serving the media services, and what kind of relations and business models do they use?2. What are the mobile user’s usage characteristics, especially in Indonesia, toward the media services through mobile broadband?3. What kind of potentials and challenges would the MNOs in Indonesia face in providing media services as a mobile broadband business?4. What kind of positions and roles can the MNOs in Indonesia take to make media services as a profitable business?1.3. ContributionIn order to analyze and evaluate the feasibility of solutions described in the problem definitionabove, we will need to see it from a multitude of perspectives. Therefore, this tele-economicdiscussion was done from a range of aspects and presents outcomes as below:1. Business models and market structureWe do classification and assessment of different types of existing business model that arecurrently used to deliver mobile broadband media services worldwide, and then put focus toSweden, as our reference market. We then provide insights of the telecom and media marketstructure in Indonesia, which is our target market. In other words, this result mainly concernsabout the supply side aspect. The discussion contains analysis of eco-systems, which are the 2!
  • 12. identification of actors, their relation model, business roles, and responsibility distributedamong them, as well as drivers and challenges of their strategies. This industrial background isstructured as market maps that consist of telecom operators and other actors in the media andInternet industry.2. Mobile media userThe second outcome is the understanding of mobile media user, which means the discussionrelates to the demand side aspect. The majority of users are not interested with the technicaldetails, and the successful loyalty programs demand the provider’s ability to capture the actualor further composition structure of their preferences. In this context, we analyze the customers’preferences’ patterns worldwide toward the media services, then we are in deep to Indonesiacustomer characteristic. It ranges to satisfaction aspect, willingness to pay and continue usingthe service, and expectation. This is done because, before we are able to identify the suitablebusiness model options for a market, we need to first identify and predict these aspects.3. RecommendationThrough those two studies above, we analyzed the feasibility of the identified options. We usedthe market understanding data that we had about Indonesia as an affirmation tool. In otherwords, we highlight the available business model options to deliver media services on top ofmobile broadband in Indonesia. We do this according to our understanding of its marketstructure (telecom and media), regulation, and end-user, as well as the lesson that we learnfrom the trend that has happened / is currently happening in the global and reference market(Sweden). We expect that, by using our analysis and recommendation, the MNOs can take astrong position and build profitable business in delivering mobile broadband using mediaservices.1.4. Thesis OutlineThe structure of remaining chapters in this thesis is done as follows. Chapter 2 lays theoreticalfoundation and frameworks required to understand the research areas. It ranges in the businessmodel, technology acceptance field, as well as related study of the mobile media services. Chapter 3 describes the activities undertaken to accomplish the research. This chapter alsoargues the frameworks and theory used as the basis of the work. Chapter 4 and chapter 5present the introduction of current landscape of digital music and TV/Video industry. It isfollowed by discussion of the actors involved, and relations and networks that they form, aswell as evaluation of the distribution models, service models, and revenue models used. Chapter 6 contains the analysis of Spotify business model, and discusses its collaborationwith other actors in different industries. Chapter 7 presents the Indonesian mobile telecom andmedia market, as well as regulatory framework. After that, the discussion of the mobile users ispresented, along with the empirical results of the quantitative study, where the hypothesesabout these users are tested and analyzed. Chapter 8 consists of conclusions of final analysis and implications for Indonesian market,related to the research questions. The discussion is formulated based on the findings derivedfrom the global market trend, lesson learned from mobile media service pre-study in Swedishmarket, as well as understanding about the Indonesian market (regulatory, telecom and mediamarket, and mobile user). Finally, some critics of the study along with suggestions for futurework are presented. 3!
  • 13. Chapter 2 – Literature StudyThis chapter presents the review of theoretical foundations, frameworks, and related studies.The discussion ranges from the business model concepts, to the technology acceptances andthe mobile multimedia services.2.1. Business ModelDespite its popularity, there is no common consensus on how to define the business model, andthis term is often used to express different things [1]. Thus, it is important to stand on thespecific definition, before we review various concepts. According to [2], business model is “aconceptual tool containing a set of objects, concepts and their relationships with the objectiveto express the business logic of a specific firm. Therefore we must consider which concepts andrelationships allow a simplified description and representation of what value is provided toend-users, how this is done and with which financial consequences.” Following this, variousbusiness models written in range of sources are classified into three categories, which might behierarchically linked to each other, as shown in Figure 2. Figure 2. Business model concept hierarchy [1] First, business model is stated as a concept that can be used to describe various businesses(Concept point of view). This is the abstract layer, which is designed to answer typical basicdefinitions and/or the meta-model questions. The works in [2], [8], and [9] for example,provide both concept and meta-model framework to design a business model. The work in [2]defines the Business Model Ontology (BMO) that constructs business model using four mainpillars (product, customer, interface, infrastructure management, and financial aspects), andthen split it into nine interrelated business model building blocks as core of the ontology (valueproposition, target customer, distribution, channel, relationship, value configuration, capability,partnership, cost structure and revenue model). In [9], this framework consists of sixcomponents, which are the value proposition, market segment, value chain structure, revenuegeneration and margins, value network and competitive strategy. Second, business model is explained as types of model that each is used to describe a setof business with common characteristics (Taxonomy point of view). The typical questionsanswered here are either the taxonomy of types and/or the sub-meta question. One example is 4!
  • 14. [6] that classify the different business models according to the types of value proposition andrevenue stream. It classify nine generic forms of e-business models based on value propositionand revenue stream are proposed, which are brokerage, advertising, infomediary, merchant,manufacturer, affiliate, community, subscription, and utility model. Meanwhile, the work in [5]defines specifically business model in wireless business based on revenue stream and targetuser segments. This was modified from previous models, which consist of nine models as well:advertising, application provisioning, brokerage, content provisioning, infrastructureprovisioning, network operating, service provisioning, application service provisioning,internet service provisioning, and terminal manufacture. Third, business model is discussed as a “bottom-line” analysis that represents an instanceof the generic business model (Instance level point of view). It describes the real worldbusiness, such as the particular operating case or firms’ business model. The works in [3] and[4] cover the tele-economic calculation, which are the network rollouts assessment for a mobilebroadband access. The objective is to evaluate, present the viewpoint from radio-accessnetwork investment, and make an evaluation of providing amount of user with forecastedtraffic demand. The profitability and the viability of business model are then evaluated usingcost and revenue matrix. The work in [9] also matches into this category, as it assesses theimplemented and existing business models. In this case, the Xerox’s business model isanalyzed using the framework designed previously.The Network-centric approachThere has been a concern raised that business model should also be seen as cross-firmcollaboration as the value network analysis. Focusing to only a single company’s perspective isinsufficiently suited to address the services that require multi-actors collaboration [10]. Themobile telecom business itself is also getting complex because there is multitudes of actoroutside the industry, with different economic interests, enter the market [12]. Therefore, it isfundamental to identify all of these actors and their roles, as well as to understand theirinteraction with each other. Numbers of works specialized to ICT field have broad businessmodel analysis of traditional manufacture industry into variety of actors, interaction andstrategy discussion, either in the concept, taxonomy and/or taxonomy point of view. In [5], there has been an identification of nine basic types of actors and roles in thewireless business, which are application provider, application service provider, contentaggregator, content integrator, content provider, infrastructure provider, network provider,service provider, and terminal manufacturer. In [13], there are assessments of two existingmodels for multi-actors analysis, one is based on the system theory (MACTOR) and other isgame theory (Allas model). The new model, MASAM, is then proposed to capitalize andovercome previous’ strengths and weaknesses. The cooperation models used by telecomoperator to interact with some of these actors are discussed in [7], using the Actor, Relation,and Activity (ARA) point of view. It focuses to three services (public mobile broadband accessservices, services and solutions for indoor wireless access, and mobile payment and ticketingservices), by identifying main drivers of cooperation and how to organize it. The primary lines of reasoning of the partnership between actors are grouped in [12]. Thefirst motive argued is “Cospesialization”, which is to make the product in optimal andeconomically scale through specialized resource or knowledge of partner. Such commonexamples are outsourcing and sharing infrastructure. The second motive is “Cooption”, whichis to reduce or share the risk and uncertainty in the environment. Such example is theengagement in a temporary alliance with the actor/s that was/were previously the competitor(“co-opetition”). The last is in order to do “Learning and internationalization”, which is theresources acquisition. The targets are mostly knowledge, data, or end-user access. This is donein order to leverage the business model or competencies, e.g. to conquer the new market. Thisis also mentioned in [18] as “accessing complementary asset”. This is done to leverage theexisting business model and/or competencies. 5!
  • 15. 2.2. Technology AcceptanceMobile media streaming service would bring shift in the habit of the early user. The diffusionof a new technology is a result of decision series and comparison factors from end-user’sperception regarding the benefits and costs of adoption. Therefore, the ability to predict thisdiffusion plays an important aspect in assessing the suitable business models of new services,because the potential user might not adopt it, in spite of the availability of that technology inthe market. This factor includes user’s readiness to use and willingness to continue using thetechnology, especially in Indonesia where mobile broadband media services do not take offyet, compared with the developed markets. Researchers have performed various theories and designed frameworks to analyze factorsthat affect end-user intention to adopt new technologies and services. However, substantialtheoretical and empirical works accumulate to some of it. Such works in mobile Internet fieldare [34], [35] and [36] those adopt, extend, and combine several frameworks. They assessrange of mobile value-added services, due to its flexibility to fit in various cases. Theprominent one is Technology Acceptance Model (TAM), shown in Figure 3, designed fortwo purposes during early stage of computer [30]. First is to understand a successfulacceptance process from implementation of new information system. Second is to provide abasis of methodology to predict further usage of a technology after a brief interaction. Perceived usefulness X 1! Attitude Toward X 1! Actual System Use Using X n! Perceived Ease Of Use Design feature Cognitive response Affective response Behavioural response Figure 3. The Technology Acceptance Model (TAM) [30] However, as TAM gives more attention to examine the factors that drive user’s adoption,it is inadequate to assess how the external interventions would affect individual perceptionsand their attitude intention. These are important to evaluate successful new implementation ofinformation system [31]. Moreover, TAM is also designed to examine user’s adoption andintention to continue using the technology after user had exposed to it. This means, thisframework is rather to explain post-adoption behavior. It is not originally designed to be usedduring pre-implementation stage, which is also critical to assess the sustainability of the newtechnology [32]. Performance Expectancy Effort Expectancy Behavioural Social Influence Intention Facilitating Use Behaviour Conditions Gender Age Experience Voluntariness of Use Figure 4. The Unified theory of acceptance and use of technology (UTAUT) [33] 6!
  • 16. The Unified theory of acceptance and use of technology (UTAUT) should be taken intoaccount [33]. This framework is visualized in Figure 4 above. It was designed as an extensionof eight previous prominent models1, in order to overcome their imitations, especially onconsidering social context and personal expectancy. This model is able to explain 70% of theobserved variances in the study; compared to 17 - 53 % of TAM’s cite success. It has beentested to the technology usage cases for both individual and organizational/enterprise oriented,as well as in the voluntary and mandatory context. It includes the demographic factors ignoredpreviously and it was designed to examine the technology during their initial introduction state. The UTAUT framework consists of four user acceptance and behavior factors. Theperformance expectancy means a degree that user thinks that this new technology will helpthem in gaining in a job performance. The effort expectancy is a degree of ease associated withusage of the new system. Social influence is a degree to which user perceives the importanceof others to think he/she should use this new technology. The facilitating conditions a degreethat user thinks the infrastructure is available to support them to use this new technology.These determinants lead to behavioral intention, with is influenced by four key moderators:gender, age, experience, and degree of voluntariness to use the technology.2.3. Mobile Multimedia ServicesSeveral works have been done to research the emerging media services in mobile environment,but most of it focuses to either the technical underlying details or technology acceptancefactors. As far as our knowledge, the study about mobile media services that analyses both thebusiness aspect (in multi point of views) and user acceptance factors are not covered yet,especially one that is intended for the Indonesian market and considers the uniquecircumstances there (regulatory, telecom/media market and mobile user characteristics) The work in [38] assesses the factors that will affect the mobile video services usage andimplications to the service providers. It limits the focus to user-generated on-demand video,where the assessment was done based on theories of the Long tail, user-generated content(UGC), technology acceptance, as well as mobility and self-expression. The findings coversthe influence factors connected to the service offering and value for the users, as well asindicate the importance to the service provider to cooperate with other actors in offering andmarketing the service. Moreover, the study in [39] also explores user’s preference in the mobile multimediaservice and put the focus to the young people. It was done to investigate the possible valueadded services from the multimedia that can be offered to this user segment. The findings,which were investigated using the Innovation Diffusion Theory, reveal that the cost andtechnical constraint to use the service are the main barriers for this user segment, and it isfollowed by the knowledge level about the offered services. This knowledge factor is alsoconfirmed in [38] as one of the important factors that should be considered by service provider. Furthermore, the impact of the convergence that happens in the multimedia business isanalyzed in [17]. This work explores how this convergence drives change in the competitivestrategies of the media and communication actors. It also mentions about multitude of actorsform different origins that may attempt to assume the most favorable position, and assess thestrategic options that can be taken by these actors in form of migration and integration.However, this work only point out the actors’ positioning in value chain point of view, andactors’ constellation in the value network were not covered.!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!1Technology Acceptance Model (TAM), Theory Reasoned Action (TRA), Motivational Model (MM), Theory of PlanedBehavior (TPB), Combined Theory Acceptance Model and Theory of Planned Behavior (C TAM-TPB), Model of PCutilization (MPCU), Innovations Diffusion Theory (IDT), Social Cognitive Theory (SCT) 7!
  • 17. Chapter 3 – MethodologyThis chapter presents the motivation of the research approach, theories, and frameworks used.In addition to that, we also present the detail methods for the data collection and data analysis,as well as strategies to assure the quality of this study.3.1. Research ApproachIn many cases, a research is done either using a qualitative or quantitative approach. Theintention of this thesis is more into understanding the phenomenon and answering the problemthat the important factors are still unclear. Thus, the main research approach that fits to be usedis a qualitative. However, there is also a need to use the quantitative approach, especially to get anunderstanding of the media user by using a statistical validity. Therefore, the mixed approachis suitable, where the qualitative approach is complemented with the quantitative approach[19]. We applied this approach to four research phases: literature study, data collection, dataanalysis, and then forming the conclusion and recommendation for the future research. 3.1.1. Literature StudyAs the research needs to dive into a range of perspectives, we first establish clarity oftheoretical building blocks. We have to get an understanding of the business model concept.This includes the mechanism of how frameworks and theories work, as well as their antecedentand consequence. In this discussion, we also get deep into a value network discussion, which isto model the relevant actors in the digital media ecosystem and relations among them. The industrial background and user’s acceptance factors also play an important aspect,which also as a based of the analysis. Thus, we reviewed the technology acceptanceframeworks, especially ones that can be used to study the mobile services. This was used tounderstand the current and future pattern of media services diffusion that is delivered on top ofmobile broadband in the Indonesian market. 3.1.2. Data CollectionBeside the literature study, there were also data collection and analysis stages. These weredone to understand the business models used to deliver the media services on top of broadbandin worldwide markets today. However, the final intention is not to design such new solutions,but to evaluate the existing ones and to identify suitable options for the case study market.Therefore, analyzing the pattern of existing business models becomes a requisite, before we beable to evaluate and propose the relevant options. In order to do that, we used the datacollection techniques, as mentioned below: • First, we conducted the unobtrusive technique through secondary resources, as the basis of our research problem definition and pre-study cases analysis [20]. Discussions with the advisors and examiner also helped us to formulate the problems. Different types of source from both the relevant and adjacent areas were studied. It consists from academic and market report, to the newspaper and magazine articles. The KTH library catalogue was used to gather the scholarly journals2, while the market reports and analysis documents were mainly searched through Ericsson’s business intelligent center (BIC)3. • Second, we have undertaken the qualitative interviews with the contacts in the companies that operate in the reference market (Sweden) and target market (Indonesia). These persons are relevant due to their expertise and professional activities in the telecom and!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!2 “KTH Bibliothek”, available http://www.kth.se/kthb/3 “Ericsson Business Intelligent Center”, available http://internal.ericsson.com 8!
  • 18. media industry that relate to our study. These interview sessions took around 1 hour and conducted as semi-structured and open questions4. This was done to get an understanding of the context of these actors’ decision, intention, and opinion about the case we were studying. It means we performed the expert sampling [20] that covered the contacts from MNOs, telecom regulator, OTT music service provider, TV broadcaster and mobile content provider. The list of the interviewees is available in Table 23 at Appendix A – Qualitative Interviews. • Third, we gathered the quantitative user data using a simple random sampling survey [20]. This empirical data was used to perceive user patterns (behavior, expectation, perception, and acceptance) toward the mobile media services. Therefore, we could get a better understanding of this market and snapshot of end-user affirmation. The questionnaire was a combination of types of question: multi-item statement (“Likert response scale”), multi-choices, dichotomous, contingency, and open questions. We first conducted the pre-test survey to a small sample of respondents in Sweden, to improve the questionnaire accordingly. The survey then was opened for 14 days from July 30 to August 12, 2012 and published in the survey monkey, an Internet-based survey tool5. The link to this survey was privately mailed to an extensive list of 1488 Indonesians, who were randomly selected from social media websites and mailing lists. During that period, we got 195 responds, which consist of 119 valid data. Then, this valid data was used to test and validate our hypotheses about the Indonesian mobile users. 3.1.3. Data AnalysisIt is important to do the analysis for the broadband business in its complete ecosystem(network, aspect, services, and application aspects), in order to get a complete understandingand picture of what we are dealing with [40]. In the network aspect, we focused on the analysisof the business model specifically for mobile broadband. The service and application aspectwas concentrated on the multimedia in entertainment aspect, covered digital mobile musicand TV/Video application. The analysis about end-user aspect covered the consumption andpreference pattern of the mobile user to those services, in the global and Indonesian marketperspective. Based on the problem domains defined previously, it is clear that the scope of this thesis isnot to form new business models, but to assess the suitable options. Thus, the analysis wasdone with the pre-study and post-study analysis according to theoretical frameworkmentioned in 2.1. This pre-study analysis consists of three parts:• First, we saw the business model as value network of entities (Network centric approach) [10], because there are multi-actors involve in the media business ecosystem. We identified these actors, what kind of roles they have, and the value network they form in the OTT music and TV/Video services provisioning. We used the actors, resource, and activities (ARA) point of view [7], where the identification of these actors was elaborated from the work at [5].• Second, we analyzed common characteristics that lie in the business models used to deliver media services worldwide. We evaluated different business models (Taxonomy point of view) [2], by elaborating the work at [6] and [5]. Here, we observed different forms of business model based on the service, distribution, and revenue model.!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!4 The interview questions for the representatives from companies based in Sweden are designed together with the otherstudents that studied similar topic but different case study, which are Ekambar Selvakumar and Jin Huang5 “Layanan Media pada Mobile Broadband di Indonesia”, available at https://www.surveymonkey.com/s/8LH9LLR 9!
  • 19. • Third, after getting the understanding of these digital media industries landscape, we evaluated specific firms’ business model (Instance point of view) [2]. We chosen Spotify, as it is one of the current prominent OTT and mobile media service providers in Europe and have inter-actor relation within its business model. We framed our analysis by using six elements in the framework designed in [9]. These three analyses provide us the conceptual bridge to align the triangle of strategy,organization, and technology. We need to do those, as mobile broadband in Indonesia is stillimmature and mobile media services have not taken off yet. Therefore, there is not much tolearn if we only see it from a local point of view. Therefore, it would be hard to analyze thistarget market, without first doing the pre-study analysis to the mature markets and getunderstanding of the landscape. While doing this pre-study analysis, we developed hypotheses that later are then tested inthe post-study analysis, which was OTT music and TV/Video services provisioning inIndonesia’s mobile broadband market. These hypotheses and its tested variable are listed inTable 32 in Appendix C.1. Using this, we assessed the Indonesian mobile users’ acceptanceand readiness toward media services through mobile broadband within the UTAUT framework[33], which was chosen as it is an improvement of the previous prominent user acceptancemodels and has widely used among researcher, as discussed in section 2.1. UTAUT is based on belief that individual factors affecting user’s decision to accept orreject a technology or service can be identified and measured. According to this, user’sexpectancy for performance, effort for adoption, and social environment would influencebehavioral intention. This intention, along with the facilitating condition factor, is fundamentaldeterminant of the actual usage behavior. It also considers age, gender, experience, andvoluntariness aspect, and it has been successfully applied in numerous studies. Therefore, thisis suitable to be used in this study, to understand Indonesian mobile users’ characteristictoward mobile broadband media services.3.2. Quality of the Study3.2.1 ReliabilityReliability refers to the consistency and/or stability of a particular result from procedures donein the different circumstances, assuming the variable factor/s has/have not changed [21]. Asthis thesis uses mixed approach, thus the reliability to both of the qualitative and quantitativestudy should be taken into account. The reliability of the qualitative study was ensured byletting the interviewee be informed about the interview protocol and the questions prior to theinterview session. In addition, because the interviews are semi-structured and open questions, the interviewermight repeat and paraphrase the information relayed by the interviewee, to correct anymisunderstanding. We mostly recorded the conversation on behalf of the interviewee’spermission, which makes us possible to re-analysis the information in its whole context laterduring the post-interview session. The main points from the interviewee’s answer to eachquestion are listed in Table 24 to Table 30 in Appendix A.1. The reliability of the quantitative study was ensured using internal consistency, by testingthe hypotheses in a single survey. Internal consistency refers to the degree of the relationamong items measured [22]. This means, in this study we assessed the internal consistency bymeasuring how the results (variable) from different questions that are designed to measure thesame hypothesis, yield to the similar construction. We assessed these results using twoprominent types of Correlation tests, which are Cronbach alpha and Pearson product-momentcorrelation (Pearson correlation). 10!
  • 20. Cronbach alpha shows us the consistency of the variables, which is approached within thevalue of its reliability coefficient (!) [22]. The assessment for the Cronbach alpha’s values isdone by following the thumb mentioned in [23] as quoted in [24], as listed in Table 1.Meanwhile, Pearson correlation shows the correlation coefficient value (r), which tells uswhether the variables correlate each other and the strength of their correlation. This at the endalso represents the reliability. Nevertheless, different with the Cronbach alpha, it only can beused to measure two variables. Pearson correlation may show negative or positive value, whichthe negative value means the negative correlation between two variable (one variable, the otherdecrease), and vice versa. The assessment for the Pearson correlation‘s values are done byfollowing the thumb as listed in Table 2. Table 1. Interpretation of Internal consistency from Cronbach alpha Reliability Coefficient Internal Consistency ! " 0.9 Excellent 0.8 # ! < 0.9 Good 0.7 # ! < 0.8 Acceptable 0.6 # ! < 0.7 Questionable 0.5 # ! < 0.6 Poor ! < 0.5 Unacceptable Table 2. Interpretation of Correlation coefficient from Pearson Correlation Pearson Correlation Correlation coefficient -0.09 to 0, or 0 to 0.09 None -0.3 to -0.1, or 0.1 to 0.3 Small -0.5 to -0.3, or 0.3 to 0.5 Medium -1.0 to -0.5, or 0.5 to 1.0 Strong3.2.2 Validity Validity describes the extent to which a measurement accurately represents what it intentsto measure [21]. In the qualitative study, the validity was enhanced using the triangulationstrategy. Here, we use multi sources of information in the qualitative data collection, which arethe secondary sources and interviews. The qualitative validity was also ensured throughcarefully choosing these data, including the report documents, companies and interviewees.The data taken from the secondary resources were compared and cross case analyzed with theinformation from the interviews session, and vice versa. Therefore, the bias and interpretationfrom author’s personal perspectives can be minimized. The validity of the quantitative study was assured through both external and contentvalidity. The external validity was done by performing a survey to the small random sample ofIndonesians who are currently living in Indonesia, which means the study was carried out tothe representative environment to which the study are intended to be applied. The contentvalidity was achieved by conducting the pre-study to the reference markets, with the support ofliteratures review and qualitative data collections. Thus, we could design the questions thathave a close connection with theoretical frameworks (UTAUT) by ensuring the aspects withinthe framework were measured. The questionnaire was made using Indonesian language(Bahasa) instead of English, to avoid any misinterpretation about the context of the questions. 11!
