Yahoo-Kimo made an emergency announcement yesterday to officially end its online music store on March 27 and KKBOX, another gigantic online music provider in Taiwan will offer online music to its members of Yahoo-Kimo Music beginning. The news reports are here, here and here. The reason of Yahoo-Kimo Music’s shutdown? “The termination of Yahoo-Kimo Music store is actually an adjustment of our operation strategy,” said Dennis Yang, director of Yahoo-Kimo’s entertainment business service.

Let’s reflect and review the past, 2003 – 2006:

• Battle against music piracy heats up in Taiwan – In 2003, the digital scene in Taiwan were essentially dominated for SEVERAL YEARS by two P2P file swapping services, Kuro and EzPeer. Kuro and EzPeer were offering users unlimited downloads of MP3 files for NT$99 and NT$100 per month respectively. Although both Kuro and EzPeer were both deemed illegal, each service had hundreds of thousands of users (rumoured to be over 800,000 subscribers), and their combined revenue was expected to hit NT$960 million in 2003!!! Yes, you read that right, NT$960 million = over USD$30 million. Because both EzPeer and Kuro do not have licensing agreements with the music labels providing the content, the recording industry waged a legal battle (the usual tactics, how comforting!). In a nut shell, both highly successful P2P music services were shutdown/suspended/re-launched a legal service, only to be shutdown soon after. There is clearly money to be made out of music in Taiwan, but it is either a non co-operative attitude by the recording industry (revenue share demands perhaps?) or the complexities of licensing music (recording versus publishing rights) or perhaps the pricing was not right for the Taiwanese end user. Pick one.

• In March 2006, was the birth of Yahoo-Kimo Music and Yahoo-Kimo Music quickly established itself in the Taiwanese market as one of the big four. And the success of Yahoo-Kimo Music was inevitable and predicted. Yahoo-Kimo Music had the ability to attract members – - 8 million subscribers for all Yahoo services – who also pay a monthly fee of over NT$150 (US$4.6), derives primarily from other popular Yahoo-Kimo Web sites, such those for its auction, family, messenger and mail services. Interaction between its members means that the company can rely on word-of-mouth recommendations and, unlike KKBOX, needs no additional commercial advertising. Sounds promising and I do not doubt the quality of the reason…It was taken out from Taiwan Journal run by the Government Information Office of the Republic of China (Taiwan) and the report entitled Paying the piper for tunes downloaded was published by Allen Hsu on 21 July 2006.

• According to a recent report by the International Intellectual Property Alliance’s, and the report entitled 2007 Special 301 Report Taiwan recommended that Taiwan should remain on the Watch List with an Out-of Cycle review to monitor (and ensure) prompt passage of P2P and ISP legislation and continued aggressive enforcement actions against Internet piracy and photocopying of academic materials. Over the years of 2002 – 2006, the losses suffered by the industry of records & music in Taiwan (what BS!) fell from USD$99 million in 2002 to USD$16 million in 2006. And on a positive note, “Despite the difficult state of Internet piracy, however, the legal Internet music market has started to boom with the new clarity on liability”. So good news for legal Internet music market, bad guys getting sued, and the market potential is there (people are paying, aren’t they?).

Fast forward a mere one year, TAIWAN: Yahoo-Kimo Inc to abandon its music download business. Yahoo-Kimo Music started on a HIGH with reports suggesting that Yahoo-Kimo Music had over 500,000 members when it offered free trial of the service in the first month of its operation. But after it started to charge members, less than 3 percent, or 18,000 people registered for the service. The news report can be found here.

Yahoo-Kimo Music had more than 200,000 songs stored in its music store, ranging from mainstream pop songs, to music videos, to classical music. Members pay NT$149 (USD$30) per month for the music service. Fair enough, members were already paying up to NT$100 five years ago for Kuro and EzPeer, surely it cannot be the money issue.

Let me speculate on the reasons:

• i) The high cost: reports say that online music providers have to pay NT$50 million to NT$60 million (just shy of USD$2 million) to record companies for upfront licensing fees every year. Is this per record company or is this a general average total upfront fees made payable to record companies per year? Have the publishing companies been taken into account? What about the revenue share of retail price allocated to the record companies? To draw an immediate comparison, it is said that Apple’s iTunes pays up to 70% of its retail price to the record companies. Don’t forget, the important operation costs and marketing costs. So the REAL revenues, Yahoo-Kimo Music can only rely on advertising revenues.

• ii) The complexity of gaining and ensuring the interests of copyright holders, this is a well recognized problem and will not be elaborated in this entry. The recording and publishing industry really should concentrate on this area.

• iii) Again another well published problem and my pet favourite, the Digital Rights Management (affectionately known as DRM) technology. Although, the industry has long strived for more inter-operatability, but DRM will and can never compete with MP3. This is not only a fact but God’s truth. Why should consumers pay hard cash for a product (music) for restrictions on usage? Music consumers have shown willingness to pay for music,e.g. Kuro and EzPeer in Taiwan and more recently, AllofMP3.com.

Although this news hasn’t gained much exposure, I really believe this will prove to be one of the most disappointing news of the year for all… recording companies, publishing companies, technology solution vendors, and digital retailers alike!! I just pray and hope that everyone learns from this! Money is there to be made, but CONSUMER is KING, and DISTRIBUTOR is the NECK. In the end, Yahoo-Kimo Music must have felt this was not a feasible business or not worth its effort.