  • 21. Chapter 4 – The Digital Music IndustryThis chapter presents the analysis of business models used in the digital music industry. Westart with the current landscape of the industry, and then provide discussion of the actorsinvolved, and relations and networks they form using “ARA point of view” as mentioned insection 2.1. In addition, we also evaluate business models used by these actors in the“taxonomy point of view”, where we analyze their distribution, service and revenue models.4.1. Industrial landscapeThe digital music services have caused the revolution in the music industry, and it is obviousthat the compact disk (CD) has been the largest revenue stream for the industry for more thantwo decades. This industry has also faced a shift from the physical to the OTT digitaldistribution era, since the debut of the OTT retail store a decade ago. It extends the musicbusiness models and reaches out to more users across the globe. This makes the music as thefirst media sector that gets full impact from the Internet and technology-empowered forces. Nowadays, people do not need to purchase CD to enjoy the music, because the availableOTT services allow them to immediately and legally download or stream the music stored inthe cloud. According to IFPI6, there has been a consistent rapid increase in the digital musicrevenue worldwide since 2004 and its percentage over the overall revenue keeps expanding, asshown in Figure 5. This number has far away passed physical format, and made digitalpenetration in music industry dwarfed all comparable creative industries, except game sector. Figure 5. Digital music revenue and its percentage share over total revenue worldwide6 However, digital music business internationally is not a homogenous, but consists ofvarious service model portfolios that run at different speeds. Therefore, there would be nosingle business development road map applicable in all markets, due to the uniqueness andenormous interaction preferences in the way user in each territory consumes music. This iseither due to the differences in economic situation, network connectivity, device penetration,digital development, etc. In addition, the obstacles across countries are also not just the piracylevels and low law enforcements, but also different publishing right mechanisms, user’spreference stages of online payment, etc.4.2. Actors, Relations, and NetworksBefore we are able to analyze the network value of the music industry with others, it isimportant to identify the main actors inside this industry and to get an understanding of their!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!6 Author’s compilation from the data in the IFPI’s Digital Music Report documents, from 2004 to 2012 12!
  • 22. roles. We then analyze these actors’ relations, from traditional era to the recent phenomena.First, we identify the prominent relations in the digital music industry that have run or arerunning worldwide. Second, we observe these patterns and model it using ARA point of view[7].4.2.1 ActorsDespite the dramatic changes in the industry’s landscape, the majority of the actors in themusic industry still fulfill their traditional roles [48], as mentioned below.1. ArtistThe term of artist in the music industry covers several parties, which are the recording singerand/or musician, composer, and songwriter. The recording singer is an artist that delivers therecorded music and/or stages the performance. The composer is an artist that writes the musicsheet, while the songwriter is one who writes the music lyrics. Some of the artists in musicproducing industry might hold several roles. A common example is an artist who both works asa singer and songwriter, which makes him/her hold multi-properties for the copyright works.2. Publisher and Record labelThese parties are concerned with the development, protection and valuing the copyright works.The publisher works with the artist based on the publishing contract. It handles the copyrightregistration, promotes, and monitors the usage of it, and then collects and distributes theroyalties of the copyright work as written forms (music sheet, lyrics). The record label workswith the artist based on the recording contract, where its main responsibility is in theproduction and enforcement of the copyright works as recorded forms (sound recording).These actors and the artist act as the content owners who hold the copyright works. There are currently around 1400 music record labels and publishers worldwide [56], whichcan be grouped into two types as below:• Major record labels These big record labels are often as an umbrella organization (record/music group), and control ~ 75 % of the worldwide music market [48]. They also may consist of several subsidiary companies, such as the music publishers, record manufacturers, and distributors.• Independent record labels (Indies) The music publisher and record label company, which do not have a corporate backer, might form business relationships with other companies to handle full tasks. However, since in the 1990s, the line between Indies and major record label has begun to blur, as the major record labels sometime also distribute some works of the large Indies as well.3. Collecting societyThe collecting society (copyright collective, copyright collecting agency, licensing agency) isan organization that handles management rights on behalf of its members (publisher and artist).These management rights might include selling non-exclusive licenses, enforcing rights andprohibit the use of copyrighted works, collecting royalty payment and distributing it to thecontent owners, negotiating license fees for public performance and reproduction, etc. In otherwords, this organization acts as a point of contact for licensing music from its members, toavoid cumbersomeness for the third party to navigate multitude of independent rights holders. In some countries, there may be also the collecting society that focuses on functions that aremore specific. Some common examples are the collecting society that grants license forperforming the work (Performance rights organization / PRO), and collecting society thatfocuses on publishing management (Reproduction Rights organization / RRO). Indeed,according to the finding in [5], we can classify this actor as the content integrator, as theyintegrate the copyright works and bridge the content owners, which are mostly the Indies, tothe third parties. 13!
  • 23. 4. Content aggregatorThe content aggregator is an organization that supplies and aggregates the music from therecord label (mainly Indies record label) and distributes it to the music retailer and/or serviceprovider. There are aggregators that offer direct-to-fan integration services (merchandise, eventmanagement, etc). In addition, some might also supply download services to otheraggregators/distributor and act as a music retailer/service provider directly to the end-user.This is consistent with the finding in [5] that also mentioned a same role in mobile serviceprovisioning.5. Music retailer and service providerThese actors are at the end of the supply chain line that holds range of licensed copyrightworks in various formats for distribution to other or to be sold in their own platform. There arecurrently ~ 520 legitimate digital music Retailers and Service providers worldwide, ranging in58 countries [58]. The music retailer provides the music as a product, e.g. CD ordownloadable track, or any physical packages that contain music. The music service providerprovides the music as a service or any act that convey the music. Some parties provide musicas product and service, which makes them as both music retailer and service provider, e.g.Spotify.4.2.2 Value Network of the Core ActorsAs same as what have been discussed in the actors’ role previously, the core actors of themusic industry’s relation (“Core partnership”) also do not change dramatically. As far as wecan identify, their “core network” exist in every models that we discuss further. Meanwhile,the variation happens outside this network “box”. The core actors of the music industry andtheir relations can be visualized as shown in Figure 6. Revenue stream / sharing line Artist &()!*+,-.!/.0(,1!2)03(4!56! Major Record label Publisher Indies Record label! Content Aggregator Collecting Society Other Actor(s) Figure 6. Conceptual actors and relations of the music industry’s core network When a music artist wants to distribute its artwork, it is quite frequent that they have todeal with separate parties, which are the record label and publisher, through at least two basiccontracts to each of them: the Recording contract and Publishing contract respectively. Themusic artist whose role is a songwriter mainly deals with the publisher, e.g. for the musiccomposition, lyric sheet, etc. The publisher then, on behalf of the songwriter’s, brings thatartwork to the record label in order to be used by the singer. Meanwhile, a music artist that has a role as the singer, mainly deals with the record label,e.g. for the music recording. The record label, on behalf of the singer, contacts the publisherfor the music material that is suitable for this singer. Both the publisher and record label dealwith the collecting society, which is mainly settled per country-based, that then acts on their 14!
  • 24. behalf to collect the royalties for the usage of their artist’s work from the aggregator. TheAggregator acts as a point of contact for the distribution of that work to the music retailer /service provider. However, following the development in the technology and decreasing in the revenue, thereare several exceptions from the default strategy and working relation mentioned above [63].This is mainly applied to the Indies environment, as the major record label uses to have acomplete capability to fulfill these scoops by themselves. They merge the publisher’s andrecord label’s traditional roles, and turn as the “music company” by setting up compact all inone deal with the artist (“360-degree” / “multiple-rights” agreement). While in return, theartist gets more shares, compared with having separate deals with different actors (publisherand record label).4.2.3 Value Network in OTT DistributionIn the traditional era, there is only the music retailer that the core actors of the music industrydeal with. The music retailer distributes the copyright works to the end-user as a physicalproduct (e.g. phonograph record, cassette, CD, etc). Then since a decade ago, the musicbusiness mainly run under the OTT channel, where it is distributed using several packagingmodels, as discussed later in section 4.2. This then expands and actors from different fields areinvolved in the ecosystem. This evolution forms diversification to the music industry’sbusiness model, brings music closer to consumer, and becomes the key route to the globalmass-market music distribution.4.2.3.1 “Direct-To-Fan” ModelDuring the early digital music business, the record labels also rolled out their own digital retailchannel. They act as the OTT music retail / service provider, under their own or artist’s brand[64][65]. Their offerings range in variances of product (e.g. track and album, merchandise,performance ticket, artist interview, etc) [90]. Some record labels also turn their channels as anadvertisement platform for the brand partners. The decrease in the traditional advertisingforms, makes the music industry offers a better opportunity for the international brands toreach their end-user. The actors and their relations in this network are visualized in Figure 7. Core music actors Brand Partner network box! Customer 78)!)29:+,)(!)2;;/*)20!<-2)! Revenue stream / sharing line Figure 7. Actors and relations of “Direct-To-Fan” in the digital music4.2.3.2 Telecom Actor’s Potential PositionsA. “Point-To-Point” ModelThe earlier relation variance under this model was struck worldwide around 2001, started firstby the collaboration between music industry actors with Internet industry actors. Despitevarious variances and complex ecosystem, the relation under this model requires “external”actor partners to build their own distribution platform, positions themselves at the end of theValue chain. Meanwhile, core actors of the music industry act as suppliers at the back-end, assame as in the traditional distribution era. The Figure 8 shows the typical actors and theirrelations in the digital music industry using the point-to-point model. 15!
  • 25. Customer OTT Retailer and CSP CE Provider Mobile Device OEM Service Provider & OS Provider Core music actors network box! 78)!)29:+,)(!)2;;/*)20!<-2)! Revenue stream / sharing line Figure 8. Typical actors and relations of the “Point-to-Point” partnership in the digital music As can be seen above, multitude of actor can also involve in the OTT music business, notjust the music industry actors we mentioned in the section 4.2.1 previously. These actors canrange from end-user electronic (CE) provider, mobile device OEM and OS provider, telecomoperator (CSP), etc. In the variance that involves the CSP, the music industry actors can givethem an advantage over established billing structure, commercial network footprint, and massdelivery channel. Music content and service also has a potential as game-changer to the CSP.This can keep them competitive by increasing market share and ARPU, reducing the churnrate, and competing with the OTT, rather than just being the “dump pipe” [90]. In addition, the legal music service is delivered through the client/server and/or assisted-P2P. This could help to control user’s bandwidth usage, as they have a potential to turn to thislegal and easy-to-use service rather than the illegal one [66]. TDC7 and SK Telecom8 are someof the CSPs that were successful to deliver the “Point-To-Point” model. The data shows thatTDC has reduced its churn rate approximately 40% in mobile and 60% in fixed broadbandsince the launching its download music service, YouSee PLAY, in 2008 [67]. By November2010, TDC has recorded ~250 million downloads [99]. Meanwhile, SK Telecom has alsogrown its mobile data revenue up to 30%, far ahead of its competitors due to its musicstreaming service, MelOn9. The fundamental reason of these successes was due to their value proposition that could notbe defeated by their local competitors. In TDC’s case, the unlimited free download was hugelyattractive to the Danish market. It was able to offer this because of its success on setting upagreement with all major record labels and Danish Indies record labels [100]. In SK Telecom’scase, it has a subsidiary record label (Loen Entertainment) that is also the largest record labelin South Korea10. This significantly removed the agreement licensing complexity, and reducesthe cost to operate the service with updated contents. It should also be noted that the localmusic contents are much popular in South Korea, compared to the international contents [101]. However, there are prohibitive up-front cost and significant complexity that prevent othersto follow. There are range failures from “Point-To-Point” model implementations, delivered bytypes of high profile CSPs worldwide. An example is Virgin Media’s direct relation withUniversal Music in the UK, French and Australian market back in 2009 [94], because theywere unable to secure deal with other three major record labels. On the other hand, BSkyBmusic service also failed in the UK market due to the inability to reach a large end-user,!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!7 “TDC”, available http://tdc.com/8 “SK Telecom”, available http://www.sktelecom.com/9 MelOn http://www.sktelecom.com/eng/html/service/WirelessInternet/Music.html10 LOEN http://www.iloen.com/ 16!
  • 26. although it had a direct backing from major and Indies record labels, large subscriber basedand marketing strength [102]. The success of TDC and SK Telecom are not easy to be replicated by other CSPs indifferent countries with their unique circumstances. These factors are due to several reasons[72], as below:• First, there are huge efforts to be put in developing and maintaining digital music service that has excellent quality, enough affordability and sustainability of music contents, the same as with marketing and branding. During the interview, Lars Roth (TeliaSonera) also mentioned that despite the significant cost that have been invested to obtain license and operate their digital music service, “Telia Musikbutiken”11, they still failed on gaining values they look for (see section 6.4.2)• Second, music service is a part of VAS, not the core part of CSP’s main capability and revenue, as they only contribute small proportion to the annual non-voice revenue. Considering these aspects, the CSP might not like to put huge effort and capability to focus to the digital music business, as the OTT music service players would capable to do.• Third, the CSP also has to struggle to compete with other well-known OTT music service players, such as Apple with iTunes and iPod12 that give end-user more inferior listening experience. They have the capability to reach consumer globally that then creates a global trend. Their focus to the music business result on a high-quality OTT service, which may lead user to put off their music consumption from CSP’s retail channel.B. “Point-To-Multipoint” ModelThe earlier variance of actor’s relation under the “Point-To-Multipoint” model was struckworldwide around 2007. This model involves the actor that acts as a “bridge” that has a settlelink between the main music industry actors and several actors in different fields of industry.The typical actors and their relations in this network are visualized in Figure 9, which alsomight involve actors from other industries that previously have never been seen in the modelsbefore, e.g. the automotive industry [108]. Customer Vehicle Provider CSP CE Provider Mobile Device OEM & OS Provider OTT Retailer and Service Provider Core music actors network box! 78)!)29:+,)(!)2;;/*)20!<-2)! Revenue stream / sharing line Figure 9. Typical actors and relations of the “Point-to-Multipoint” partnership in the digital music!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!11 “Frågor och svar för Musikbutiken”, availablehttp://www.telia.se/privat/produkter_tjanster/noje/musik/musikbutiken/faq12 “Apple - Play music and more on iPod.”, available http://www.apple.com/ipod/ 17!
  • 27. In the collaboration variance that involves CSP, this model also has a potential to gainmarket share, increasing the smart phone selling with bundling data plan, and reducing churnrate. This variance can be used by bundling it with the CSP’s broadband and telephonysubscription packages: hard bundling (e.g. Deezer – Orange in France), soft bundling, freetrial (e.g. Spotify – 3 in UK), billing integration (e.g. Spotify – TeliaSonera in Sweden andFinland), etc. Collaborating with a well-known service provider would also bring extraordinaryimpact on CSP’s core business, as it could expand their values beyond the traditional “pipe”provider. The CSP also can take advantage of their end-user based and network by cross selling themusic service with their existing products. However, it more makes sense for the CSP to usethis model, instead of create it by them self. This is because this offers opportunity to thesimilarly compelling service, but with opportunity to gain it quickly, in a simpler way, and at areasonable cost. Using this model, the CSP can share or even remove the effort on marketingand branding to deliver the service to the market. As also mentioned by Lars Roth(TeliaSonera) and Andreas (Spotify) during the interview, this kind of partnership gives theCSP an already established platform and existed license agreements with the content owners. We can compare this with the fails that have been faced by the CSPs worldwide whendealing with the licensing issues, as discussed previously. In return, the OTT retailer / serviceprovider can expand its end-user based efficiently on a scaled size. Its tie with the big playersgives them a significant advantage, as they are mostly new and small company. This offers astrong position to compete with competitors and deal for the license with the content owners,as also informed by Lars Roth (TeliaSonera) regarding TeliaSonera-Spotify partnership.Swedish market is an example: according to IFPI, 56 % of the consumer confirmed that thestreaming service was their main reason to stop music piracy activities [66]. The local musicindustry saw 10% increasing revenue for the first time since 2000 and the file-sharing activitieswere reduced by 60%.4.3. Service, Distribution, and Revenue ModelsThe economics of the music value chain has faced several dramatic changes since two decadesago, moved from the physical to OTT era, and revenue from the OTT channel is expected toovertake the physical channel by 2015 [68]. The OTT distribution, with a support from thenetwork technology, also changes the way the music served the end-user [90]. There arepossibilities to consume music content in different ways, as it is delivered on top of diversedevices and platforms. The current business model used in the OTT music can be mapped intodifferent combination of services, distributions, and revenues, as shown in Table 3 and Table4. Table 3. Revenue models in the digital music Revenue model Note One-off The end-user buys the music content, and it might be downloaded or Payment / Retail stored in the digital locker, e.g. iTunes’s revenue model. Subscription The end-user pays for regular period of time to access (stream) /get (download) limited/unlimited music contents (based on amount of time or content), e.g. Deezer and Spotify revenue model (premium/unlimited subscription) Subsidized The end-user does not pay for the music content consumption and other revenue channels support the business, mainly the advertisement fee, either as voice, picture (banner), or placed at the intervals within the content delivery, e.g. Spotify revenue model (free subscription). 18!
  • 28. Table 4. Service and Distribution models in the digital music Service model Distribution model Revenue model Personalization Ring tone (monophonic, polyphonic, real One-off payment, tone, user-generated tone), Ring-back tone Subscription / RBT Ownership DRM à-la-carte, Free-DRM à-la-carte One-off payment, Subscription, Subsidized Access On-demand streaming, Internet radio Subscription, Subsidized streaming Integrated Combination of 2-3 service models above, Combination of revenue mostly “Ownership” and “Access” model generation models above1. Personalization service modelsPersonalization service models were initially launched by Nokia, as one of its mobile devicefeatures, and marked the start of mobile music era [68]. In those early years, the monophonicring tone has ever contributed as the biggest revenue for MNOs, where the payment was madeeither using premium SMS or telephony (interactive voice response). However, in line with theexpansion penetration of advanced mobile device, the marginal revenue share frommonophonic ring tone service decreased and until then it was replaced by the RBT service. The RBT service was firstly introduced in South Korea [90]. It mainly relies on the networkrather than mobile device, as it is installed in the voice system of MNO’s core network.Because of its “close” delivery platform, this service does not relate to the piracy issue.However, it has a technical make up that causes the RBT costly to implement and relies to theregional marketability that makes this service very culturally specific. Thus, only MNO that isoften motivated to promote the service, while the third parties mostly involve at the back-end.2. Ownership service modelsThe “ownership” service or à-la-carte download has been and currently the dominant digitalbusiness model. However, the lack of interoperability between services and devices has been abarrier to business development. Significant moves have been done to solve this, such exampleis DRM-free service that allows end-user to buy and download music, then play it in anydevices [90]. It includes “cloud feature” to store the track that has been bought in the cloud. The DRM-free model is currently still as the key in the digital music business. However,there is still an issue in the interoperability of the content. In addition, the pricecompetitiveness is highly important in this model, and piracy issues still become major barrierto the business growth. In the CSP’s point of interest, this service is only able to influence afewer bond and loyalty with the user. This happens because user can just download the musiccontent and then chooses on his/her own to experience it offline and/or elsewhere using otherdevices.3. Access service modelsWhen seeing the business in the network point of view, the CSP can build an enormousstrategic alliance with the music industry actors by using the streaming services. This servicemodel has more ability to give an impact to the CSP’s key business metrics and compete withtheir competitors, compared with the download services, due to several reasons. • First, music is inherently emotional for people and if it is delivered using a streaming service, the quality of experience becomes a matter. It potentially creates a genuine bond between user and service (“stickiness” aspect). This is a key to reduce churn rate and gain market share. The service makes end-user stay with their CSP, unless they would lose access and/or unique offering.• Second, the revenue from streaming service is generated via repeatable billing cycles, so provider keeps the revenue from both data traffic and service usage, as end-user naturally 19!
  • 29. accepts the concept of bundling with a scheduled-billing (“recur” aspect). Although revenue for a stream is lower compared to a download transaction, the cumulative revenue might be higher, because each track is listened multiple times, that each generates revenue.• Third, streaming service is delivered in a high-end mobile device and can be bundled with a data plan, which is a significant potential for CSP to gain more revenue (“up- selling” aspect). The CSP can compete not mainly based on the low price of the offerings, but due to the attractiveness of the bundling.• Fourth, streaming service is the “access type” consumption model. Therefore, it is natural for end-user to get access into it across different devices (“cross-promotional” aspect). This could expand CSP’s position in supply chains, e.g. PC, mobile phone, digital TV/Audio system, etc. In addition, the global market demand is also giving signs that the digital music business isshifting to monetizing the “access” to the music. Ovum predicted the revenue from digitalmusic subscription service would increase to more than 60% of its annual growth by 2015, dueto rapid increase of paid-subscription to the streaming service [71]. It has been forecasted thatthe “streaming” service would likely become the main driver in the music distribution channelfor the coming years. These revenue shares are shown in graph in Figure 10. Figure 10. Revenue stream share from the digital music [68] 20!
  • 30. Chapter 5 – The Digital TV/Video IndustryThis chapter presents the analysis of business models used in the digital TV/Video industry.We start with the current landscape of the industry, and then provide discussion of the actorsinvolved, and relations and networks they form using “ARA point of view” as mentioned insection 2.1. In addition, we also evaluate business models used by these actors in the“taxonomy point of view”, where we analyze their distribution, service and revenue models.5.1. Industrial landscapeVideo is a key driver for exploding mobile data traffic, bundled through ranges of product.According to Allot, video streaming was the largest service accessed worldwide that occupied42 % global mobile bandwidth, derived from the booming of smart phone and tablet. Youtubewas responsible for 57 % global video streaming traffic by Q2 2011 [78], where over 600million views / day are mobile13. While, Neflix occupies ~ 95 % downstream traffic in Canadaand ~ 20 % in US during prime time, from only 1.8 % subscriber. In addition, video streaming business in mobile devices was also forecasted to catch otherbusinesses in the creative industry, especially game and music. However, video is notrepresenting strong revenue for the telecom operator for its own right. This increasing mediastream traffic also triggers demand for a better quality of the content accessed. This createschallenge to manage the traffic, and OTT players also bypass telecom operator’s substantialrole in the digital TV/Video value chain. Thus, the telecom operator, especially MNO, posesthreat from this, in line with their investment for mobile broadband network, as the digitalTV/Video business grows across multiple and connected devices [92].5.2. Actors, Relations, and NetworksThe same as the music Industry, before we are able to analyze the network value of thebroadcasting industry with others, it is important to identify the main actors inside this industryand to get an understanding of their roles. We then analyze these actors’ relations, fromtraditional era to the recent phenomena. First, we identify the prominent relations in the digitalTV/Video industry that have run or are running worldwide. Second, we observe these patternsand model it using ARA point of view [7].5.2.1 ActorsHere we also see a consistent pattern as similar as what we have observed in the digital musicindustry. Despite the dramatic changes in the broadcasting industry landscape, the majority ofthe actors inside still fulfill their traditional roles, as below:1. Content OwnerThe Studios and TV broadcasters are match to this category. They own movie (video) and TVcontent, and traditionally distribute it directly to the widest audience and are compensated forthe usage of that. Several examples of actors in this category are Movie-based content owner(e.g. HBO, Disney, Sony Pictures / Crackle, Universal, Discovery Channel), News-basedcontent owner (e.g. BBC / Youview / iPlayer, ESPN, ABC, NFL, Showtime), and Sport-basedcontent owner (NBA, Major League baseball), etc.2. Collecting SocietyAs same as in the digital music industry, there is also a same role of collecting society. Thisorganization handles the management rights for digital TV/Video content, and usually operatesper country based. In other words, it acts as a point of contact to acquire licenses and avoidcumbersomeness for third party to navigate multitude of rights holders. The work in [5]classifies this kind actor as content integrator in mobile service provisioning.!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!13 ”Product Metrics”, available http://www.youtube.com/t/press_statistics 21!
  • 31. 3. Content AggregatorThe need for a content aggregator (content distribute) comes to fill the gap between the retailerand/or provider and various content owners. This party obtains range of legitimate intellectualproperty rights and aggregates the licenses to distribute it. In other words, this actor provides aone-stop-shopping service, which is the established negotiation with the studio andbroadcasting firms and assures the availability of the content [29]. This is consistent with thefinding in [5] that also mentions similar roles in mobile service provisioning.4. TV/Video retail and service providerThe service provider’s role was previously held by CSP that provides variety of TV/Videocontents to their subscriber via their own service brand and delivered through their closednetwork infrastructure. This service is often bundled with other service features (e.g. triple playor quadruple play bundle). Some examples of actors in this category are the cable provider,satellite provider, and telecom operator. Nevertheless, nowadays, any parties from range ofindustries can also hold this role, e.g. Internet player, mobile device OEM and OS provider, CEprovider, etc.5.2.2 Value Network of the Core ActorsThe relation between actors inside TV/Video industry in the digital/OTT era is visualized inFigure 11. As what have been discussed in the actors’ role previously, the core actor’s relation(the “Core partnership”) in the broadcasting industry also does not change dramatically. Here,the copyright works belongs to the Studio/TV broadcasting. Therefore, artist’ roles are lessrelevant to be discussed, because they do not hold the copyright. As far as we can identify, this“Core network” exist in every models that we will discuss further, while the variation happensoutside this network “box”. Core broadcasting actors’ network box Studio Collecting Society TV Broadcaster Content Aggregator Other Actor(s) Revenue stream line Figure 11. Actors and relations in the TV/Video industry’s core network In the case of movie content, the studio may also grants the licenses for distribution to thecollecting society. Märta Rydbeck (digital broadcasting expert) during the interview stated thisas below, “We (TV broadcaster) pay to [name of a collecting society] for a right that can not be cleared, for a right that is transferred by the owner to an exclusive organization that can negotiate with TV channel. So in order to distribute TV in Sweden you always have to have agreement both with the right owner of the content, but you also need the [name of a collecting society]”. In addition, content aggregator determines how many copies that have to be made, and dothe screening process to the prospective buyers, e.g. Cinema Theater or other content 22!
  • 32. aggregators. Put differently, the studio company is behind the wall. However, this is mostly notthe case with the TV broadcasting industry, as they directly set up the engagement with user.5.2.3 Value Network in OTT DistributionPreviously in the traditional era, user only got access to the TV/Video content through TVbroadcaster or cinema theater. Here, the contents are defined by specific schedule and useraccepted the concept to adapt to it, because the service is offered by creating demand of thesame content for many end-users at specific uniform time. Then, the retailer expanded thesechannels and rental (physical) outlet/kiosk in late 80s/90s, where the copyright work is bundledas a physical product (e.g. DVD, VHS, Blu-Ray, etc.) The “virtual” digital distribution channel was started by the cable and satellite TV provider,and then followed by the telecom operator through their closed network infrastructure, asdiscussed later in section 5.2. In addition, up until recently, there was rarely direct competitionbetween these parties, as their operation area was different. In that era, the value chain waswell established, where the CSPs act as gatekeepers to their own end-users, and there wasgeographical competition that borders their service range. However, the technological advancement and change in the regulation across markets havealtered the picture, made each cross other’s primary business area. Here, the competitioncomes from any angles and through any devices. The cable provider offers similar range ofservices: obtaining voice, data, and existing TV/video service in a bundle. The satelliteprovider might also collaborate with ISP to provide cross-selling services. While thesedifferent CSPs are racing in the triple-play business and not just facing intense competitionwith their counterpart core competitors, the OTT TV/Video players also enter the market. This brings even more pressure to the existing actors and triggers a second change in thedigital TV/video service competition landscape. The launching of Youtube in 2005 marks newgeneration of the distribution model, and makes the barrier to provide digital TV/video to theend-user shrink. Now, practically everybody can be a digital TV/Video service provider. Thecontent owner has more choices to deliver and monetize their copyright work across differentplatforms. Meanwhile, user has more freedom on consuming the TV/Video contents.5.2.3.1 “Direct-To-Fan” Model Brand Partner Core broadcasting actors network box! Mobile Device OEM & CE Provider OS Provider Customer 78)!)29:+,)(!)2;;/*)20!<-2)! Revenue stream / sharing line Figure 12. Typical actors and relations of the “Direct-to-Fan” partnership in the digital TV/VideoFollowing the rising of OTT access through range of connected devices, the studio and TVbroadcaster also seek opportunity for direct access to their end-users. There are two paths onthe implementation, by either collaborating with the CE, Mobile device OEM and OS vendorand/or creating their own platform that enables TV/Video content delivery. Thus, the studioand TV broadcaster provide OTT TV/Video service in this model. The typical actors and their 23!
  • 33. relations in this network are visualized in Figure 12. Some examples of this actor are SVTplay14 in Sweden, or several TV broadcasters in the UK that launch open platform calledCanvas15, which enables any broadcasting actors to use it as delivery platform. In these cases,the TV broadcaster acts as OTT TV/Video service provider and provides its own billingrelationship with the viewer. Märta Rydbeck addressed this strategy as below, “(Up until recently) a lot of distribution (channels) are by the operator, so obviously the operators are not so happy with [name of a TV channel] extending beyond its manage network, going over the top… And [name of a OTT TV service] where [name of a TV channel] builds its own customer is huge threat for the (telecom) operator. They obviously want that content in their own network. We said ‘if that is in your platform, we do not get any of the advertising (revenue)… It needs to be played in our service, so can calculate on the advertising, whether we have free channel or we have billing relationship with our own customer’”. From the statement in the interview above, it is revealed there is still a main problem thatthe TV broadcasters are facing when delivering the content in multi-screen strategy beyond thetraditional Pay-TV distribution channel (e.g. mobile TV). Therefore, it is not surprising that theTV broadcaster, as a content owner, also attempts to reach directly their viewer directly in thedigital distribution, by delivering their own online channel, by passes telecom operator’straditional role that exists in Pay TV ecosystem. Märta Rydbeck called this as called as“advertising dilemma”, as she explained as below, “(For TV channel) it (mobile channel) is of course revenue stream, but it does not bring more value to watch it on the mobile (mobile TV) rather than set up box. Actually currently it bring less value, because the TV channels have not sort it out how to deal with advertising on the mobile yet… because, if I watch [name of a TV channel] here (mobile phone), and I watch an advertisement that run on [name of a TV channel], It does not get calculated as a view, I do not get calculated as viewer. Because there is no measurement system today that takes into account the (number of) advertisement that is broadcasted here (mobile phone)… all the measurements set up today are at home (set-top-box). So it is big problem if you look at the increase of both on demand viewing or linier type of viewing on mobile today for TV channel. So people start to switch at their home, to watching only on their mobile and we do not sort this out… The TV channels are facing big problem”.5.2.3.2 Telecom Actor’s Potential PositionsDespite the opportunities offered in OTT distribution, not all studio and TV broadcasterattempt to shift to the “Direct-To-Fan” model. Some still see the advantages of establishingdelivery service through collaborating with other actors. Telecom operator have severalstrengths this circumstance, e.g. billing and direct relationship with the end-user, capability toreach mass-market through infrastructure and marketing campaign, ability to offer end-to-endquality of the content, investment to acquire desirable content, and flexibility to leverage theservice through a range of bundling and revenue streams. There are different strategies andpositioning that telecom operator can take in OTT TV/Video business, as discussed below:!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!14 “SVT play”, available http://www.svtplay.se/15 “You view”, available http://www.youview.com/ 24!
  • 34. A. “Point-To-Point” ModelAt the beginning of the digital distribution, the only value chain exists was the ‘Pay-TV’ wherethe CSP occupied the market space. As in the traditional era, user only had a choice of whatchannel to subscribe, but not the content itself. The revenue is split between the CSP, contentowners, and/or content aggregator [47]. Each typically receives 40-35%, 60%, and 5%respectively from total revenue share [92]. Then, multitude of actors from different industryalso entered digital TV/Video market and distributed content directly to end-user with differentkind of service models. Figure 13 shows the typical actors and their relations in the digitalTV/Video industry using the point-to-point model. Customer Mobile Device OEM & CSP CE Provider OTT Retailer & OS Provider Service Provider Core broadcasting actors network box The end-user enggament line Revenue stream / sharing line Figure 13. Typical actors and relations of the “Point-to-Point” partnership in the digital TV/Video This is a same pattern we have seen in the music business as discussed previously. Theseactors bypass CSP’s role using technological advance spurred by the increase of broadbandand mobile devices penetration. This was previously triggered by the content aggregator, e.g.BBC, HBO, etc and then leveraged by other Internet players, e.g. Neflix, Hulu, etc. CEprovider, especially TV manufacture, also took a role in this ecosystem, e.g. Panasonic(Vieracast), Philips (Net TV), etc. Here, the revenue split is approximately 60/40 respectivelybetween content owner and OTT player [47]. This market generates much smaller revenue, ~8billion globally, and it currently offers a relatively lower quality and availability compared totraditional digital services offered by CSP. However, this makes CSP as no longer sole provider in digital TV/Video business, as themarket is growing fast and the quality issues are addressed through different approaches. Thisissue becomes less important in following years, compared to the advantage over availabilityand simplicity. Soon, the increasing quality of the OTT service and the better networkconnectivity, which is built by the CSP to CSP to strengthen its own core business, will resultto the disintermediation of the CSP’s value chain as a traditional digital TV/Video gateway tothe end-user. Even though the CSPs’ digital TV/Video services are still not fully cannibalizedyet, this definitely brings challenge, as it potentially becomes mainstream in the future. There also several weak factors and challenges in this ecosystem that do not meet with theCSP’s capability. Some examples are of these weaknesses are their closed and vertical systemdemands a large investment, but creates slower deployment life cycle. Their mass-marketfocus makes them slower to adapt to the emerging end-user’s demand and competitors thatcome from other industries. The effort for setting up and maintaining the license and deliveringthe service across multiple devices also cost time and money. This might not be worth enoughfor the CSP, considering the unproven business model and small revenue from this stream,compared with their core businesses. 25!
  • 35. B. “Point-To-Multipoint” ModelThe content owners in this model still play behind the scene, but there is an actor that acts as abridge between these content owners and other actors outside the core media industry. Thisactor typically also reaches its own end-user, thus it takes a central position in the valuenetwork. In other words, the actors form the horizontal strategic alliance in the ecosystem [18],as they collaborate with other actor that was previously competitor [11][12]. Figure 14 showsthe typical actors and their relations in the digital TV/Video industry using the point-to-multipoint model, where the Internet player becomes the “bridge” actor, e.g. Google (OTTplayer) partnership with Sony (CE Provider), Voddler (OTT player) partnership with Tele2(CSP), etc. Customer CE Provider CSP Mobile Device OEM & OS Provider OTT Retailer and Service Provider Core broadcasting actors network box! 78)!)29:+,)(!)2;;/*)20!<-2)! Revenue stream / sharing line Figure 14. Typical actors and relations of the “Point-to-Multipoint” partnership in the digital TV/Video The telecom operator might consider collaborating with the OTT TV/video player, as itsignificantly reduces/remove the cost and complexity to roll out the OTT service, and telecomoperator can still get some percentage from revenue generate. This is suitable because eventhough the role of mobile device in the OTT TV/video business is increasingly important, it isstill only holding a small part of the whole picture. The OTT TV/video consumption isdifferent from the OTT music consumption, which is naturally suitable for mobility feature.Nevertheless, this is not always the case with the TV/Video consumption, as end-user naturallywants to watch a video on the best available screen. The role of mobile device in the videobusiness would still be a “second screen” device: enhancing experience, helping discovery andfacilitating social activity. This is supported by the research done by Ofcom to the mobile phone owner in the UKabout the activities done in the smart phone [76]. They found that despite the increase mobiledata services usage and range of smart phone in the market, TV remains among the lessconsumed features. Therefore, telecom operator better to use this OTT TV/Video tocomplements the existing Pay-TV service. Telecom operator may take position in themarketing, integrated branding, product bundling, or enhancing the efficiency in the contentdelivery (resell CDN) [82][83]. It has a better technical capability compared with other actors(CDN provider), as they only able to reach the edge of CSP’s network, results on no guaranteein the final stage delivery of the content. In contrast, telecom operator’s CDN able to providedeep caching as the content is transmitted through their network infrastructure, by avoiding asmuch as possible upstream point of contention. 26!
  • 36. 5.3. Service, Distribution, and Revenue Models The business model using the digital distribution channel is still unclear, and the actors inthe ecosystem are still testing a wide variety of business models. OTT TV/Video service meansthe content are delivered over open network/Internet. Different with IP TV and Mobile TV,Internet TV/Video provider cannot offer full QoS control as it uses public/unmanaged network.The current business model of OTT TV/Video can be mapped into different combination ofservices, distributions, and revenues, as shown in Table 5 and Table 6. Table 5. Revenue models in the digital TV/Video Revenue model Note Pay-per-view The end-user pays for the ability to view the TV/video content over (PPV)/Rental period of time, e.g. iTunes rental, Amazon watch instantly, Vudu, Voddler, etc. One-off End-user buy the TV/video content, and it might be stored in digitalPayment/Electronic locker, e.g. Amazon VoD, iTunes, etc. Sell-Through (EST)/Retail Subscription The end-user pays for regular period of time for the TV/video content consumption, e.g. Neflix, News Corporation (Hulu Plus), LoveFilm, etc. Subsided End-user does not pay for the TV/video content consumption and the business is supported by other revenue channel, mainly advertisements fee, either as non-video advertisement (banner), pre-roll or placed at intervals within content delivery, e.g. YouTube, Hulu, etc. Table 6. Service and Distribution models in the digital TV/Video Service model Distribution model Revenue model Ownership Content download, physical Rental, retail purchasing Access Streaming (Live/TV, on- Rental, subscription, retail, demand, catch up TV, end-user- Subsided generated) Integrated Combination Combination As can be seen above, the actors in OTT TV/Video are also still found to “mimicking” thetraditional distribution model through physical bundle distribution. There is problem that mightexist in download distribution model, e.g. the network might not be able to provide gooddelivery speed so user has to wait to download the content. Thus, it is not surprising thatstreaming is mostly a primary delivery model used [81], as it offers an instantly satisfying formof access compared to download, especially for long-form contents and in mobile device.There are also a different usage patterns, where the ‘on-demand’ or personalization aspect isprominent, e.g. sport competition or concert, as well as a tendency toward less viewing-time,especially in the viewing through mobile devices.1. PPV and EST revenue modelThese models are classified in [6] as Utility model (pay-as-you-go approach). The availabilityof high interest and new release video contents are extremely important in EST model, ratherthan TV programs and older release contents [80]. In contrast, the availability of the highinterest video contents are more important in PPV model rather than the release date aspect, asthe transaction is driven more by interest in viewing content multiple times [80]. Here, usermight get the copyright works as a physical bundle (e.g. VHS/DVD/Blue-ray disc, etc), besidethe download or streaming based content. Some players have also offered digital-lockerfeature, where s/he can store the content has been bought/rented in the cloud and access itanytime later. 27!
  • 37. 2. Subscription and Subsided revenue modelBoth of these models are mentioned in [6], as ones of the generic forms of e-business model.The key success factor in the subscription model is different with both PPV and EST model.Here, the size of content library turns as the most important factor to attract subscriber [80].Although some contents have a lasting popularity, the continuation of updated library androtating the popular titles are necessary to help retain viewing interest. In the subsided based onadvertisement-supported model, there is a mechanism called as CPM (cost per mile), where thefee is either based on the number of ads viewed or end-user reached by that ads. Indeed, that is why the OTT TV/Video service providers that use subsided model as one ofits revenue streams, needs to get a large user based on as many as possible. Some OTTTV/Video service providers also offer pinpoint delivery based feature to its brand partner,either based on user’s location or favorable genres, in order to add value to advertisementdelivery. It is also possible to use the placement model, where the advertisement is built as anintegral part of the content, whether designed as subtly (used as product showed in content), orovertly (used as main content, e.g. appear in talk show as a product review). Figure 15. Revenue share from the digital TV/Video16 [79] However, despite the variety of these revenue models, the trend shows that the revenuestream generations from the subsidized-based would potentially overtake the “paid-by-end-user” models in the OTT TV/Video’s revenue source worldwide, as shown in Figure 15. This model is predicted to dominating this share in a long run, due to the betteravailability and quality of the network infrastructure across the globe, and less significantfactor of ownership model (using EST revenue generation). Märta Rydbeck also mentioned theimportance of revenue stream from advertising channel, as she stated, “… The local advertising is very very profitable for [name of a TV channel] and it is a growing business. The local advertising market for TV is huge in Sweden, and the only competitor in term of local advertising today is the local newspaper or local direct mailing, and so on... It (local advertising) is considered more valuable, more expensive, and more (delivery) times... There are lots of TV channels that have regional version; they are facing the same (advertising dilemma) problem”.!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!16 In this figure, the revenue share from placement model is separated with the advertisement model 28!
  • 38. Chapter 6 – Spotify Business ModelThis chapter presents an “instant point of view” analysis to the OTT media player’s businessmodel, using theoretical framework mentioned in section 3.1.3. Spotify is an OTT musicservice provider that was founded in Sweden and commercially released in 2008. We also getin deep into the “cross-firm collaboration”, and as this study focuses to the business model inmobile broadband, we mainly cover Spotify’s partnership with the telecom industry actors(MNO).6.1. Value PropositionSpotify actually does not offer new type of business in the music industry, as there is alreadynumerous music retails and music service providers out there that also have the same mainofferings. However, it has final touches apart from those main offers that make it moresuccessful than the other competitors do. Unlike others that form the business only based onthe download-purchase, Spotify is not just selling a product (music retailer selling unit), butalso provide the streaming service. It closely resembles the radio, iTunes, and original Napstermodel, by recognizing the validity of the copyright and conducts its business accordingly. Itcovers 15 million licensed music tracks globally (size and availability varies in each country). Convergence of the service across ranges of device is one of the major themes in the digitalmusic business. Spotify application is written in several programming languages and availableat desktop clients17, mobile devices, tablet PC, and consumer electronics "=>%[96][97]. Theservice is delivered as a downloaded client application with proprietary protocol. It has muchcontrol over the network protocol as opposed to a web application18. It also has a deviceintegration feature between these devices so user can synchronize music tracks between thesedevices, access it in “offline-mode”, and/or download it. Spotify uses different audio bit ratesof OggVorbis and offers feature to the premium users to access the music tracks with higherquality [103][104]. Spotify works differently compared with other similar services as it relies on several waysto make the music delivered seamlessly to the client, which is very important in the real-timeservice [44]. It uses TCP-based communication, which guarantees that each bit is correctlydelivered. However, TCP is accomplished with timeout and retries mechanism, which thiscreates delay. This is minimized by Spotify using buffering in the client side [45][46]. Itimplements this with hybrid peer-assisted streaming per track (P2P), not per torrent as the BitTorrent19 [40]. Here, the peer discovery strategy is the main concern, as the data is small andshort. This is different with the P2P streaming for large data (e.g. Movie), where the concern isthe download strategy. To accomplish this, it uses a combination of three data sources: CDN/core streamingservers, P2P and cache, where the data comes from each is 8.8%, 35.8%, and 55.4%respectively [44]. Using this, Spotify recommends 256 kbps bandwidth and free space forcaching [105]. Spotify implements dual mechanisms to handle the first request for the track,e.g. when the user search for a new track and add it to the play list. In this case, the client asksto the tracker (CDN server), which will be replied with random OTT peers that recently playedthe track (tracker-based peer search). It also sends request to the neighbors in the overlaynetwork if there are any peers between the 1-2 distances that have the track in the cache. This dual mechanism is done to provide a better availability. If the tracker is inoperable, theclient still can rely to the overlay search. In addition, if the client is disconnected from the!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!17 “Download”, available http://www.spotify.com/se/download18 “Spotify Web API” https://developer.spotify.com/19 “Bit Torrent - Delivering the Worlds Content”, available http://www.bittorrent.com/ 29!
  • 39. overlay network, it can find other peers from the tracker’s information. Every requested trackis saved in the local cache, where the default policy is to use 10% free space (capped 10GB inthe desktop version). Before the played track ends, the application starts pre-fetching the nexttrack from the cache. This cache exists for 30 days and Spotify monetizes feature to access itfor “offline-mode” usage20. This is what the combination of P2P and local cache is intended to:to make the streams data sent between the peers, and prevents the server and the networkbecome bottleneck [43]. By using a combination of these data sources, the client’s cache is not just used to preventclient to re-download every time it plays the track. Nevertheless, it also provides tracks that areshared with other peers in the overlay network. Spotify spreads the sharing effort for musicdata among the users and keeps the Uplink (UL) speeds slower than Downlink (DL) speeds.However, the ration of this UL/DL remains unknown and it does not enforce fairness (e.g. tit-for-tat) [40]. This actually raises issues, especially for the user that has a limited bandwidth,and peak restrictions or expensive data plan subscription where the UL is counted towards themonthly subscription allowance.6.2. Revenue Generation and Market SegmentSpotify cost structure are mainly to address the licensing cost of its music delivery to the coremusic industry actors, apart from the development and maintenance cost. These costs arefunded through three revenue generation streams, as discussed below:1. Streaming subscription Since its commercial launching in 2008, Spotify has made several price scheme changes. It offers three tiers for the streaming service since then, where two are paid-based (“Spotify Premium” and “Spotify Unlimited”) [106]. It also recently confirmed the plan to launching the premium family plan, which is an incentive offering for members of a same household to get access on multiple based [107].2. Download purchase Apart from the streaming service, Spotify also builds its own music store. It previously worked with 7digital to provide a-la-carte pay-for-track. Later on, it ended this relation and offered a pay-to-own option [109][110]. In addition, unlike most of other digital music stores, this integration allows user to re-download the purchased tracks several times.3. Subsided Spotify offers a free subscription plan (“Spotify Free”) that is supported based on audio and graphic advertisements and sets relation with several brands21. Using the information that it has about its users, Spotify is able to generate value to deliver this advertisement in specific targeting pinpoints delivery, also the detail tracking and reporting for that advertisement delivery [111]. From the discussions above, it can be concluded that these revenue streams are build basedon two pricing models:• The “Freemium” subscription model, which is implemented to the streaming subscription bundles: the “Subsided advertising-based” (“Spotify Free”) and “Premium subscription” bundles (“Spotify Unlimited” and “Spotify Premium”)• The Retail model, which is implemented to its download for purchase feature!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!20 “Offline mode”, available http://www.spotify.com/se/about/features/offline-mode/21 “Advertising”, available http://www.spotify.com/se/work-with-us/advertisers/ 30!
  • 40. 6.3. Competitive StrategySpotify implements its pricing models using the “demand-based pricing” strategy, as it adjuststhe price between countries by following the perceived value as the central element to set theprice. Spotify also uses geographic segmentation, as what Facebook did in its early years, butSpotify expands its availability per country based. Its first commercial launching was inSweden, and since then it has been available in 16 countries, while the expansion strategy thatSpotify mainly targeted is the early adopter, which potentially drives benefits in a long-termengagement. Although, there is no official information of the subscriber distribution per country-based,Spotify currently has 10 million registered users, where 3 million of it is using paid-subscriptions [56]. This makes it as the world’s largest paid-based streaming music providerand the second largest source of digital music revenue in Europe. This is actually the core aimbehind the “Freemium” revenue model: to attract end-users with the free offering beforemigrating them to the paid subscription. The introduction of mobile feature, along with thetime-access limit, similar-track limit, offline access, etc is some of the key factors thatsignificantly boost the paid-subscriptions, as shown in Figure 16. Figure 16. Spotify’s user based by service type in Europe, Sept 2008 – March 2011 [73] Figure 17. Spotify monthly revenue by service type in Europe, Sept 2008 – March 2011 [73] 31!
  • 41. Spotify also uses feature differentiation in some markets, e.g. the implementation of“Private beta” launching model based on invitation. It also keeps changing the offering to thebundling tiers, which might be different between countries, e.g. radio service is available forthe tree-based subscription users in the US, or there is no 5-track cap for the free-basedsubscription users in several European countries. All these strategies are not just mainly due tothe copyright settlements that work different between countries, but also to make the productbecome exclusive and attractive to the early adopter users. Spotify’s revenue is analyzed tocome ~ 23 % from advertisements and ~ 77 % from paid-subscriptions [73], as shown in Figure 17 above.6.4. Value NetworkIn order to legalize its business above, Spotify mainly makes deal with actors in the musicindustry. Apart from that, it also has several strategic alliances with actors from differentindustry fields to build the delivery channels that expand and make its service closer to users.These actors range from the consumer electronic, Internet and telecommunication industry.The prominent actors and their relation with Spotify be visualized as shown in Figure 18 anddiscussed in the sections below. 78)!)29:+,)(!)2;;/*)20!<-2)! ?08)(!,0(/0);-.!/<<-/2.)!<-2)! Revenue stream / sharing line Customer Other OTT Player Brand Partner OTT Retailer & Service Provider CE Provider CSP Core music actors’ network box! Figure 18. Actors and relations in Spotify point-to-multipoint partnership6.4.1 Relation with the core actors of the music industrySpotify opens its service channel for independent/self-published artist and small record labelthat does not have an existing delivery partner or platform22. They can make deliveries throughseveral aggregators or collecting societies that already have an agreement and delivery processin place with Spotify23. Therefore, it can be concluded that in order to get license to deliver themusic to end-user, Spotify deals with the record label, music publisher, collecting society,and/or aggregator, not with the artist.!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!22 “Artist Page”, available http://www.spotify.com/se/work-with-us/record labels-and-artists/artist-page/ and “Recordlabels and artists”, available http://www.spotify.com/se/work-with-us/record labels-and-artists/23 “Record label and Aggregator Page”, available http://www.spotify.com/se/work-with-us/record labels-and-artists/record label-page/ 32!
  • 42. There is no official information that contains all of Spotify’s music industry partners.However, its agreements have reached the entire major record labels, as well as Indies recordlabels, international and local collecting societies, and music aggregators. Some tracks may notbe available or disappear on Spotify because of several license reasons24. These music industryactors provide the music and metadata to Spotify, which will be encoded and uploaded toSpotify server, and integrated with Spotify delivery platforms. This means, Spotify tracks allthe music played and provides in-depth reporting to all participating parties25. The price and payment to these music industry actors are calculated based on the functionof the total number of streams and the total revenue of that particular month, result of thepayout per stream. Thus, when the total stream grows more than the total revenue, the paymentper stream might be less. According to Andreas Liffgarden (Spotify), the detail licensingarrangements between Spotify and the content owners are not published, as it is part of the NonDisclosure Agreement/NDA. The licensing price might also be different between theseagreements, and some of the deals might have discount arrangements.6.4.2 Relation with the Telecom actorsApart from the collaboration above, Spotify also sets up an alliance with several CSPs. Spotifystarted its first agreement with TeliaSonera in Sweden in 2009. It then expanded it to the UKand Dutch market with Hutchison Whampoa (3UK) and KPN, respectively. It also collaboratedwith the MVNOs, which are Virgin Media UK, Hi Netherland, and MTV Mobile Europe. Inthe sections below, we focus on analyzing the collaboration between TeliaSonera and Spotify,as one of Spotify’s biggest deals.A. The Alliance ModelTeliaSonera is a company formed from a merger between Swedish incumbent, Telia and Finishincumbent, Sonera at 200226. TeliaSonera telecommunication services operation is splintedinto three business areas (Mobility Services, Broadband Services, and Eurasia), and operates inrange of countries in Nordic, Baltic, and Eurasia region. Spotify and TeliaSonera started anagreement in 2009, which was a 2-year exclusive deal that makes TeliaSonera a sole exclusivetelecom operator in Sweden to use Spotify brand within its products branding and marketing[112]. They boarded this to Finnish market in 2010, and then renewed it in 2011 for the nexttwo years forward. They call this strategic alliance as a “compiling service”, which is formed by bundling“Spotify Premium” with TeliaSonera subscription plans, as below27:• Mobile Post-paid subscription User gets a free access for 6 months to “Spotify Premium”. The offering is available for user who signs for 24 months contract for selected broadband packages on selected handsets. User can activate the offering using the same Spotify account in fixed broadband and IP TV connection.• Mobile Pre-paid subscription User gets a discount of “Spotify Premium” subscription for a year plus 1 GB mobile browsing bonus each month through “Spotify Annual pass”. These offerings are bundled through selected handsets purchased and/or refill/started kit28. The data connection used from Spotify service is still counted toward the bucketconsumption billing though, as TeliaSonera implements the “Volume-based” data plans, which!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!24 “The Spotify music catalogue”, available http://www.spotify.com/se/about/music-catalogue-info/25 “Record labels and artists”, available http://www.spotify.com/se/work-with-us/record labels-and-artists/26“About Us”, available http://www.teliasonera.com/en/about-us/27 “Spotify”, available http://www.telia.se/privat/minasidor/noje/spotify28 “Kontantkort”, available http://www.telia.se/privat/mobilt/kontantkort/ 33!
  • 43. is caped based on the bandwidth volume. According to our interview with Lars Roth(TeliaSonera), TeliaSonera also does do the packet inspection to differentiate Spotify’s trafficwith other OTT traffic. However, once a user reaches the limit, s/he still can get access toSpotify’s streaming service and other OTT services, as TeliaSonera offers free “Spotifypremium” access during promotion early months using “Soft cap with throttling” policy [74]. Lars Roth (TeliaSonera) mentioned that TeliaSonera able to offers this there is a discountarrangement they got from the music industry actors (content owners), resulting from itsexclusive relation with Spotify. The detail of revenue sharing model is not officially announcedthough, but Lars Roth informed that TeliaSonera gets some chunk of the profit, which is gotfrom the fee paid by every “Spotify Premium” subscribers that are acquired throughTeliaSonera bundling offerings. It was also revealed that most of the profit goes toward thecontent owners. This is also mentioned in [18] as a possible characteristic in a strategicalliance, where distribution of the profit may not be fully equal among alliance partners.B. Analysis of the Values ExchangedThe offering opens possibility for both parties to expand their market and tight the bond withtheir end-users. Although the exact addressable market is not mentioned in the marketingcampaign, Spotify would mostly suit the young end-users. Therefore, this offering would havea strong attraction to the first-time broadband and TV subscribers. In addition, TeliaSonera’smain competitor has launched similar service29 and the competition in Sweden in Finlandpushes price and ARPU down. Lars Roth (TeliaSonera) addressed this issue as below, “Spotify is extremely oriented building the brand through the product. We cant really do that, because our competitor is following us quite fast”. Lars Roth also stated that they have tried to unlock music business using point-to-pointmodel, as discussed in section 4.2.3.1, but failed. He stated this as below, “We actually started with our own service; much more like Spotify…It was under brand, but it was not great... We tried that for half a year and realized that we needed to spend all our communication explaining ‘what the service was’, ‘how it works’, and ‘why you should get it’. (At the end) the perception and value we gained from (offering) six months for free was pretty low”. Andreas Liffgarden also mentioned that there are “cultural differences” between telecomand media industry that makes direct collaboration between telecom operator and mediaindustry does not work. This brings a need for a “bridging actor” that aggregates the objectivesof both telecom operator and media content owner. The main objective of the content owner inthis case, according to Andreas Liffgarden, is to monetize their copyright works continuouslyin a scale based. In Spotify’s side, its relation with TeliaSonera is proved to increase its own end-user based.This strategic alliance drives end-users directly to higher value subscription (“Spotifypremium”), which is still the core of Spotify’s revenue source (see section 6.3). At the timewhen the agreement was firstly launched, Spotify was still a young brand and had small marketsegment. Collaborating with TeliaSonera would definitely leverage to this and help onbargaining with music industry actors, who are taking control over the business ecosystem.Lars Roth mentioned about TeliaSonera’s role as a telecom operator to this strategic alliance asbelow,!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!29 Partnership between Telenor with WiMP 34!
  • 44. “In order to get end-to-end deliver to their service, they (Spotify) need a good network... The other reason is, what we have done in giving trust to new company, it is enormous. Telia is the most trusted brand overall in Sweden. When we pick up a partner, we more and less say this is a partner you can do business with. And also, since we are billing provider for them, we charge our customer and get the money to them...Also our bills are one of the most paid in Sweden, with lowest bad debt as well. So this is a really good channel (in order) to have a continuous relation with customer, especially when they have problem when they do that with credit card”. Indeed, during the first term of agreement, Spotify subscriptions through TeliaSonera haveincreased by ~ 300 %, acquired up to ~ 25 % of “Spotify Premium” in Sweden. This is in linewith the IFPI report about the substantial increase in the digital music sales, which is also dueto the law enforcement for piracy (IPRED law) since that year [75]. The revenue sharing modelis not officially informed though. Both of our interviews with Both Andreas Liffgarden andLars Roth revealed that there is no direct arrangement between them and the music industryactors, but it was involved in the discussions to help on the licensing deal for the copyrightworks used under the alliance model. The lines of reasoning of the partnership between these actors match with the three pointsmentioned in [12]. The “Learning and internationalization” can be seen in Spotify side. As anew company in media market and to support its expansion strategy, Spotify needs theresources acquisitions, which in this case are large end-user based and good network coverage.In TeliaSonera side, the “Cospesialization” motive can clearly be identified. Using thispartnership, it can focus on its core businesses and let Spotify deal with the licensing, productdevelopment and maintenance, and share or even avoid the effort for marketing and branding. In addition, the “Cooption” reason appears for the both sides, as both gains benefits bycollaborating, instead of competing each other (“co-opetition”). For example, instead ofdelivering its own, which was not successful, TeliaSonera cooperates with the actor thatpreviously was its competitor. Nevertheless, it avoids of just being a “dump pipe” provider. Byusing this agreement, TeliaSonera has built at least three strategic objectives as what the“Point-to-Multipoint” model could offer, which are to reduce the churn rate, expand marketshare, and increase the ARPU by up-selling the subscription to the higher value packages. 35!
  • 45. Chapter 7 – The Indonesian MarketThis chapter presents a brief introduction to regulatory framework of the telecom and ICTsector in Indonesia, an analysis to the mobile telecom and media market, as well as thequantitative study to the Indonesian users. The first part of the quantities study is thebackground data, while the second is the test and analysis to the hypotheses. It was made basedon the UTAUT framework and findings in the previous sections in related with the Indonesianmobile user characteristics.7.1. Regulatory FrameworkIndonesia’s telecom regulatory regime can be divided into 3 phases, Pre-1989, 1989 – 1999,and 1999 – present. The current phase can be concluded as mentioned in [27], shown in Table7. The catalyst of the last phase was fastened by the Asia’s economic crisis in 1997 thataffected Indonesia as well. As part of the economic recovery program assisted by theInternational Monetary Fund (IMF), the government of Indonesia (GOI) started thederegulation and privatization of the telecom sector. This is one form of its commitment to the1998 World Trade Organization (WTO) Basic Telecommunications Agreement30, translated asthe “Telecom development Blueprint”31. Table 7. Formation changes in Indonesias Telecom Regulation Phase Legal Form Field Form 1999 – present Telecommunications • Duopoly in fixed-line operations, and private Act No. 6 of 1999 participation for other operations without need for a joint partnership with state-owned company • Network, and service provider structure, • Establishment of independent regulator In 2007, the GOI issued foreign investment barriers in the several key sectors, includingtelecommunication32. Under this negative list, the foreign participation is capped at 65% forthe fixed-line business and 49% for mobile, satellite and Internet service business (ISP). Thisrule is not retroactive though, but it sends a signal regarding future investment policy. In 2008,the tower business was closed, and the existing foreign investors were expected to exit withintwo years. Thus, either the MNOs or domestic provider owns the tower. In 2010, there wasalso new policy that limits the establishment of the private broadcaster, which is capped 20 %for foreign capital33.7.1.1 QoS and Technology ConvergenceThere have been discussions in the Ministry of ICT (KOMINFO) to accommodate theharmonization to the telecommunication, Internet, media, and entertainment (TIME). It fallsunder the telematics issues, but there is still no specific act that has been formed to takeaccount the convergence issue yet. Currently, the misuse of illegal content distribution,especially the pornography content, is subjected to the Electronic Information and TransactionsAct [25]. The provisioning of the services in the cloud ("Aplikasi informatika"), including media, isnot handled neither by the telecom regulatory authority (Badan Regulasi TelekomunikasiIndonesia/BRTI) or broadcasting regulatory authority (Komisi Penyiaran Indonesia/KPI).!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!30 World Trade Organization (WTO) Agreement on Basic Telecommunications Services, or Basic Telecom Agreement31 The blue print is based on Ministry of Communications (“MoC”) Decree No. KM 72 of 199932 “Regulation of President of The Republic of Indonesia No.111 of 2007”, available athttp://www3.bkpm.go.id/file_uploaded/Perpres_%20No_%20111_%20Tahun%202007_en.pdf33 “Regulation of President of The Republic of Indonesia No. 36 of 2010”, available athttp://www3.bkpm.go.id/file_uploaded/PPres-36-2010.pdf 36!
  • 46. According to Didik Akhmadi Usman (BRTI), there is a tendency to put this under BRTIcontrol. The BRTI has willingness to address so the regulator can oversee the emergingtechnologies and the state gets something from the purveying of these services, exp. taxationissues34. There is also no specific QoS regulation formed supplying of the broadband services yet(e.g. minimum speed), though there are guidelines of the minimum requirement for QoS basictelephony services. Didik Akhmadi Usman (BRTI), argues that it should fall under consumerprotection law, and the providers must give lucid information (e.g. in the advertisement,service-level agreement/SLA), so consumers aware about the terms and condition when theyare using data connection. However, there is no obligation that forces the provider to submittheir SLA to the regulator for approval. This is inline with the TRE score in 2008 that foundthe QoS of mobile and broadband service in Indonesia are below the average, due to lack ofregulation [26].7.2. Telecom Market7.2.1 Structure and CharacteristicIndonesia with its 248 million populations is currently the world’s fourth largest country. Thismarket is among the other 120 that was classified to have a low Internet penetration, as theInternet penetration rate was ~35 % by the end of 2011 [61]. The fixed broadband penetrationwas only ~1.2%, because PC ownership was also rare with just ~ 6.9% penetration rate, andthe fixed broadband plans are relatively expensive among Indonesians (~USD 100/months).This makes this country has a lower fixed penetration rate, compared with the neighbors in theregion and among the BRICI countries, as shown in Figure 19. Figure 19. Fixed broadband penetration in the BRICI countries [81] This can be understood, as there were problems in the infrastructure deployment, due to thegeographic split of the country’s archipelago territory and complex terrain. Therefore, themobile communication is assessed as a better suit to this market. Indonesia’s telecom marketshows common trends like most of the developing countries. The mobile telecom dominateswith penetration rate has passed ~113 % by the end of 2011 [61], which makes it as theworld’s fifth largest mobile market. The market is heavily dominated by the prepaidsubscription, which has reach more than 95% total subscriber [61], and the churn rate hasreached ~ 146% annually [85].!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!34For example, there have been also conversations between GOI with the international OTT players, such as Googleand Blackberry (for the blackberry services), to set up a representative office and build the data server in the country. 37!
  • 47. The mobile penetration is predicted to scale up to ~173% by 2016, because there aremultiple ownerships of the Subscriber Identification Module (SIM) and the inactivesubscriptions distort the true market growth [61]. This happens due to the four factors below: • First, the starter packs are cheaper compared to the top up fee. • Second, no numbering cost regulation for releasing a new cellular number. • Third, the perception between GSM and CDMA tariff, where the CDMA tariff (especially voice) is perceived cheaper than the GSM tariff. • Fourth, the number portability is not implemented yet. Thus, people tend to reluctant losing their existing GSM cellular number and keep their subscription plan, as it was rolled out earlier. Although Indonesia is perceived as one of the riskier destinations in Asia [61], there hasbeen presence of the key investors in the telecom sector. The market is supported by a totalnine MNOs, consists of five GSM-based and four CDMA-based operators, which most of themhave several brands targeted to the specific end-user segments, as shown in Table 31. This isquite a number of players and most of them are granted national licenses, though some havestarted consolidation35. This is a different situation compared to the other emerging markets,e.g. India, that also has a lot of MNOs and subscribers, but most of them are granted regionallicense. The competition has been intense since the introduction of the new interconnection policyin 2006, which decreased almost all of the interconnection tariffs for voice36. It leads to themassive load in the network utilization, especially for the basic services (traffic volume andminutes of usage for voice, and SMS). The blended ARPU shows a decreasing trend sinceseveral years ago, which is currently ~26,000 IDR [61], and forecasted to keep down in future[90]. This is not just affected by the competition, but also due to the large low-income basedsubscribers, following the MNO expansion to the rural and densely populated areas [86]. The subscribers and the revenue are mainly concentrated in Java and Sumatra, which arethe most populated islands [60], as well as relatively have stronger purchasing power anddominate the mobile ownership in the country [93]. The big three (incumbents) become moreprosperous in this circumstance, as they have been supported by the well-established networkcoverage and good record of accomplishment. Therefore, they are more attractive to the high-value and loyal subscribers, compared with the green field operators. They also acquire morespectrums that make them have a better flexibility for expansion and price (see Table 31).7.2.2 Mobile broadbandThe 3G services have been available in the country since 2006, but its uptake was low with lessthan ~ 20% penetration [87]. This was not just due to the slow roll out of the network, but alsothe devices price was not affordable and attracted scale subscriber yet. Thus, the GOI has madea target to increase the country’s broadband penetration, especially to push the Internet literacyin the remote areas. Mobile broadband has been launched in 2009 and since then it has beenserved by all the GSM-based and two CDMA-based MNOs (see Table 31). In addition, TheGOI has released additional 3G spectrums to raise the network capacity. Indeed, there is an enormous opportunity for the MNOs to expand through mobilebroadband. There would be increasing subscribers in Indonesia that would use the underlyingtechnologies in the following years [85]. The mobile device has also been as the preferredaccess to the Internet among Indonesians. It makes this market unique, as the consumer!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!35The recent example is between Mobile 8 and Smart Telecom, which forms as Smartfren Telecom36Except the interconnection tariffs of fixed or FWA originated from / terminated to mobile, VoIP, Satellite andInternational. See http://www.postel.go.id/content/ID/regulasi/telekomunikasi/kepmen/pm%20nomor8-2006-interkoneksi.pdf 38!
  • 48. normally gradually changes from the “no connection” stage, to adopting landlines and thensubsequently to the mobile devices. In contrast, there is a tendency of “leapfrog trend” as inIndonesia, where people head straight to mobile [86]. We can compare this phenomenon withseveral years ago where Internet café (“Warung Internet”/“warnet”) was a preferred wayamong people to get access to Internet [113]. Figure 20. Mobile phone penetration in the BRICI countries [81] As also shown in Figure 20, mobile penetration has been increasing quite fast in Indonesia,even compared to some other BRICI countries [86]. This is in contrast with the landlinespenetration that has dropped since recent years [93]. Mobile broadband plans in Indonesia areamong the cheapest in the world [88], also in contrast with the situation in fixed broadbanddiscussed previously. The price of smart phones is also falling and more affordable forIndonesians, which is also supported by the attractive Blackberry service and device bundling.Blackberry devices and service (e.g. Blackberry messenger and mail services) have beenbooming since 2008, and Indonesia is currently RIM’s largest market [89]. This makes thismarket as a contrarian market for the smart phone. Furthermore, the share of the data ARPU from the total ARPU is predicted to keepincreasing [80]. In the future of the mobile data revenue, the infotainment would contribute 25% in 2016 compared with the 19 % in 2009, while the revenue from the messaging woulddecrease from 61 % to 52 % respectively. The MNOs saw a slight decline with their mobiledata revenue in 2011, but it was more related with the suspension of VAS services by theregulator at that year, as a response to the massive complains regarding fraud in premiumservices (mainly SMS). Didik Akhmadi Usman (BRTI) also highlighted this case during theinterview. Moreover, Indonesia is also forecasted as one of the leaders in the emerging Asia-pacificmarkets for the LTE deployment by 2016, after China [89]. These are mainly driven by at leasttwo underlying reasons below: • First, the country’s economic growth turns to be the fuels for its telecom industry. There is a huge growth in the domestic consumption and Indonesia is assessed relatively resistant to the global economic crisis. There is a booming of the middle-class income in this country, and the GDP per capita is predicted to keep increasing [98].• Second, the demographic plays a major part, as the country’s population is dominated by extremely young people with a median age of 27 [60]. These young people normally have 39!
  • 49. tendencies to be open for new technology, which can be seen from the popularity of the instant messaging, social media, bulletin boards, and blog in Indonesia37.7.3. Media Services MarketSeveral players have offered the music and TV/Video services in Indonesia, both as ownership,access model, and personalization model. This has been initiated since 2006, in line with the3G launching. There are some of the dominant characteristics, which vary this market withothers. Indonesia is one of the few markets worldwide that still sees personalization servicesdominating the digital music landscape, as 95 % of revenue comes from this (mainly RBT,followed by Ring-tone activation). Several prominent retailers and/or service providers in OTT music and/or TV/Videobusiness in Indonesia are the MNOs, the TV broadcastings, the mobile device OEM & OSprovider (Nokia), and local OTT players (Jatis mobile, Mivo TV, Kapan Lagi, etc). There islimited focus and availability of the prominent international OTT music services (streamingand download services), which create a hole in the ecosystem, e.g. iTunes. Some of the MNOsfocus to specific devices, such as Blackberry or locked low-end mobile devices launched bythe MNO itself, e.g. “HP Esia” phone. The revenue generations used are mostly retail (for music, e.g. unlimited download/week)and subsidized-based (for TV/Video, e.g. advertising based). However, the piracy level inIndonesia is extremely high, as people currently can easily buy the illegal CD/DVD thatcontains music, TV series, or movie contents for less than ~10 SEK or simply download itthrough the illegal websites/file sharing. In music business, the piracy market was reportedtwice than the legal market value [69], and reached 88% in 2006 [90]. This makes Indonesia asone of 10 priority countries outlined by the IFPI according to the degree of threat posed by themusic piracy [91]. The local players in the market also see the competition has been aggressive, and they havetried to fine out other revenue stream and/or to boost the demand to its main service offering.Although there is a partnership done by Telkom Indonesia that set up Joint Venture (JV) withSK Telekom (Melon) [114] for provisioning media services, the majority MNOs in this markettypically deal directly with the content owners by acquiring the license to distribute thecopyright works. In other words, they use point-to-point model, which was also typically seenin European markets before the trend moved to the point-to-multipoint, as discussed in section4.2.2 and 5.2.2. The main reason of this dominance point-to-point model done by the MNOs is due to thelimited appearance of international prominent OTT players38. Hengky P. Ginting (NST) statedthat usually 50-50 revenue sharing models are used, which is done after the MNO takes out thecost to deliver the service. The roles of aggregator/collecting society/ publisher are minimumor bypassed. The MNOs mainly handle the marketing, branding, platform development andmaintenance. There is a strong appearance of the mobile content providers (CP), but they runbusiness in monetizing non-audio/video content/merchandizes, and only few exceptions wherethe CP bridges the MNO with the content owners39. Although several local and international parties have tried their attempt, their serviceoffering does not take off yet, due to the piracy issues and user’s willingness to pay is also low(discussed later at section 7.4). Therefore, it is natural for the MNO to choose this strategy,!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!37 Indonesia is one of the world’s largest facebook and twitter the end-users, and Indonesian is also one of the mostused languages on Wordpress.38 Apple decided to skip Indonesia along with China and India for iTunes music store39 Several examples are wallpaper download, premium SMS content subscription/quiz. 40!
  • 50. because they have strong appearance in the market and stronger bargaining position toward themedia industry actors. This is in contrast with the situation we have seen in the developedcountries. These are also as result of the several factors, which were also mentioned during theinterview with Jockie Heruseon (Telkomsel), Yose T. Arizal (Axis) and Hengky P. Ginting(NST), as below: • First, there are high dependencies among the people to access the Internet through the mobile connection (as discussed in section 7.1). • Second, the MNO billing capability offers the easiest payment mechanism, because the bank account penetration is extremely low, covering less than 20% of the population [59]. • Third, the personalization services (RBT, Ring-tone activation, etc) are assessed to have the simplest content delivery channel (e.g. in term of billing) and are safe from the piracy issues. • Fourth, the licensing fee in monetizing the media content is much lower compared with the developed markets. Therefore, MNO has less issue to deliver their service directly to end-users, instead of collaborating with the OTT player (to reduce the cost).7.4. Mobile userUnderstanding the end-user, including anticipating their needs and exceeding theirexpectations is the key in building any business. Apart from the country’s regulation andcompetition field, Indonesian user has a unique OTT music listening and TV/video viewingbehavior. User acceptance is one of the critical aspects that influence the success of the newmobile services provisioning. Thus, it is important to include the analysis of users’ expectationand behavior, in order to understand what influences the Indonesian users’ acceptance towardthe mobile media services. We have formulated the hypotheses related to the Indonesian user and OTT media services,according to our findings about the Indonesian market, both its regulation, telecom and mediamarket situation, as discussed in section 7.1, 7.1, and 7.2. This was also formulated after wesaw the trends in the global and reference market (Sweden), as discussed in section 3 - 7.These hypotheses and explanation of it variables are available in Table 32 at Appendix C -Quantitative Survey. We used the UTAUT framework and 119 responds to test the hypotheses,as discussed in section 2.1 and 3.1.3. The respondents’ answers are compiled as the graphs,which are available in section C.2 at Appendix C - Quantitative Survey.7.4.1 Sample CharacteristicsThe first initial questions are to identify the respondent’s background. As shown in Figure 21and Figure 22, the majority of our respondents are men (~ 76 %) and the average age is ~ 29years old. All of these respondents are identified to have mobile device, and although thisproposition is not varied, it correlates with mobile penetration in Indonesia that has passed 100% penetration rate, as discussed in section 7.2 previously. Furthermore, as can be seen in Figure 24, all of these respondents have ever used Internetthrough mobile device. 28 % of them confirmed that mobile device is their primary way toaccess Internet, as shown in Figure 25. These findings are in line with the discussion insection 7.2.1 regarding a high dependency among Indonesians toward the mobile Internet.Therefore, according to these findings, we conclude that the hypothesis 1 as mentioned inTable 8 is accepted. Table 8. Hypothesis 1 result Hypothesis 1 Result Indonesian users have already used with the mobile internet ACCEPTED Moreover, as can be seen in Figure 26, the most popular services used by these respondentsin their mobile phone are email, Instant messenger, and social media. In addition, more than 60 41!
  • 51. % of them confirmed that they have used OTT music and TV/Video services through themobile device, although personalization services are still a major revenue stream for theactors in the market, especially for digital music content distribution. Thus, according tothese findings, we conclude that the hypothesis 2 as mentioned in Table 9 is rejected. Table 9. Hypothesis 2 result Hypothesis 2 Result Indonesian users are not exposed with the mobile media services REJECTED yet7.4.2 Technology Acceptance1. Behavior intentionThe first hypotheses that we test are related with the behavior intention aspects of theIndonesian users to adopt the OTT media services.a. Willingness to use the serviceThe first hypothesis is the Indonesian users’ attention to adopt the OTT media services. Thereare three questions that gather the information whether the respondents will use/keep using theservices (Q10), will have/keep having the services’ application in their mobile devices (Q13),and will use/keep using the services when there is opportunity to use it for free (Q17). Therespondents’ answers are shown in Figure 30, Figure 33, and Figure 37. Table 10. Average and Internal consistency of respondent’s willingness to use Services Mean Q10 Q13 Q17 Music streaming 2,924 3,261 4,118 Music download 3,092 3,235 4,106 Video streaming 3,218 3,429 4,176 Video download 2,916 3,176 4,106 The data in Table 10 reveals that the respondents generally have high intention to use videostreaming service, followed by the music download service, as the average responds values forthese services in Q10 are above the neutral value (3). The music streaming and video downloadservice have quite lower and below the neutral value. However, the average responds values inQ13 and Q17 show us that the respondents’ intention to have music streaming service andvideo download service (Q13) and to use it for free (Q17) is high. Table 11. Internal consistency of respondents’ expectancies Services Cronbach Pearson correlation Alpha Q10, Q13, Q17 Q10, Q13 Q10, Q17 Q17, Q13 Music Streaming 0,759 0,709 0,386 0,430 Music Download 0,769 0,701 0,463 0,401 Video Streaming 0,783 0,735 0,418 0,479 Video download 0,714 0,652 0,361 0,329 We tested the reliability of these data, as shown in Table 11. The Cronbach Alpha was usedto check the consistency in Q10, Q13, and Q17. The Pearson correlation was also used checkthe consistency in Q10, Q13, and Q17, by pairing them each other to get the correlationcoefficient. The results from Cronbach Alpha show us that all of the consistency values are inthe range of acceptable. Meanwhile, all the correlation coefficients from Pearson correlation between Q10 and Q13are in the range of strong value, which means the respondent’s willingness to use / keep using 42!
  • 52. the services have tight correlation with their willingness to have the service in their mobilephone. All the correlation coefficients between Q10 and Q17, and Q13 and Q17 are in therange of medium. This means there is also correlation between respondent’s willingness tohave the service in their mobile phone with their willingness to use / keep using the service andthe opportunity to use the services for free, but this is not as strong as the correlations betweenQ10 and Q13. It can be seen that the opportunity to use the services for free is positivelyvaluable, but this is not perceived to be so much significant for Indonesian users. However, these all supports the hypothesis about Indonesian mobile users’ attitude towardthe media services, as the average responds values and internal consistencies among theanswers are good. Based on this, we conclude that the hypothesis 2 as mentioned in Table 12 isaccepted. Table 12. Hypothesis 3 result Hypothesis 3 Services ResultIndonesian users have positive intention to use the Music streaming ACCEPTEDmobile media services Music download ACCEPTED Video streaming ACCEPTED Video download ACCEPTEDb. Willingness to pay for the serviceThe next hypothesis that we tested was the intention of the Indonesian users’ to pay to use theOTT media services. We use the data from Q9 that gathers the information whether therespondents think they would like to pay to use the services. As can be seen in the raw data inthe Figure 29, majority of the respondents think they would not like to pay, which applied inall of the four services. The music streaming service has the highest proportion of rejection topay (~ 75 %), followed by the video download (67 %). This is in line with the lower intentionfrom the respondent to use both services, as revealed in Q10 previously. Based on this, weconclude that the hypothesis 4 as mentioned in Table 13 is accepted. Table 13. Hypothesis 4 result Hypothesis 4 Services ResultIndonesian users have negative intention to pay for the Music streaming ACCEPTEDmobile media services Music download ACCEPTED Video streaming ACCEPTED Video download ACCEPTED2. ExpectanciesThe next hypothesis that we tested was related with the effort and performance expectancy.There are four questions that gather the information whether the respondents think the servicesare useful and interested to be used compared with physical distribution (Q15), whether usingthe services save their money compared with physical distribution (Q11), and whether it savestheir time compared with physical distribution (Q20), and if the services are complicated to use(Q18). The respondents’ answers are shown in Figure 31, Figure 35, and Figure 40. Table 14. Average of respondents’ expectancies Services Mean Q15 Q11 Q20 Q18 Music streaming 3.210 3.244 3.252 2,017 Music download 3.202 3.437 3.310 2,076 Video streaming 3.395 3.403 3.369 2,084 Video download 3.277 3.311 3.327 2,113 43!
  • 53. The data from Table 14 above reveals that the respondents generally have a good attitudeand expectancy towards all the services. This can be seen from the average responds values ofQ11, Q15, and Q20 that are above the neutral value. In contrast, all the average respondsvalues of Q18 are below the neutral value, which means that the respondents do not think theOTT media services as complicated. Table 15. Internal consistency of respondents’ expectancies Services Cronbach Pearson correlation Alpha Q15, Q11, Q20 Q15, Q18 Q11, Q18 Q20, Q18 Music Streaming 0.792 -0,391 -0,182 -0,359 Music Download 0.780 -0,319 -0,158 -0,286 Video Streaming 0.797 -0,432 -0,308 -0,409 Video download 0.766 -0,330 -0,215 -0,331 We tested the reliability of these data, as shown in Table 15. The Cronbach Alpha was usedto check the consistency in Q11, Q15, and Q20. Meanwhile, the Pearson correlation was usedfor Q18, as it leads to different direction with the three questions previously. We get thecorrelation coefficient by pairing each data of Q15, Q11, and Q20 with Q18. The results from Cronbach Alpha show us that all of the consistency values are in the rangeof acceptable. Meanwhile, all the correlation coefficients from Pearson correlation show us thenegative value in the range of medium and small, where the negative correlation in videostreaming is the highest compared with other services in all of the Pearson correlation values.These all supports the hypothesis about Indonesian mobile users’ attitude toward the mediaservices, as the average responds values and internal consistencies among the answers aregood. Based on this, we conclude that the hypothesis 5 as mentioned in Table 16 is accepted. Table 16. Hypothesis 5 result Hypothesis 5 Services Result Indonesian users have positive attitude toward the Music streaming ACCEPTED mobile media services rather than physical products Music download ACCEPTED Video streaming ACCEPTED Video download ACCEPTED3. Facilitating conditionThe next hypotheses that we tested were related with the barriers for Indonesian mobile usersto embrace the OTT media services.a. MNO’s network and mobile billingTwo questions gather the information whether the respondents think their MNO networkcoverage and capability do not support them to use the services (Q5), and whether accessingthe services causes them to pay a lot for mobile account billing (Q19). The data from the Table17 reveals that the respondents generally do not think of the mobile network as a major barrierfor them to use the services. They also believe they will not have to pay a lot for mobileaccount billing because of using the services. This can be seen from the low average respondsvalues in Q12 and Q19 that are both below the neutral value. Table 17. Average and Internal consistency of respondents’ perceive to MNO network & billing Services Mean Cronbach Alpha Pearson correlation Q12 Q19 Q12, Q19, Q10 Q12, Q10 Q19, Q10 Music streaming 2,328 2,555 0,167 0,134 -0,027 44!
  • 54. Music download 2,294 2,521 0,271 0,097 0,051 Video streaming 2,454 2,647 0,186 0,143 -0,004 Video download 2,454 2,630 0,239 0,066 0,112 We tested the reliability of these data, as shown in Table 18. The Cronbach Alpha was usedto check the consistency in Q12, Q19, and Q10, as it contains the data of the respondents’willingness to use the service. Meanwhile, the Pearson correlation was used by pairing each ofthe data in the Q12 and Q19 with Q10. The results from Cronbach Alpha show us that all of the consistency values are in the rangeof unacceptable and the coefficient correlations are in range of small to none. These valuesshow us that there is no correlation between respondents’ willingness to use the service withthe barriers from mobile network quality and billing. This makes sense, as the low averagevalues above show us that the respondents do not think these barriers exist. Based on this, weconclude that the hypothesis 6 as mentioned in Table 18 is accepted. Table 18. Hypothesis 6 result Hypothesis 6 Services Result Indonesian mobile users have positive perception that Music streaming REJECTED the mobile network and billing are a major obstacle to Music download REJECTED use the mobile media services Video streaming REJECTED Video download REJECTEDb. Mobile deviceTwo questions gather the information whether the respondents think their mobile devicesupport for using the services (Q21), and whether they can afford to buy mobile device thatsupport to use the services (Q23). The data from Table 19 reveals that the respondentsgenerally think their mobile device support in using the services, and they can afford to buy amobile device that supports to use the services. This can be seen from the above averageresponds values that are below the neutral value. Table 19. Average and Internal consistency of the respondents’ perceive in mobile device feature and ownership Services Mean Cronbach Alpha Pearson correlation Q21 Q23 Q21, Q23, Q10 Q21, Q10 Q23, Q10 Music streaming 3,992 3,798 0,540 0,480 0,127 Music download 4,025 3,782 0,469 0,169 0,042 Video streaming 4,025 3,798 0,550 0,054 0,182 Video download 4 3,782 0,405 0,176 0,061 We also tested the reliability of these data, as shown in Table 19, whether there is anycorrelation with respondent willingness to use the services. The Cronbach Alpha was used tocheck the consistency in Q21, Q23, and Q10, as it contains the data of the respondents’willingness to use the service. Meanwhile, the Pearson correlation was also used by pairingeach of the data in the Q21 and Q23 with Q10. The results from Cronbach Alpha show us that all of the consistency values are in therange of poor and unacceptable. The coefficient correlations are small to none, except formusic streaming. These values also show us that there is no correlation between respondents’willingness to use the service with affordability to buy a mobile device, as well as whetherrespondent’s mobile device support the usage of the services or not (music download, videostreaming, video download). However, as the average responds values are above the neutralvalue, we conclude that the hypothesis 7 as mentioned in Table 20 is rejected. 45!
  • 55. Table 20. Hypothesis 7 result Hypothesis 7 Services ResultIndonesian mobile users have positive perception that Music streaming REJECTEDthe mobile devices is a major obstacle to use the mobile Music download REJECTEDmedia services Video streaming REJECTED Video download REJECTED4. Social influenceThe next hypotheses that we tested were related with the social influence to Indonesian mobileusers to adopt the OTT media services. Two questions gather the information whether therespondents think the services would be popular among Indonesian mobile users (Q16), andwhether they would get positive attention from their social environment because of using theservices (Q22). The data from Table 21 reveals that the respondents deem the services would be popularamong the Indonesian users, but they do not think they would get any positive attentionbecause of using the services. This can be seen from the high average responds values in Q16,where all of that are below the neutral value. In contrast, these are low in Q22 for all of thefour services. Table 21. Average and Internal consistency of the respondents’ believe about social environment Services Mean Cronbach Alpha Pearson correlation Q16 Q22 Q16, Q10 Q16, Q10 Q22, Q10 Music streaming 3,445 2,765 0,761 0,617 0,226 Music download 3,613 2,748 0,748 0,603 0,336 Video streaming 3,613 2,832 0,661 0,501 0,136 Video download 3,504 2,815 0,633 0,464 0,279 We also tested the reliability of these data, as shown in Table 21, whether there is anycorrelation with respondent willingness to use the services. The Pearson correlation was usedto check the consistency of these questions, by pairing each of the data in the Q12 and Q19with Q10, as it contains the data of the respondents’ willingness to use the service. Thecoefficient correlations between Q22 and Q10 are small to none, except for music download.In contrast, the coefficient correlations between Q16 and Q10 show us the contrast value,which are in the range of medium and strong. The Cronbach Alpha between Q16 and Q10 alsoshow correlation (especially music streaming and music download), as the values are in therange of acceptable. According to these findings, we can conclude that the Indonesian mobile users’ willingnessto adapt to the service have a correlation with a perception that the services would be popularamong other Indonesians. However, this does not correlate with respondents’ motivation to getany positive attention from their social environment, except for music download. This makessenses, as they do not believe they would get any positive attention from their socialenvironment because of using these services (music streaming, video streaming, videodownload). According to these finding, the hypothesis 8 as mentioned in Table 22 is accepted. Table 22. Hypothesis 8 result Hypothesis 8 Services Result Indonesian mobile users have significant influence from Music streaming ACCEPTED their social environment to use the mobile media Music download ACCEPTED services Video streaming ACCEPTED Video download ACCEPTED 46!
  • 56. Chapter 8 – Implications to IndonesiaThis chapter presents the discussion of implication from mobile media services in mobilebroadband in Indonesia. The discussion is formulated based on the findings and analysisderived from the global market trend, lesson learned from mobile media service pre-study inSwedish market, as well as Indonesian regulatory, telecom and media market situation. It ispresented by answering the research questions mentioned in section 1.2.8.1. Actors, Relations and Business modelsIn this section, we formulate the answer for the first research question: “Who are the actorsthat involve in serving the media services, and what kind of relations and business models dothey use?” In the digital music, these actors are the content owners (music artist, publisher and recordlabel), which hold the right to the copyright work, as well as the retailer/service provider,which is directly connected to the user. In some cases, the collecting society and aggregatoractor may involve at the back end. In the digital TV/Video, there are also the content owners(studio and TV broadcaster), but the artist is excluded, as it does not hold the right to thecopyright work. There is also a role of the retailer/service provider, and the aggregator may beinvolved at the back end of the service provisioning. The CDN provider’s role is increasinglyimportant here, compared with the music business, as the data distributed is much larger. Furthermore, the technology advance makes it possible for multitudes of actor, which werepreviously never seen in the traditional music and TV/Video business and come from outsidethe media industry, to also play role as a retailer/service provider and serve media servicesdirectly to the end-user. These actors can be categorized into three types, which are indentifiedin [90] as well, as below: • The Pure player This kind actor has the music and TV/Video service as its core business. It simply mimics and expands the role in the traditional era into the digital and OTT era. Such examples of the pure OTT music players are Spotify, Deezer, Napster, etc, and the TV/Video players are Hulu, Neflix, Voddler, etc.• The Diversified player This kind actor previously runs non-music and/or TV/Video business. It enters the media industry in order to expand its brands and broaden consumer presence, which is possible following the advance of the digital and Internet technology. This actor comes from various kinds of industry, such as Amazon, Wal-Mart, Google, etc.• The Vertically integrated player This actor previously also runs non-music and/or TV/Video business. It owns the platform or infrastructure, as the based of its core product or service offerings. It actually integrates the music or TV/Video services into its business in order to increase the value and drive the demand to these core offerings. As same as the actor in the Diversified player category, this actor may also come from the various industries, such as CSP (TeliaSonera, TDC, etc), mobile device OEM and OS provider (Apple, Nokia, etc). The relation between actors inside the music and TV/Video industry in the digital/online erahas been visualized and discussed in 4.2.1 and 5.2.1. This is the value network of the “coreactors”, which is still same with the traditional distribution era. Our findings show that thechange and variation in the value network, both in the music and TV/Video serviceprovisioning, happen outside this “core network”. This value networks can be grouped intothree categories, as below: 47!
  • 57. • The Direct-to-fan model Here, the content owners directly reach their end-users through their own service or product platform. This model is visualized in section 4.2.3.1 and 5.2.3.1 for the music and TV/Video service provisioning respectively.• The Point-to-point model In this model, the content owners do not directly engage with the end-user. Multitude of retailers/service providers, as discussed above, obtains the license, either directly from content owners, or via collecting society and content aggregator. They then provide the service or product platform to deliver the music and TV/Video content to the end-user.• The Point-to-multipoint model The content owners in this model still play behind the scene, but there is an actor that acts as the bridge between these content owners and other actors outside the core media industry. They usually at the same time also reach their end-user, thus it takes a central position in the value network. This finding above is also consistently mentioned in [16], which categorized constellationof the current and emerging business models used in the converged mobile internet services:“Telco centric”, “device centric”, “aggregator centric”, and “service/content providercentric”. The “Telco centric” and “device centric” are typically found in the point-to-pointpartnership in the OTT music and TV/Video business, where each of the while the “aggregatorcentric” and “service/content provider centric” is the constellation that can be found in thepoint-to-multipoint partnerships. From the discussion in section 4.2.3.1 and 5.2.3.2, we can see that there are two potentialpositions that the telecom operator’s (CSP) can take in provisioning the media service, eitheras a central in the network configuration (“Telco centric”), or as a part in the “aggregatorcentric” or “service/content provider centric” constellation. After analyzing the recent trend,we conclude that the pure OTT retailer/service provider has more capability to be at the centralof the value network. Their focus to the music and/or TV/Video and capability to work in ahorizontal partnerships make them has a better flexibility to adapt to the emerging business,compared to the vertically organization approach that is typically used by the telecom operator. We have also analyzed the business models used by these actors in the taxonomy point ofview, as mentioned in [1]. Despite the diversity of the business model used in the OTT musicand TV/Video business, we found the patterns in the revenue, service, and distributionmodels used, as discussed in section 4.2 and 5.2. The typical revenue models used are retail,subscription, subsidized, or rental (in the TV/Video content distribution). The service anddistribution models used are ownership (DRM/Free DRM à-la-carte, or physical packaging,e.g. OTT CD/DVD purchasing), access (on-demand, live, radio streaming), or personalization(music content distribution, e.g. as ring tone, RBT, etc). Mostly, the actors combine thesemodels, e.g. the “Freemium model”, used by Spotify as discussed in section 6.4.1. 48!
  • 58. 8.2. Indonesian Mobile Media user’s characteristicIn this section, we formulate the answer for the second research question: “What are themobile user’s characteristics, especially in Indonesia, toward the media services throughmobile broadband?” The typical mobile user’s characteristics in Indonesia are pricing conscious and generallyhave low willingness to pay for the media services. The ARPU has been decreased over severalyears following the MNO expansion to the rural and densely populated areas. However, thereis still a room for the music and TV/Video service using one or combination of the access andownership service model. The extremely young user segment dominates the population andthere is a boosting of the middle-income individuals (see section 7.1). It means this marketactually has a significant amount of potential end-user with luxury need beyond the basicexpenditures. This leads us to the conclusion that there is a huge opportunity for the media servicesbusiness on top of mobile broadband in Indonesia. The Indonesian mobile users are mostlyconcentrated in certain areas, mainly in Java and Sumatra Island. These two islands have themost populated cities in the country, and generally have higher purchasing power, anddominate mobile phone ownerships. Our respondents that represent a sample of Indonesianmobile users have also confirmed to have an intention and expectation to adopt OTT mediaservices. The video streaming and music download are the top services that they are using,while music streaming turns as one of the most attractive services, if it is offered free. Indeed, these aspects, combined with the fact that the social media, bulletin boards, blog,and location-based services are hugely popular among the Indonesians, would offers theopportunity for advertising (mobile ads). It offers a momentum to use the subsidized-basedrevenue model, presents a way to reach out consumers directly (Word of mouth /WOM) [49],and able to create a presumption of the popularity of the service. As we have sees at the usersurvey in section 7.4, there is a positive correlation between willingness to use the serviceswith the perception of the popularity of the service. It means, the more the people are aware or assume that a particular media service is popularamong other Indonesians, the more they are likely to try to use it. This does not correlatewith an individual’s motivation to get positive attention from social environment though, as theIndonesian users do not believe they would get any positive attention because of using theseservices. The discussion in section 5.2 also supports this finding, that the advertising would bethe key to the TV/Video business growth. The right composition between paid and subsidized-based subscription is also found as a vital point for music services, as discussed in section 4.2. There is a low average TRE score for mobile and broadband QoS in Indonesia, anddominance of the pre-paid and low-ARPU subscriber. However, the Indonesian users generallyhave a positive perception of the network quality and do not think the mobile billingwould be a barrier for them to use the OTT media services. This was found in the usersurvey, where respondents generally believe they will not have to pay a lot for mobile accountbilling because of using the services. Mobile device is also not a major barrier for them to usethe services. Instead, smart phone penetration has risen since years in this market, which wouldbe as the driver for these mobile media services, as discussed in section 7.2.1. Mobile device has been as the preferred access to the Internet among the Indonesians(“leapfrog trend”), compared to several years ago where the Internet café dominated. Wehave seen the mobile penetration has been increased fast, even compared to some other BRICIcountries. In fact, the mobile broadband plans in Indonesia are among the cheapest in theworld. This is in contrast with the fixed broadband, where its availability is still limited and the 49!
  • 59. penetration has dropped. It is still quite expensive to the majority of Indonesians and the PCpenetration is low.8.3. Potentials and Challenges for MNOs in IndonesiaIn this section, we formulate the answer for the third research question: “What kind ofpotentials and challenges would the MNOs in Indonesia face in providing media services ontop of mobile broadband? There are several potential drivers and obstacles aspect ranges in the policy and regulation,supply and demand side in Indonesia market. As discussed in section 7.1, there is no entrybarrier exist in OTT media services provisioning in this market. It means in this circumstance,the media service providers only need to consider the licensing issues to distribute copyrightwork in the market, both for music and TV/video contents. This market also offers a hugechallenge, due to high digital media piracy, both as illegal digital download, file-sharing, andphysical transaction. In general, there was still low law enforcement, although there have beenundergoing actions done by GOI to address these issues and pornographic content distribution. Furthermore, we have found that the Indonesian users generally have a low willingness topay and are pricing conscious, and this market has high piracy level. This makes the mediaproviders cannot just directly apply the strategies that they have founded successful in thedeveloped markets to Indonesia. Determining the price is a substantial factor in the success ofthe media services provisioning, thus the providers have to consider the right prices usingdifferent pricing tiers, in order to attract different consumer segments away from the illegalcontent and use the provider legal services. This is also important to ensure the healthy profitfor both the provider itself and the content owners. Indeed, the lesson learned we have seen inthe success of media retailers/service provider’s global expansion covers these three factors: • Pricing tiers The tiered pricing system is a differentiation made to suit types of end-user segment (value-based pricing). This can be done either based on the different amount or popularity of the content that can be accessed, range of time to access the content, or kinds of feature (e.g. supported device) in several pricing packages.• Flexible pricing The flexible pricing is done by adjusting the price based on the “demand-based pricing” and “geographic segmentation”. According to Lars Roth (TeliaSonera) in the interview regarding the lesson learned from the success of Spotify expansion, the price between the market territories should not be always same. Instead, it should follow user’s perceive value in that market.• Differentiated features The flexible feature offered in different market territories is also the key to make the service take off in a particular market. The personalization services (ring tone download, RBT activation, wallpaper download, etc) are huge popular in Indonesia, and as the main source of revenue for the music industry. Therefore, it is considerably valuable for the provider to include this feature in their OTT retail or service delivery channel. Such example is to make it possible for the end-user to activate particular content (music) as RBT. The provider should also aware that the availability of the service in the mobile device ismuch important in Indonesia, as the majority of the people only have access to the Internetthrough mobile, as discussed previously. Thus, the mobile device feature should be available inall price tiers, or otherwise the service would not take off. This is a same case when Spotifyadjust its offering in the certain territories, e.g. availability of radio feature, 5-track capimplementation, etc. 50!
  • 60. 8.4. Positions and Roles for MNOs in IndonesiaIn this section, we formulate the answer for the fourth research question: “What kind ofpositions and roles can the MNOs in Indonesia take to make media services as a profitablebusiness?”1. Analysis of the current situationThe price war has been going on for several years, including in the data service. In contrastwith the western markets, the MNOs have low opportunity for triple/ quadruple play becausethe fixed penetration is not significant. As our findings discussed in section 4.2.3.1 and 5.2.3.2,the triple/ quadruple play is one of the CSPs’ key motives when offering the OTT mediaservices bundling. In addition, the revenue share from the data has just started increase inIndonesia mobile market, and is predicted to keep increase in the next following years. Indeed, it is not surprise that the MNOs in Indonesia are mainly interested to monetizing thedata as access, not yet on monetizing the media service on top of it (bundling), though therehas been bundling offering with few other services, e.g. Blackberry services (see section 7.2.1).The threat of being the “dump-pipe” provider in this market is not as obvious as we have seenin the developed markets. In those markets, the MNOs have been forced to figure out thestrategic decision regarding the music and TV/Video business, which cause of the data trafficexplosion in their network (e.g. Neflix phenomena in the North America markets). This is also supported by the fact that the personalization service has been proved asprofitable to the MNO, and is still as the main revenue channels from VAS. It is even currentlydominating the revenue of the digital music market, which makes Indonesia a contrastingsituation with other markets. This is caused by at least three factors.• First, there is a limited appearance of prominent OTT media service players that results on a hole in the ecosystem (e.g. iTunes).• Second, there is high piracy level in the physical and OTT media distribution.• Third, there is a limited opportunity for online payment, because bank account penetration is low. These factors make the MNO in Indonesia has a better bargaining position in the valuenetwork toward the media services provisioning, compared with the situation in the westernmarkets, as they are able to offer a simple payment solution. The low fixed-line/fixedbroadband penetration and high dependency among Indonesians to the mobile Internet alsogive the MNO a strong appearance and ability to reach a large end-user scope. This is incontrast with the developed markets, where the mobile connection is as a substitute to the fixedconnection. In Indonesia, mobile device is often not just for basic communication, but alsomay also offers the first opportunity and main way to connect to the Internet.2. Analysis of the potentials for MNO in IndonesiaThe CSP, especially the MNO, is confronted with at least three possible options or positions inthe OTT music and TV/Video business, as also discussed in [77]. a. The “Do nothing” optionThis means the MNO does not involve at all in the OTT music and TV/Video business, andleave the provisioning of the service to the other player. This option is suitable for the MNOthat operates in the markets where the network infrastructure (mobile broadband) and/ormobile device penetration (smart phone) do not take of yet. It means the market as overall isnot ready yet for these services. In the OTT music business, although the market as overall is ready, the MNO still couldtolerate this situation if the opportunity for the MNO to gain benefit from the service is toolow, which makes it not significant with the effort they should do. This can happen becauseeither the revenue share is too small, or the potential revenue gained from the market is too 51!
  • 61. low. In addition, the impact of the traffic from the music content delivery for the overalltraffic is also likely limited; because the bandwidth requirement for this service is low (high-quality streaming music is likely 320 kbps). However, this is not the case in the OTT TV/Video business. Even tough the revenue shareis small; the impact of the TV/Video content delivery to the traffic load is significant (seeNeflix traffic in the North America markets in the Chapter 5 – The Digital TV/Video Industry).Therefore, if the OTT TV/Video service takes off in the market, the threat to the MNO ofbeing the “dump-pipe” provider is high. In addition, in the both of the business fields, theMNO would miss out the opportunity to monetize, as well as the indirect benefits to beinvolved in the provisioning of these services in their market. b. The “Do it alone” optionThis means the MNO launches its own digital music and/or TV/Video service brand, andcompete with the OTT players. Using this, the MNO becomes the retail and/or service provider(The Vertically integrated player) and partnership directly with the music and/orbroadcasting core actors (point-to-point model) This option might feasible for the operatorthat has or able to gain sufficient resource to develop, maintain and deliver its own service.This includes the effort to obtain the license from the content owner, product development,maintenance and marketing, etc. The success examples are SK Telecom and TDC with theirmusic service (see the part A in section 4.2.3.1 and 5.2.3.2). However, this option is a high-risk approach for the MNO because the media services(entertainment) are not the MNO core business. In addition, the potential benefits and directrevenue share from these services to MNO’s total revenue are not significant to justify theeffort to deliver the service to the market. Moreover, the typical vertical system of the MNO’sorganization impacts to the slower deployment life cycle, and their mass-market focus makesthem slower to adapt to the emerging user’s demand and competitors, compared with thenimble culture of the OTT music and/or TV/Video service provider (The Pure player). c. The “Collaboration” optionThe MNO could choose to collaborate with other player (e.g. the Pure player) and get somepercentage of shares from the total revenue, as return to the new users gained from their end-user based, the usage of their brand, and associated services (e.g. billing). Our findings about the MNO and OTT player partnerships in section 6.4.1 show us that thisMNO typically set up the short-time agreement with the OTT player (non-equity mode) [15].This means they can review this agreement and exit at the end of the term, if thepartnership and/or the service do not take off or profitable. The MNO can reduce the effort todeliver the services and share the risk with this partner, compared if they choose the “Do italone” option (see the part B in section 4.2.3.1 and 5.2.3.2). This is also confirmed by [17] thatstated that the two critical success factors in multimedia business are company’s corecompetencies and user acceptance. They can also take an active role in this partnership and create a respective bargainingposition in the value network. Using this, they may get a larger percentage in the revenuesharing and/or bulk discount in the cost to acquire the license (e.g. discussion betweenTeliaSonera and record label regarding its partnership with Spotify). Some operators also setup a joint venture (equity mode) with other player and/or become part of the shareholders ofthe OTT media company [15]. This strategy also offers a possibility of an active role in thepartnership, and shares the effort to roll out the media service. However, this demands a higher investment and riskier, compared if the MNO use theshort-term agreement strategy [15]. Our analysis in section 4.2.3.1 and 5.2.3.2, and the lessonlearn from global market landscape, Spotify and other OTT media players’ business model 52!
  • 62. lead us to the conclusion that, it is strategic for the MNO to use the point-to-multipointmodel, rather than the point-to-point model. We recommend the operator disregard the firstand second option, and instead form a partnership with other player using the short-termagreement under this point-to-multipoint model. It should also be note that, through any of those available options, the MNOs should not usethese services to increase the revenue from the media. Our findings reveal that, even if thenumber of the subscribers acquired is high, the majority of the revenue generated from theseservices will go to the “core actors” (the content owner). In contrast with other businesses, inthe music and broadcasting business, the provider only has choices regarding what kind of thecontent they would like to get the license to, not from whom they would like to get thelicense (e.g. Virgin Media fail in acquire the license from the major record labels). Indeed, although it is still possible for the MNO to acquire some chunk of the revenue frommusic and/or TV/Video service provisioning, the key benefits for the MNO are actually to:• Reduce the churn rate This can be achieved by monetizing the higher value of the access to the content and feature in the service to user, which will be canceled once user stops their subscription with their MNO.• Acquire market share The market share can be increased by exposing music and/or TV/Video service to user and making it exclusively bound with the MNO’s brand.• Increase the ARPU The MNO can increase the ARPU from the data by acquiring or turning the subscriber to the higher value subscription (the music and/or TV/Video service is bundled into it). 53!
  • 63. Chapter 9 – End of DiscussionThis chapter provides the assessment of limitation and advantage points of this study, as wellas the suggestions for future investigations related to the topic of this study.9.1. Criticism of the StudyThere are several limitations of this study. The first criticism is the expert interview that onlycovers small amount of stakeholders in the industry. It could be better for the study to covermore experts, so we can get a broader point of view and do in-depth analysis from theirinformation. Nevertheless, due to the time and resource limitation, only the most relevantrepresentatives that could be contacted for the interview. The second limitation is the user survey, which is the based of the quantitative study. It onlycovers small amount of respondents and there are even smaller valid data that can be used foranalysis. The fact that the questionnaire is formed as an OTT survey also limit the respondentthat can be reached, as naturally it is not convenient to do this survey in the small screen andlimited connectivity from the mobile device. The third limitation is in the limited analysis in the quantitative data. This study did notconduct the regression analysis, which is very valuable to measure the most significant valuesthat affect user’s decision to adopt the service. This cannot be covered by the correlation tests.Fourth, the survey itself only explores the acceptance factor for mobile media usage in mobiledevices. In real scenarios, the media services might be consumed through other types of device(e.g. laptop), but still use mobile broadband as underlying connection. However, there are also several strengths of this study though. First, our strategy to use themixed method approach, by using both quantitative and qualitative study, brings variety ofperspectives to the study. This helps to enrich our analysis and ensure the robustness of thefindings. Second, the reliability of the quantitative data was assured through several types ofcorrelation tests, and there are more than one questions used to test the hypothesis throughinternal consistency. Third, the questionnaire is distributed using Bahasa (Indonesian language). This removedlanguage barrier, helped to attract broader respondent, and make the questions clear to avoidrisk of misunderstandings. Forth, the study covers the representative from well-known industryactors and is currently playing vital role in media/telecom business, both in reference market(Sweden) and target market (Indonesia). This help to ensure the results to has practical andinfluential implications for the marketplace.9.2. Future Work This study reveals several issues that can be subjects of further study. Indonesian mobileusers generally have positive intention and perceive to use the OTT media services throughtheir mobile device. In addition, the mobile device and connection is not a barrier for them toadopt the service. However, there is still little focus from the local actors, and especially theMNO, to fulfill and monetize this need. We have identified that these MNOs are currentlyplaying dominant role due to high dependency among people to mobile, and low PC ownershipand bank account penetration. Indeed, It would be interesting to study this issue further in the economic and market-basedsystem point of view. One of the examples is predicting the outcome of complex interactionsamong actors, if the prominent (international) OTT players enter the market. The approachcould be to do a micro-economic analysis, e.g. the game theory modeling. This can be used topredict and analyze the further forms of strategy and interaction between these identified actorsin the value network of the OTT music and TV/Video business. 54!
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  • 69. [106] (2011, April 14). “Upcoming changes to Spotify Free/Open”. Blog [Online]. Available: http://www.spotify.com/se/blog/archives/2011/04/14/upcoming-changes-to-spotify-free- open/[107] N. Patel. (2012, March 13). Exclusive: Spotify family plans definitely coming. Magazine [Online]. Available: http://www.theverge.com/2012/3/13/2867880/exclusive- spotify-family-plans-definitely-coming[108] (2011, Sept. 29). Pandora shifts into high gear!. Blog [Online]. Available: http://blog.pandora.com/pandora/archives/2011/09/pandora-shifts.html[109] (2009, August 12). 7digital downloads now available in Sweden. Press Release [Online]. Available: http://www.spotify.com/se/blog/archives/2009/08/12/7digital- downloads-now-available-in-sweden/[110] (2011, May 4). Spotify says hello to the iPod. Blog [Online]. Available: http://www.spotify.com/se/blog/archives/2011/05/04/spotify-says-hello-to-the-ipod/[111] E. Harrison. (2009, May 2). Spotify review: The iTunes killer?. Magazine [Online]. Available: http://www.neowin.net/news/software/09/05/02/spotify-review-the-itunes- killer[112] (2009, Oct. 8). Telia and Spotify sign exclusive cooperation agreement”. Press Release [Online]. Available: http://www.spotify.com/se/about-us/press/telia-and-spotify-sign- exclusive-cooperation-agreement/[113] A. Miftachul. (2012, June 28). Yahoo! TNS Net Index: Advertiser Needs to Strengthen Their Mobile Strategy. Magazine [Online]. Available: http://en.dailysocial.net/post/yahoo-tns-net-index-advertiser-needs-to-strengthen-mobile- in-their-strategy[114] S. Cuya. (2011, January 11). SK Telecom and PT. Telekomunikasi team up to launch digital music content in Indonesia. Magazine [Online]. Available: http://www.rcrwireless.com/asia/20110111/carriers/sk-telecom-and-pt-telekomunikasi- team-up-to-launch-digital-music-content-in-indonesia/ 60!
  • 70. Appendix A – Qualitative InterviewsA.1. Interviewee List Table 23. Interviewee List Interviewee Actor Type Country Interviewee Role NameLars Roth MNO Sweden Vice President Consumer at TeliaSoneraAndreas OTT music Sweden Global Head of Telecom businessLiffgarden service development at SpotifyMärta Rydbeck TV Broadcaster Sweden Head of broadcast managed services (Global Services business unit) at Ericsson. She was interviewed due to her previous role as Director of Distribution and Affiliate sales at TV4 until December 2011.Jockie Heruseon MNO Indonesia Manager of Broadband Products PIM at TelkomselDidik Akhmadi Regulator Indonesia Member of BRTI, Indonesia telecomUsman regulatory bodyYose Tireza MNO Indonesia General Manager of BusinessArizal development and support system at Axis Telekom IndonesiaHengky Philip Mobile content Indonesia Director at New Solution TechnologyGinting provider (NST). Hengky Philip Ginting was also interviewed due to his previous role as Head of Business development at Mobafone Indonesia VIII!
  • 71. A.2. Interview Transcripts and Notes Table 24. Interview with Lars Roth40 Question Answer What is the main motivation To be able to talk about the value of our products instead of talking about technology, it is one thing. Because if you behind collaboration of Spotify say to some you going to get an MDU packet for your phone, they would like why? But if you say, you get free with Telia? music, bundle in our offer and MDU is also part of this offer because you need that in order to make it work, (it is) become more none technical way of saying it, and more on customer value way. So we want to actually to have marketing and communicating things that are not speed, products and technology, but rather focus on the end user values. So that’s why we were lucking at this to bundle with that. And looking at something to bundle with, it has to have value and it has to broad enough, (because) we have 44% of the market, we can just choose one small game, for example. Maybe it could be books, it could be music, it could be movie, something like that, it has to be that big. We actually started with our own service; much more like Spotify, unlimited download for music, and 99 kr per month. It was under brand, but it was not great. We tried that for half a year and we realized that we needed to spend all our communication explaining, “What the service was”, “How it works”, and “why you should get it”. (At the end) the perception of the value that we gained from (offering) six months for free was pretty low. What we realized from Spotify that they came from nothing and conquered the market for half a year. They have a super strong brand, we do not need to explain anything, just said Spotify and people got it. So we realized that we can get a lot of values of it and we can actually move our brand little bit, be more interesting and dynamic by connecting our self with Spotify. So that I would say, that is the main thing. Also in this collaboration, we have exclusivity agreement that no one else can bundle it in our market and communicate Spotify within our territory and segment. This agreement was only in Sweden, but we have now similar agreement in Finland, and we are working in other countries as well. And that part, we call it compiling difference, what differentiate our self from our competitors is quite important, because it is quite hard to find this differentiation factors, and that is why it is also very strategic. It (bundled product) has to be relevant for a lot people, and obviously can be bundled. Example [a name of operator] they campaigned last summer that you could choose between music, audio book, and movies, for example. But the message is not clear. And I think music is actually the most relevant for most of people, you can see that. In some segment, activation of Spotify is not that big, so probably we are looking at audio book... You can do other bundles, but if you do the marketing game to differentiate our self, it needs to be very wide, when you such a big operator as we are. If you are!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!40 Transcript from recording IX!
  • 72. small operator, entering the market, you can pick small thing or market.Who are the other actors involved We started out the collaboration three years ago. So actually just between Telia and Spotify, but we renewed thein this partnership? contract during the autumn. And in that partnership, in order to... what we actually want to do was to deepen the collaboration. We saw that when we just gave 3 months for free, the value was limited. It was nice for the customer, but it did not really get them to move from another competing operator to us. We realized, we need at least 6 months or probably a year included, to be good enough, to (make customer) move from [a name of Telias competitor] to Telia, for example. So in order to actually afford this, we cant really afford the price we had per month that we bundle in the allowance contract. That would be too expensive for us in our accusation of new customer. So I more and less went to Spotify and said “OK, I want a massive discount, but in return I will put quarter of billion kronor in the table, are you interested?”. That is substantially increasing the whole business in Sweden for music. Obviously Spotify cant afford discount I asked for, so they need to involve other partners in the chain further behind, that would be the record labels, the collecting societies and the publishers. They would have to give Spotify the discount for us to accomplish the discount we asked for. So in order to make this happen, we have had extensive talks with all the hands of record labels in Sweden and US, and also all the collecting societies to actually the partners that own the music, the record labels own the recording, but not the song and lyrics. So we have to talk with all of them, and obviously they cant invite them in one room. You have to take them separately, and they have different opinions about different things and they have the most favorable kind of deal. So the hard part is to get something that is common, because you never have them in the same room. And obviously has their own wisher, we have our own wishes and the music business wants to control everything, how we do it, how we report it, what customer can have what, and the big problem is that when we talk about such a big thing and such discount, they come to our territory, as they call it hard bundle. They want you to make it available to everyone you will sell it too, no exception. On the other hand, they have a lot of specific requirement on how and to whom you can bundle it, so with this they actually more and less control all our offerings. But in order to make them stand a bit, and make a room to maneuver, it is a hard work, with all the details. It would meant that for example we would have to differentiate to what kind of offer to existing customers and new customers. And that is not acceptable for us, because we know, if we do it, we would start churning customers, for example. It would mean, we would have to say in our commercial state that you can get Spotify one year for free if you have got it before, for example. Because they do not want to cannibalism demand from high margin to low margin. So those kinds of thing, we have to get through. We were almost finished with the contract with apple, as you might be aware… They did not make reality out of this thread, more and less but we have got in the contract, that if X!
  • 73. we have risk thing and if this become reality, we will get out from the contract, I guess it isforce major thing. But bigproblem is that to make this happen I have put all the money on the table in front, so I have already paid it, and it isalready distributed to the artist, and so forth. So if this force major actually happens, they have to go back to all themembers and say Hei, pay back. So to make this happen it needs 2/3 months negotiation on how to make this goal inthe contract. Normally, the record labels we deal with are OK, with one exception, and that is [a name of a major label]. We tryto base this on win-win kind of thing. “If we build our customer based to you (music actors), you will make a lot ofmoney, long term, and it would be good for us… If we have a low price and not tying your hand on our back, we canuse this in all our accusations, regardless the products and segments”. They agree in theory, but anyway in practicethey try to tie they hands behind our back and you know, try to not give us the possibility to bundle 6 months, becausethen you will get so much values out of so little money, so that is kind of fundamental difficulties we have in thiscollaboration. We truly believe in win-win but they do not, they say they do, but they do not. It is so strange, because the have full monopolized, all the record labels, because If you have Michael Jackson, noone else can compete with other Michael Jackson. You own it and you have paid for it already. You own it; you havepaid for it already. Your catalogue is filled, and you need to just make out money out of it. And you will try tomaximize everything that comes to that stream. And it is quite difficult to handle. This is primarily legal discussion,but based on business discussion. I would say we probably have the highest discount that everybody ever had fromthe music industry. So that is big, and it is definitely bigger that Spotify ever got. On the other hand, if I look at themarketing that we had during 3 years, for most of our business areas, and also taking consideration discount that wehave by using media, that actually has market value within, would be 3.5 billion kronor spent in Sweden alone, onmarketing Spotify. So it is obviously a huge impact on the whole (music) industry. The interest on music, also Spotifyfor their-own. And looking at Spotify now, their main target is not actually to have an increase premium customer, they want tobuild customer in general. Because that is the fundamental in deciding the value of the company. If they do the IPO in2 or 3 years, if they have 200 million customers, it would be the biggest in the world, then you get value for it. Butfrom our perspective is premium based for them... and the conversion rate from free to premium is extremely good inSweden. I think they have closed on a million paid customers in Sweden alone. And they though the room for half amillion, and they still competing. So if nothing happen, my guess we could grow up in Sweden before the marketfully penetrated. We spent 14 months (negotiation). But on [a name of operator], they started their own, but ended with Spotify.They spent 3 years negotiating. This is the big problem. You cannot really negotiate if you are not in the level ofwhere I am (Telia). Because then you have to redesign your businesses during the contract... But you can do, XI!
  • 74. something without big discount, but kind of partnership, but they will tight you hand in your back and it would quite hard to get profitability. That you can do quickly, but it has limited affect. Maybe KPN can copy us actually, they were negotiating with them. I think this is actually quite fundamental to get working. So quite risky, quite complex, quite time consuming, but for us it is rewarding as well.What is the revenue sharing What they do is they have a rate card, so typically 5-6 euro goes to labels, maybe 1-2 Euros go to publisher andmodel used between these collecting society, and the rest is Spotify. So, you have statistic saying what type of music that customer visit. So if Iinvolved actors? am [a name of record label], in general have 40% market share, so I as customer with 70 % of my stream goes to [a name of artist of a record label], and then 70% of that 5-6 euro rate card goes is given to [a name of record label] and they distribute it to the artist. We just partner Spotify in our contract, but we have continuos conversation especially with record labels, and we have relation as well, especially with the marketing activities and sponsorship, and so fourth. So I would say, if we have in Sweden 100 kr, then I would say somewhere around, I cannot say you the exact figure, lets say 40-60 kr go to labels, and small part, typically 12 % of the end user revenue goes to collecting societies.How is the music industry players Our agreement is only between us and Spotify, but in the agreement it is stated that we should have regular meetinginteract in this cooperation? with all the record labels to see what kind of activities we could do to live their artist their music, but also for us to find how to help the music industry.What value do you think Telia, as In order to get end-to-end delivery to their service they need a good network, and I think we are the best, especially ifa mobile operator, add to this it comes to fixed and mobile broadband. So one of the reasons. The other big reason is, what we have done to givemobile music streaming service trust to new cool company is enormous. TeliaSonera is the most trusted brand overall in Sweden. So, when we pickand vice versa? up partner to go with us, we more and less say this is availed partner that you can do business with. And also, since we are billing provider for them, we charge our customer and get the money to them, also our bills are one of the most paid in Sweden, with lowest dept as well. So it is really good channel to have continuous relation with customer, especially when they have problem when they do that with credit card, so if you do not have 99 kronor in your account, you will switch off, and we have to deactivate you as customer, you do not get up if we are not involved.What is the major value Well, in order to make streaming service available and work, they value propositions are then connected quite a lot.proposition that Spotify shares And I think in strategic level, we say that in order to be able to a service company, we should put our customerwith Telia? experience very high. We could not do that really in reality, unfortunately, but Spotify really focus on experience, from that perspective, it is quite aligned. We had similar service that on the paper would be the same offer. But the XII!
  • 75. user experience is on the brand. So brand is extremely important, if they do not have a good brand, we see in other market when they do not have that strong brand, for example in Denmark, they just launched. We need to have a totally different plan to communicate them, because they are not quite known. They were not 100 % awareness when we launch, so it was really problem to say what Spotify is.What do you think are the The biggest obstacle in day-to-day experience is that it does not work well in the subway, for example. It requiresobstacles when music-streaming quite a lot of bandwidth. Event ought the mobile network in Stockholm, Sweden is one of the best mobile networks inservice immigrates from desktop the world, and it is not sufficient for continuous online good experience. You have to use caching, online mode. Weto Mobile device? also realized, in some spot you need to bounce, because it is too crowded. Telia do not have priority for Spotify traffic. If we give that, PTS would consider us to not being neutral, and we cannot do that. So we do not any differentiate any traffic what so ever. We maybe see the P2P traffic, but other than that every service is threatening the same.What are elements of For the bundling, we need to make the value strong enough, to make people choose us, and that we realized 6consideration for the pricing and months… We have tried with 29 kr per month but it was not quite successful. How we end up with 99 kronor, I thinkbundling? it isquite interesting. Because the psychological level is extremely important. Looking at the prices around the world, it is always 99 kronor Norway but toward us (Sweden) it is actually 20 % more expensive in Norway. In Europe it 9.9 euro, which is actually 10 kronor cheaper than in Sweden. In the US, it is 9 dollar, and that is 60 kronor… So that is why, if you say 108 kronor, the perception would be more expensive. So psychological is important, more and less. In long term, I would guess the price would be higher if you get 100% penetration of the country, then you can multiply the population by 99 kronor, you see what is maximum revenue is in that country. And that is problematic, because all businesses want to grow, and it senses the cap. I think we would see new type of subscriptions, price increase, differentiation, probably when you get access to new content, so fourth. We are looking off somewhere else cases (become part of OTT business). One example that we distribute concert in video on the demand service, and we do things with their artist, which is actually what the labels would like to sell to us, like using song of artist our commercials… That is what they are looking at. The mobile wallet is actually what we are looking at as well... We are looking at different things as well, but we try to keep our core.What are the elements of Spotify consumes somewhere in between 100 GB a month. So that we have production cost of that data (sending theSpotify’s service marginal cost music content on the network), it cost us bad debt, in average we have around 1% bad debt where we do not get paid.per subscriber? We have cost teaching them in the store, administration and getting started, the customer care. Typically we (our customer) are always in the bundle, so if you own 1GB of data (allowance), it cost you the same regardless of what XIII!
  • 76. you consume. And if you do not have Spotify, you consume less. So, that is obviously cost us as well. It is quite substantial traffic that is Spotify related on the networkWhat things need to be modified If you are looking at exactly launching Spotify in those markets with the same kind of condition now… I mean toif the model similar to Spotify- start to make it get to work, the willingness to pay for music on that level, needs to be there. Otherwise, it would notTelia partnership is used in these be success, because they (consumer) would only get the free (offering) and then they quit. And then they (label)3 markets? would not interest on giving you any discount, as they want a continuing state. So that is obviously the first lesson, to understand what level is actually possible there. The other is, as I mentioned, the reason why music is relevant for us, is that we are that big, we need to address big part of that market. If you only just go to 0 – 5% of the market share, you could pick a small specific segment and try to get know what they exactly need. You could pick some thing else to work with, maybe audio books, educational courses... But the core thing is you make your service relevant by simplifying the value, the customer value has to quite clear, and also be consistent in over time within your message that this is why you should choose us. What we are doing more and less sending the same message for 3 years now. Now people start to understand and remember that you can get Spotify from Telia, it takes couple of years. And typically, if we change our message after few months, people will forget.What are major consequences for We (Telia) did not think so much about what are the effects could be. In the first contract, we promised 20 thousandTelia to get involved in the digital customers and we have 350 thousand customers... We know that in general our 3G networks is really congestedmusic industry, in term of especially in big cities, and this due to a lot of things, apps communication, not necessary data volume, but rather hownetwork load perspective point of much they communicate... We are not talking about problem in our network due to Spotify, but we realize that it isview? quite extensive part on the traffic, not the major part, but big part.What kind of network capabilities I think if you ask customer, the value more of a really good network because they need to have access to the musicin terms of billing, traffic and user regardless of where they are. Therefore, from that perspective, it will add the perception of the quality to themanagement can improve end customer. We have big problem three weeks ago, and it was difficult to know whether it is network problem, IOSuser experience in this service? problem, Spotify problem, or Facebook problem. So we spent many hours figuring out what was the problem, and it was Spotify problem connected to Facebook, and we though it was our problem. So that is quite complex if you want to have a good user experience. So that is also needed when you have collaboration, in order to actually digging to what is not working. XIV!
  • 77. Table 25. Interview with Andreas Liffgarden41 Question Answer What is the main motivation behind collaboration of The telecom industry is now seeing and over regulated and over competition in their market, Spotify with telecom operator, e.g. Telia? and price eruption. Thus, there is a need for differentiation. Telia think music fits with • What are the major consequences after mobile everybody and it can be used to create this differentiation. In addition, in Telia’s case, there is operator get involved with the digital music industry? discount arrangement. But, Spotify does not have data for conversion rate due to partnership with Telia yet What are the benefits of Spotify’s service compare to the Spotify has user that is sponsored to access the service for free. However, Spotify also needs other incumbents, or future services that might use the conversion rate to paid-based. Telecom operator can distribute the bundle offering for trial same value proposition and chain? period. They need to have aggregator partnership to delivery music service, because the direct partnership with the music label has been found to not work (first generation model). There is a cultural difference between the music industry and telecom industry, and Spotify as aggregator bridge this difference. What do you think are the drivers and obstacles when The network bandwidth and intense communication. Spotify has offline mode feature, but Music Streaming service immigrates from desktop to actually they found that the consumption in mobile device is much more from Wi-Fi rather Mobile device? than mobile network. Spotify tract user behavior, and guarantee user experience. Meanwhile, telecom operator mange the network With service launched in 13 EU countries and US, does New market is a driver but also challenge. There are still a lot of rooms to expand, e.g. Spotify consider to enter Asian markets (e.g. China, middle east. Spotify considers Internet penetration, smart phone penetration, and Facebook India, and Indonesia)? penetration to expand to a new market, as well as willingness to pay of the user in that • If yes, what are the things that you consider to market. Spotify is the answer for piracy, and user does not like DRM-locked content. modify in order to be successful in these markets? • How does Spotify see premium vs. freemium model in these markets?!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!41 Information is based on the note made during the interview, not recording XV!
  • 78. Table 26. Interview with Märta Rydbeck42 Question Answer In 2010, TV4 has launched a I would like to point out that I am no longer working for TV4. I think this my opinion; this is not TV4 opinion package of four major channels anymore. So it is from someone that has working in the industry for long time. It is my point of view. available to subscribers to the If you look at distribution (model), it does not really matter the device you are accessing your TV content. For TV Telia, 3 and Tele2 mobile channel, it is always a question of the negotiation with the operator. How much is the operator is going to pay, networks because the content would always drive the accessibility to the network. In addition, this has been the whole battle in • What are the significant values the business. When I started 93, at the Eurosport... Eurosport was the first channel to ask distribution revenue from to deliver TV4 program as the operators, all channels until then have been free or charge, or even (several) channels have to pay to get mobile TV services? Why do distributed. So we reversed the business model at that time, and said “If you want to bring content to your subscriber, you think that so? you have to pay for it as an operator”. This was such a big thing, and they were very upset with Eurosport at that • What business and technical time. They threw Eurosport out of the network, and you will not get distributed anymore. But the thing is people like values does TV4 get from the the channel, they wanted the channel, so the operator came back and said “OK, how much do you want?”. The mobile operators in this negotiation started. cooperation? And I think, to deliver TV4 programs or TV4 channels on the mobile services is the same thing. We are delivering • c. What other distribution content that is the significant value to mobile TV of mobile operator or mobile operator delivering TV. Look at [a channels are TV4 using right name of operator], for example, they would obviously love to use the TV4 channel in delivering TV everywhere now? And how is the priority experience, where they have it on mobile. “You can have it on the PC, you can have it everywhere”. But you know, I of mobile broadband? think what we are delivering as a TV channel is consumer experience, it experience in watching TV, that is the significant value. Whether it is in set up box at home, on a PC, or mobile phone, it does not really make a difference. (For TV channel) it is (mobile channel) of course revenue stream. It is a value, but it does not bring more value to watch it on the mobile rather than set up box. Actually currently, it brings less value, because the TV channels havent sort it out how to deal with advertising on the mobile yet. So actually, an increase of mobile distribution for TV channel is actually not very good for TV4 as advertising vehicle today. Because if I watch TV4 here, and I watch an advertisement that run on the TV4. It does not get calculated as a view, I do not get calculated as viewe arer. Because there is no measurement, system today that takes into account the advertising that is broadcasted here. Because all the measurements set up today are at home (traditional)… So it isbig problem, if you look at the increase of both on demand viewing or linier type of viewing on mobile today for TV channel. So people start to switch from watching at their home, to watching only on their mobile and we are do not sort this out… The TV channels are facing big!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!42 Transcript from recording XVI!
  • 79. problem. That is why the TV channel, at least TV4 and also Eurosport said, “OK if you want to distribute channel onthe mobile, you better pay us a lot more than you do when you have it at home”. So obviously, they did not reallyagree with us, because they think… I mean, “You already broadcasting and we are just put it in another device, sowhy are you bothering us with this”. And we are we were saying, “Of course, this is really important.” So what are business and technical value we are get from mobile operator in cooperation? We are do not get anybusiness or technical value at all today (in delivering content on mobile). Even on the PC today, if you watch livestreaming at TV4 channel, you cannot really calculate the advertising and cumulate it with the advertising that youfrom normal viewing, in the set up box... Because those measurement systems are not correlated. You have todifferentiate it with the linier TV advertising, the 7 minutes break... and what you see on the PC, where you have weareb advertising… The one-minute break, but those advertising are not the same advertising that you see in normallinier TV broadcast signal. So if you watch TV at home, you get the 7 minutes break, if you watch on PC, the sameprogram, you will get the same program but with different break and advertisements. So there is huge challenge forall TV channels today to get the linier TV broadcast synched with we areb advertising. Because they are not measuredthe same way, you cannot cumulate the audiences… And you add the mobile, and you cannot measure anythingtoday… This is a priority for the TV channel to actually able to handle this kind of advertising here (mobile). (But) I always see this (mobile) as the next leap of revenue for TV channel; in the sense that today that the TVchannel charges for operator is per house hold (not individual). So a typical [a name of operator] would pay, forexample, for [a name of TV program] [a number of payment] per month per subscriber. And subscriber is ahousehold. Obviously, the operator says “If you want to charge us for this (mobile), you have to divide the householdprice by 1.2”. And we ware saying “No, we are can increase the price”. So it is next gigantic leap of revenue for TVchannel to go from household subscription to individual subscription. Obviously operator does not agree with this,because they said “It should be 3 times less, if you charge individual subscription”. There is a lot to be done, in thenegotiation between the operator and TV channels today. When you come to, what to charge, how to charge, towhom, and what kind of compensation is that for the fact that there is no advertising revenue connected here(mobile), or can be measured. So, when it comes to other distribution channel, the priority is of course toward moretraditional distribution channel. But we, as a TV channel, always interested in providing the content where theconsumer is. So if the consumer is here (mobile) you want to provide the content here, but we are need to fine theright business model. I am not saying TV4 can only survey on advertising, because already all the channels arefinanced both distribution and advertising. The TV channels do not want to re-do the mistake they did at the beginning, which is being controlled bydistributors. The fact TV4 wants to distribute here is more to want to get upper hand of toward the mobile operators.Because mobile operators, they want to get real TV content here. And there is a right issue… TV4 has gone around to XVII!
  • 80. get collective agreements, together with [a name of collecting society] and managed to clear the linier right for mobile. Meanwhile, all other channels are not dare to do this, they do not dare to pay to clear the right, because they do not think they would get sufficient revenue from operator for this. But TV4 was sort of beating, because this is attractive, in the sense that the operator will have to pay the cost for the clears the right. Because to clear the right for mobile is not free of charge. There is additional right to be cleared. And we are managed to do that with [a name of collecting society], which is collective agreement in Sweden, but for lots of channels it is not possible to do that... We are managed to these rights, but not going to the right owners, saying to have right to distribute on mobile device. Because 3G, it will be one right, 4G it will be another right. It would not surprise me if there would be a Hollywood lawyer say, “If you want (to distribute the content in) LTE, that would be 100 thousand dollar per hour”. So obviously, it is difficult today to understand what are we are really distributing and to what devices. Because a PC that is connected to wireless network is a mobile device, but we are have right for PC.Who are all the players involved For the other distributions, we are clear the right at the source (content owner). (But in mobile) we pay some of thewith TV4 in providing contents fee to [a name of collecting society in Sweden] for distribution, for rights that cannot be cleared. We are cannot clearon mobile broadband? it by our self. Rights that have been transferred by the owner to exclusive organizations. And the only organization that can negotiate with TV channel in Sweden is [a name of collecting society in Sweden], the collective agreement. So there are small additional rights. So in order to distribute TV in Sweden you always have to have agreement both with the right owner of the content, but you also need the [a name of collecting society in Sweden] agreement, if you are Swedish channel, at least. TV4 has decided to take that cost for [a name of collecting society in Sweden], but normally it should be the distributor as well. Distributor should be paid in redistribution of the content. But we are paying [a name of collecting society in Sweden], and we are re-charging the operators for this cost, of course. Although they do not like that. And for technical standpoint, we are have changed the distribution. In that sense that, I think in the beginning when TV4 took mobile distribution, they made specific mobile fees for the operators. Then we are said, “If you want to distribute the channels in your mobile network, you have to do what all the other operators are doing, take that by satellite. So there is no specific mobile feed going out from TV 4 in that sense”. So they receipt the channel by satellite, encode them and decode them by them-self. So it is different There is another thing I was thinking, if you looking at the specific of TV4 which is very challenging when comes to mobile distribution, is that fact that... you may now TV4 has 30 regions, with local advertising in 25 of them... Actually it is 25 editions, with 30 advertising region. So we are get regional advertising, mixed with the national advertising all over Sweden. And local advertising is very profitable for TV4 and it is growing business. The local advertising market for TV is huge in Sweden. Where the only competitor in term of local advertising today is the XVIII!
  • 81. local newspaper or local direct mailing, and so on. And if you look at TV4, how do you manage that on mobile distribution? To get which feed should be received depending on where you are in the mobile network… You have to distribute 30 versions (of local advertising) in the network. In mobile it is not done yet, you could do it. You have Telias network, 3s network, Telenors network, and they each have to carry 30 versions of TV4, and if they want the HD version, it would be another 30 versions, and then you have other channel, that is called TV4 plus... it is also 30 versions. And that are a lot of version of TV need to be distributed in the network... In term of mobile broadband distribution, I do not know how they manage that. Because, as TV4, we are do not have to replace that. It is (local advertising) considered more valuable, more expensive, and more (delivery) times... At the end, individual advertising that is requested by individual viewer is much more valuable than group, but we are so far from that kind of individual distribution of TV, still. That might be happening in 20 years. So there are a lot of technological issues to be though. So this is why TV4 is not pushing greatly in term of mobile distribution. There are actually a lot of TV channels... that have regionalized versions; they are facing the same (unsolved) problem.What supporting systems and Measuring who is watching, that is really needed. Currently, a lot of distribution (channels) is by the operator. Sosupporting business roles are obviously the operators are not so happy with TV4 extending beyond their managed network, going over the top…needed in TV4’s mobile TV And TV4 play premium that exist in Sweden, where TV4 builds its own customer is huge threat for the operator.business? They obviously want that content in their own network, in label [a name operator in Sweden]. They said, "We are can have TV4 corner, but it has to be (under) [a name of operator in Sweden]". We said, "Listen, if that is in your platform, we are do not get any of the advertising... I mean we are talking PC distribution" (digital online distribution in fixed broadband). It needs to be played in our service, so can calculate on the advertising that we are have in free channels and we are can have billing relationship directly with the customer". I mean, "You could build for us if you want to, but still they still have to get access to TV4 by their own, not within you services". If you look at on the mobile distribution, where is the advertisement land really? I mean how can you monazite it. The advertising you see here, it could be the same as in the traditional TV, the 6 minutes break or you could take the web stream. But then how do you calculate that one? The huge challenge for TV channels today is to be able to add all these viewing together in the same measurement system. Obviously, one the question of having it (TV program) as an app (OTT application) on [a name of internet players application store] is, TV4 does not want to give 30-40% to [a name of internet players application store]. So do not want to share your revenue to some one who does not really bring value in that sense. So that is obviously one of the reasons (to not launching channel as application), but I think you can go to browser, by logging to TV4 play premium. So that would be mobile web stream, not mobile (application stream). And in the mobile packet we are still do not resolve the issue of advertising. For TV, I do not think it is valuable (to add banner in display while viewer watching the content), I think that XIX!
  • 82. would be disturbing in that sense. I also think there is a problem on the rule of what you can do with the video, in term of overlies on the screen, when you buy the content from the content providers. There are very strict regulations on what you can do with the TV content. You cannot do overlies; you cannot be allowed to do a lot of things to be on the screen. It could possibly, you can reduce the screen, but the think is that how you manage that, how do you monetizing that from technical point of view. There are already today on the PC, if you look at [a name of TV channel in PC] they have some extra (banner). Probably you can do that as we arell on mobile TV, but you cannot allow the operator to take signal on satellite. Then you have to manage kind of signal sent out from TV4 connected in different way. Today, if you look at mobile TV reception it is not a manage signal in that sense. And yes (you do not have that much screen to work on mobile), the think is that contrary to Spotify, here you actually watching the screen, and in there (Spotify) you are listening.If TV4 operates in the emerging I think it would be really important... I would understand, that maybe you will leap some of the distribution channelsmarket countries (e.g. China, that we are have in Europe, and you will go probably direct to the mobile, rather than set up box and traditional houseIndia, and Indonesia), what do hold viewing. You will maybe go faster. I suppose the VOD and streaming services will be much more important inyou think about the VoD and the emerging markets... because you really need to be able to provide a full service in mobile network in a differentstreaming service options? way. I am seeing in the countries, for example France, where you go straight to IP TV, they have been very much• As content owner, what advance in mobile TV and multi screens solutions, much more than what are currently available in Sweden, which isstrategies are TV4 using to much more traditional cable market, or Holland, or Germany.address the piracy problem from I think people do not get use to pay for content. The whole TV business is actually people paying for technicalInternet? access. That is what the cable operator has been selling, not the content. So you get paid for (providing) technical access to something. There is no worse market for cable operator in term of content. When you look at the telecom operator today is that they do not charge the right thing for the video today. There is a huge problem. When I was at TV4, we were having some scary discussion for [a name of operator in Sweden], about who will pay for the content distribution in the network. And they said, "You have to pay as TV channel, because you want to get your content out to the viewer". And I was saying, "No way, we are not will pay, why we are have to pay? You are the once who have to charge, the customers are willing to pay, they want to pay for the content. You have to make sure they get the content, and you have to find the right business model. And you have to continue paying us, we are will not pay you for this". But the problem is that, TV channel may not as strong in the future, because there is propitiation in the content (distribution). They are filling threaten in the traditional value chain, when content aggregators and distributors, and devices (manufactures) take that video value chain, there are too many people are jumping from aggregators, and jumping from distributors and go the end customers, and so on. So TV channel may feel threaten, not feeling so secure when negotiates this deal. XX!
  • 83. Table 27. Interview with Jockie Heruseon43 Question Answer Worldwide market now sees change in the revenue He confirmed the revenue generation from the music business is occupied by the structure of the digital music. The revenue from access- personalized-service (mainly ring-back tone). Telkomsel does not see any prominent OTT based service (e.g. on-demand / radio streaming) slowly music/video service (like neflix in north America market, or Spotify in Europe), thus their chases the revenue from ownership-based (e.g. DRM/free deliver own music service brand called Langit Musik (Service model: DRM à-la-carte). While Indonesia is one of the few WEB/WAB/SMS/UMB, RBT activation, wallpaper etc and download based DRM-protected. markets that still see the revenue from digital music Revenue model: purchasing, e.g. unlimited download / week, paid through customers mobile market is occupied by personalized-based service (mainly account (mobile pulsa, tcash). Even tough Telkomsel campaigns for unlimited download, RBT), which is 95 %. In term of demand, supply, and they are actually trolling the speed, and the regulator does not regulate this. policy enforcement, why do you think this happen? Seeing the performance of revenue generation from He was not sure the streaming-core service is provable business model yet in the near future, download service and weak law enforcement for digital as the minimal law enforcement becomes significant barrier for any players to monetize piracy protection in the country, do you see the streaming- music trough this channel. Thus, there is very low focus to provide the download- based music service, especially in the mobile broadband core/streaming-core service, so that the players mainly bundled the service trough their market, can take off in Indonesia compare to download- personalized-core service channel. However, he agreed there is a need to have clear picture of based music service? the demand-side through customer survey, specific to measure technology acceptance for media service (music/video streaming/download) on mobile broadband. There is consistent pattern in the competitive strategy that Telkomsels revenue from providing the content from music personalized-service / RBT the operators worldwide take, to positioning themselves in (VAS) still cover the overall cost to provide the service / content to the market. the digital music market business: rolling out their own music service (point-to-point partnership with music industry), or collaborating with the OTT player (point-to- multipoint partnership). We identify a trend that, the operators those previously went to direct-partnership struggle to make its service sustainable, and then switch to point-to-multipoint. And Telkomsel is currently running!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!43 Information is based on the note made during the interview, not recording XXI!
  • 84. its own service music called “Langit Musik” andconsidering the fact that only 5.5. % Telkomsel’s revenuecomes from digital music. What is your view about thisstrategy in the cost vs. benefit point of view?Who are the other actors involved with Telkomsel in In personalization service, Telkomsel handles the marketing and branding, as well as productrolling out “Langit Musik” and “Lipstic TV”? And what is platform development and maintenance for their music service. However, the contentsthe revenue sharing model that Telkomsel currently uses licensing for merchandizing is handled by the local content providers partners, meanswith these involved actors? Telkomsel does not deal directly with the music industry actors for that.In line with the mobile broadband development across the Although Telkomsel built their own brand for the music content delivery, they have initiatedcountry, how does or will Telkomsel position itself to the partnership with the OTT players for other service and have revenue sharing for that (e.g.address local / global OTT TV/Video player? VoIP with Skype, IM messenger with Nimbuzz). He agreed Indonesians have much more tendency to open for the trend from International media (compare to South Korean, China, and India market where local music/video contents are so popular). In addition, in order to react on the possibility of the international media OTT players penetrate Indonesia, He said: Telkomsel might choose to partnering or competing, this positioning decision might chance trough time and kind of service, depend on the OTT popularity in the market, etc.We identify that these operators use digital music channel, Jockie’s assessment for mobile broadband is that, Indonesias market still has huge perceivenot directly to increase ARPU from data-service from to the data as access. The market mainly competes based on those values (mainly speed,music service, but to differentiate themselves by coverage, and price) and the price sensitivity is high and competitive. Regarding surveydelivering it trough unique bundling offering strategy mentioned in [1] about Indonesian user willingness to pay more for better speed and service,using point-to-multipoint partnership with OTT, that at the Telkomsel also recently did small survey to their customer, and assess the differences on theend to decrease churn, increase blended ARPU, and preference on the segments below:acquire more market share. Do you see this strategy apply - Teenager / high school student segment, prefer network (e.g. 3G coverage) then priceto Indonesia’s market? - Colleague student segment, prefers price then network (e.g. 3G coverage) - Professional segment prefers speed and willing to pay more. He argue the research reported there was decreasing trend in their blended ARPU [2]. However, He does not able to reveal detail information of how much exactly their blended ARPUs, nor the specific data ARPU. XXII!
  • 85. Table 28. Interview with Yose Tireza Arizal44 Question Answer Do you think media services delivered on top of mobile AXISs strategies are mainly focus to increase ARPU and then market share, and does not broadband would have significant value for you as MNO, care so much about decreasing churn rate (AXIS’s blended avg. churn rate was about 15%.) either to gain market share, increase ARPU or reduce churn rate, etc? Media services that have been launched in order to Axis does not offer streaming service yet, both for music and video. AXIS built own brand monetizing mobile broadband pipe? for the media content delivery and centralized it trough online channel in http://net.axisworld.co.id/. This channel is delivered in WEB-based and WAP-based, mainly for RBT activation (music content) [3]. AXIS handles the marketing and branding, as well as product platform development and maintenance for this service. There are local partners (content provider) that handle the licensing deal with record label. Indonesia is one of the few markets that still see that As same as what has been told by Jockie from TELKOMSEL, He was not sure nor the revenue from digital music market is occupied by download and streaming-core service is provable business model yet in the near future. personalized-based service (mainly RBT), which is 95 %. Obstacles: - In term of demand, supply, and policy enforcement, why • Piracy issues: Minimal law enforcement becomes significant barrier for any players to do you think this happen? monetize music trough these channels, as it offer the easiest and cheapest way to get - Drivers and obstacles in delivering digital music service access to media contents (music, video, game, etc). Thus, the players, including AXIS in Indonesia’s mobile market, using streaming / mainly bundled the service trough their personalized-core service. download-based service models? • Limited bandwidth and poor quality: although AXIS has roll out their mobile - Do you see the streaming-based music service would broadband, the availability of bandwidth is not suitable for their network. take off in Indonesia compare to download-based music Personalized-core service offers the easiest and cheapest delivery channel. service, in term of demand side analysis point of view? Driver: The booming of young generation, middle-income and large usage of social medias that is currently happening in Indonesia is significant factor to raise the needs for entertainment segment. However, it is not enough to be driver to the download / streaming-based business, even if it is connected trough social media channel, due to the obstacle points above. The law enforcement is the first aspect that could drive this kind of business.!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!44 Information is based on the note made during the interview, not recording XXIII!
  • 86. There is consistent pattern in the competitive strategy, that As same as worldwide market, AXISs VAS revenue is small if compare to overall revenue.the MNO worldwide take one of the positioning strategies However, the cost to offer media service (e.g. content licensing) in Indonesia is also small,below for the digital music services market business: and the MNOs are currently have significant bargaining position toward the mediarolling out their own music service (point-to-point monetization (especially music over the record label), as result of low law enforcement inpartnership with music/broadcasting industry), or piracy. Thus, there is no urgent need to partnership with the OTT player. For revenue sharingpartnership with the music service provider / OTT player from the media service offering (mainly RBT activation): The price for RBT subscription is(point-to-multipoint partnership). What is your view about around 6000 IDR, which is 50% is for AXIS, and then other 50% is divided between recordeach of these strategies in the cost vs. benefit point of label and content provider.view?We identify that the MNOs in Europe offer digital media AXIS differentiates itself trough price offering, not mainly trough the service quality,service not directly to increase data ARPU (especially especially from the media services. He does not think the bandwidth (and quality) offeringfrom music) but to differentiate themselves, that at the end would be significant value for customer in Indonesia in the current situation. Also, the priceto decrease churn rate, increase blended ARPU and war in Indonesia is beneficial for them, especially to play in the low-segment customeracquire more market share. (AXIS ARPU is around 8 SEK, compare Indonesias avg. ARPU 40 SEK). Also, there is • Do you see that strategy would apply to Indonesia’s currently minimum tariff regulation from government, except for interconnection fee. AXIS market? is one of the challengers MNOs who previously gained advantage from free SMS offering. • How does AXIS differentiate itself when entering There was ‘sender keep all’ for SMS interconnection fee that is just changed to 25 IDR music and video business, considering the fact the interconnection fees to SMS-receiving MNO). other MNOs in the market are also delivering the same type business model (e.g. music delivery trough RBT activation and/or download-based service) •Do you think the MNO network capabilities e.g. billing, Billing, traffic and user management, etc are already as major values for AXIS in the currenttraffic and user management, are be the major value in situation, especially when dealing with the music industry. Considering the bandwidthdelivering digital music and video service? And how does availability in Indonesia, AXIS does not see OTT music / video players are significant threador will AXIS position itself to address local / global OTT yet in the near future, tough the top 10 traffic in Indonesia is dominated by global websites.Music and OTT TV/Video player? XXIV!
  • 87. Table 29. Interview with Didik Akhmadi Usman45 Question Answer Law enforcement The GOI has handled this piracy issue it in ITE act, but there is no further government There is currently high digital media piracy in Indonesia, regulation as a follow up for this issue. It is still under process now. e.g. the business value of the physical piracy in the music industry itself reached 2x legal market, as result of low law enforcement. As recently government orders ISPs to start anti-porn filtering and in line with the broadband development across the country, Does this enforcement also happen for media piracy, including the illegal peer-to-peer,? Is there any rule that require the Communication Service Provider (CSP) to intercept the communication data on behalf of government request for such that purpose, e.g. like IPRED act in Sweden? Licensing vs. Internet service provision Didik does not really have a complete knowledge about this. However, as example, there was Is the online digital multimedia contents provisioned a problem previously about the spam in premium SMS activation. Now it is still waiting for subjected to licensing requirements for broadcasting? If new ministry regulation, which is still under process to make it more detail. The regulation yes, how does it work, is that in the broadcasting or for media provisioning in internet might be included in this regulation as well, but he does telecommunication regulation? not have information yet. The supervision of the online services rolled out by mobile content provider might be under BRTI, instead of KPI. Mobile Broadband Pricing Didik believes that the price would be good if the competition in the market is healthy. Indonesia is also among the countries where the However, in his experience in KPPU, he have penalized and markdown of price, because broadband price is the cheapest in the world. there have been excessive pricing in voice and messaging (cartel), as there are two operator in How does BRTI currently regulate the pricing for the data Indonesia are owned by two companies with a same holding company. Therefore, KPPU access mobile broadband offered by the MNO? decided to markdown the price, in order to protect customer, which was calculated to have caused loss during 4 years. As sectored, there is no regulation for pricing yet, including for!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!45 Information is based on the note made during the interview and transcript from recording (translated from Bahasa to English) XXV!
  • 88. broadband. However, he agreed that there should be ex-ante and ex-post regulation, in both BRTI and KPPU, for this. Content and Advertising Didik said that it would be regulated in the new ministry regulation, which is still in the What kind of regulations in the media contents and drafting process advertisings that is provisioned in online multimedia services, especially mobile communication? Ownership restriction Didik believes the provisioning of cloud services should be regulated, concerning the taxation There is a policy that the establishment of private issue as well. However, he believed, as a regulator (in Indonesia), they should create broadcaster in Indonesia is limited to domestic, 100 % regulation that includes licensing as well as market regulation. What they are doing would initial domestic capital, and for development purpose affect the number of actors in the market. Now he said that they have to calculate who the there is max 20 % of the total capital. actors are, but he was not sure whether the new players (OTT) have been considered or not, How that will affect the international-based OTT in this draft regulation. Nevertheless, in business perspective, he have been aware that there multimedia player (TV/Video on Demand, Radio/Music are many players come from many directions in the market already. He thinks that they have on Demand streaming) in order to roll out their service in to regulate this as a competitive market based. In the telecom industry, there are many Indonesia? players, and they cannot just use articles in the competition act that is related with (abusing of) dominance position, but the analysis would be related to the conduct of fair business provisioning. Therefore, it is rather to market behavior analysis rather than market structure. Table 30. Interview with Hengky Philip Ginting46 Question Answer Who are the actors and a. MNOs in Indonesia mainly deal directly with the Record labels regarding usage of publishing royalty for monetizing music their relation in content (download/streaming, personalized service: e.g. RBT/Ringtone activation, etc). The roles of content provisioning mobile aggregator/collecting society/ publisher in this business model are minimum or bypassed. It means they use "multiple- digital music business in rights"/blanket agreement and direct partnership. Indonesia? b. Mobile Content providers (CP) business areas in Indonesia are mainly in monetizing merchandizes (non-music/video!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!46 Information is based on the note made during the interview, not recording XXVI!
  • 89. content, e.g. download wallpaper, premium SMS content subscription/quiz). There are few exceptions: • If there is any overseas CP partner that would like to distributes their content in Indonesia (e.g. bollywood song), but have no connection with the local MNO. In this case, the local CP bridge the deal, and take 10% from total revenue. • The local CP acts as content aggregator/service provider (rolling out their own download / streaming music service ), as what we commonly see in other markets, e.g. Jatis mobile with "kantong musik", etc. • The CP is also the Record label.What is revenue sharing a. Merchandizing & non-music contentmodel between them? Content Provider (CP) does not pay any licensing fee to the Record label for monetizing merchandizes, as the license for that content is hold by the CP. This CP works with MNO for delivery channel of these contents, e.g. via SMS, USSD/UMB (e.g. *xxx#), WAP, STK (SIM card), etc. The sharing are one of this 3 possibilities: • Gold (60% for CP – 40% for MNO) if the content could generate total revenue more than 100 million IDR/month. • Silver (50% for CP – 50% for MNO) if the content could generate total revenue 50-100m million IDR/month • Basic (40% for CP – 60% for MNO) if the content could generate total revenue less than 50 million IDR/month This performance is evaluated per 6 month, where the deal might chance following the evaluation result. b. Music contents The MNO directly set up deal with the Record label with Revenue sharing model 50-50 (after take out the cost), e.g. subscription fee 9.000 IDR/month, the MNO would take ~2000IDR for cost, then the rest 7000 IDR is split between MNO and Record LabelWhat do you think about Hengky thinks the streaming and download business model might take some more time to take off in Indonesia. Thedigital music download personalized services (RBT, Ringtone) is currently the cheapest and easiest way of delivery channel, due to the 3 reasons:and streaming service - the are huge prepaid customer base, - customer habit toward online media services is not ready yet, - The network capability (bandwidth availability and coverage that effect the service provisioning). XXVII!
  • 90. Appendix B – Mobile Network Operator in Indonesia Table 31. MNOs in Indonesia License Subscriber Principal Spectrum band) [28] MNO Brand Name Technology Type/Coverage (Million) Shareholder (MHz) • GSM-900, 7.5 MHz • DCS-1800, 22.5 MHz (un- contiguous 3 segments47: Cellular/National kartuHALO, Telkomsel Telkom, SingTel, GSM-based (GSM, GPRS, 1x7.5 MHz, 1x5 MHz, 1x10 (Operating since 104.2 simPATI, public EDGE, UMTS, HSPA) MHz) 1995) Kartu As • IMT-2000, 10 MHz (contiguous segments: 2x5 MHz) • GSM-900, 10 MHz • DCS-1800, 20 MHz (un- Cellular/National GSM-based (GSM, GPRS, contiguous segments: 1x5 Matrix, (Operating since EDGE, UMTS, HSPA) MHz, 1x10 MHz) Indosat Mentari, IM3 1995) 51.5 GOI, QTel, • IMT-2000, 10 MHz public (contiguous segments, 2x5 MHz) FWA/National CDMA based (CDMA (Operating since StarOne CDMA-850, 2.26 MHz 2000-1x, EV-DO Rev 0) 2004) Cellular/National • GSM-900, 7.5 MHz XL Axiata (Operating since Axiata, Etisalat, 43.4 XL • DCS-1800, 7.5 MHz 1996) public GSM-based (GSM, GPRS, • IMT-2000, 5 MHz EDGE, UMTS, HSPA) Hutchison CPT Cellular/National Hutchison, CP • DCS-1800, 10 MHz 19.5 3 (Operating since Group Indonesia • IMT-2000, 5 MHz!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!47 Non-contiguous means the segment is not contiguous and split for several blocks and/or with different size. XXVIII!
  • 91. 2004)Axis Telekom Cellular/National Saudi Telekom, GSM-based (GSM, GPRS, • DCS-1800, 15 MHz Indonesia (Operating since 16 Maxis Axis EDGE, UMTS) • IMT-2000, 5 MHz 2004) communication FWA/Limited Telkom (Operating since 16.8 GOI, public Telkom Flexi CDMA-850, 4.92 MHz 2002) FWA/Limited Bakrie CDMA based (CDMA (Operating since 14.4 Bakrie group Esia CDMA-850, 4.92 MHz Telecom 2000-1x, EV-DO Rev B) 2003) Cellular/National Smartfren • CDMA-850, 4.92 MHz (Operating since 10.6 Smart, Mobile-8 Smartfren Telecom • CDMA-1900, 6.15 MHz 2007) Sampoerna Cellular/National CDMA based (CDMATelecomunikasi (Operating since 0.5 Sampoerrna Ceria CDMA 450, 3.69 MHz 2000-1x, EV-DO Rev A) Indonesia 2004) XXIX!
  • 92. Appendix C - Quantitative Survey C.1. Summary of the Hypotheses and Questions Table 32. Hypothesis and variable Hypothesis Variable Explanation of variable - Q1 Question 1: Identification of the respondents’ age - Q2 Question 2: Identification of the respondents’ genderH1 - Indonesian users have already Q3 Question 3: Identification of mobile deviceused the mobile internet ownership Q4 Question 4: Identification of mobile device usage to connect to the internet Q5 Question 5: Identification if mobile device is respondents’ primary access to the InternetH2 - Indonesian mobile users Q6 Question 6: Identification of Internet services thatare not exposed to the mobile respondent has ever used through mobile devicemedia services yet Q7 Question 7: Identification of how often does the respondent use uses the services Q8 Question 8: Identification of how long does respondent uses the services for each usageH3 - Indonesian users have a Q10 Question 10: Respondent’s believe that s/he will usepositive intention to use the mobile or keep using the servicesmedia services Q13 Question 13: Respondent’s believe that s/he will have or keep having the services application in their mobile device Q17 Question 17: Respondent’s believe that if s/he has opportunity to use the services for free, s/he will use or keep using itH4 - Indonesian users do have a Q9 Question 9: Respondent’s believe that s/he wouldnegative intention to pay for the like to pay in order to use or keep using the servicesmobile media servicesH5 - Indonesian users have a Q11 Question 11: Respondent’s believe that the servicespositive attitude toward the mobile will save his/her money rather than buyingmedia services rather than the CD/DVD/other physical format of music and videophysical products Q15 Question 15: Respondent’s believe that the services are useful and fun to use rather than buying physical products Q18 Question 18: Respondent’s believe that the services are complicated to use Q20 Question 20: Respondent’s believe that using the services will save his/her time rather than using CD/DVD/other physical of music and videoH6 - Indonesian users have a Q12 Question 12: Respondent’s believe that his/herperception that the mobile network MNO’s network capability does not support toand billing are a major obstacle for accesses the servicesthem to use the mobile media Q19 Question 19: Respondent’s believe that s/he will payservices a lot for mobile billing account to access the servicesH7 - Indonesian users have a Q21 Question 21: Respondent’s believe that his/herperception that the mobile devices mobile phone supports the use of the servicesare a major obstacle to use the Q23 Question 23: Respondent’s believe that s/he canmobile media services afford to buy a mobile phone that supports these servicesH8 - Indonesian users get Q16 Question 16: Respondent’s believe that there are or XXX!
  • 93. significant influences from their Q16 will be people in Indonesia using the servicessocial environment to use the Q22 Question 22: Respondent’s believe that s/he wouldmobile media services get or will get a positive attention from his/her friends because of using the services C.2. Summary of Results Figure 21. Question 1 result Figure 22. Question 2 result (Identification of the respondents’ age) (Identification of the respondents’ gender) Figure 23. Question 3 result Figure 24. Question 4 result (Identification of mobile device ownership) (Identification of mobile device usage to connect to the internet) Figure 25. Question 5 result Figure 26. Question 6 result(Identification if mobile device is respondents’ (Identification of Internet services that respondent primary access to the Internet) has ever used through mobile device) XXXI!
  • 94. Figure 27. Question 7 result Figure 28. Question 8 result(Identification of how often does the respondent use (Identification of how long does respondent uses the uses the services) services for each usage) Figure 29. Question 9 result Figure 30. Question 10 result(Respondent’s believe that s/he would like to pay in (Respondent’s believe that s/he will use or keep order to use or keep using the services) using the services) Figure 31. Question 11 result Figure 32. Question 12 result (Respondent’s believe that the services will save (Respondent’s believe that his/her MNO’s network his/her money rather than buying CD/DVD/other capability does not support to accesses the services) physical format of music and video) XXXII!
  • 95. Figure 33. Question 13 result Figure 34. Question 15 result(Respondent’s believe that s/he will have or keep (Respondent’s believe that the services are useful having the services application in their mobile and fun to use rather than buying physical products) device) Figure 35. Question 16 result Figure 36. Question 17 result (Respondent’s believe that there are or will be (Respondent’s believe that if s/he has opportunity to people in Indonesia using the services) use the services for free, s/he will use or keep using it) Figure 37. Question 18 result Figure 38. Question 19 result (Respondent’s believe that the services are (Respondent’s believe that s/he will pay a lot for complicated to use) mobile billing account to access the services) XXXIII!
  • 96. Figure 39. Question 20 result Figure 40. Question 21 result (Respondent’s believe that using the services will (Respondent’s believe that his/her mobile phone save his/her time rather than using CD/DVD/other supports the use of the services) physical of music and video) Figure 41. Question 22 result Figure 42. Question 23 result(Respondent’s believe that s/he would get or will get (Respondent’s believe that s/he can afford to buy a a positive attention from his/her friends because of mobile phone that supports these services using the services) XXXIV!