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									Starbucks Entertainment:
Global Delivery of Music

An International Music Strategy for Starbucks

                                              Sina Wohlfarth
Team A2                                     Christopher Berg
April 12th, 2008                             Johannes Preis
                                           Manuel Siekmann
Starbucks Entertainment: Global Delivery of Music

     Why? – Enhancing Customer Service and Generating Incremental Revenue

     Where? – Selecting the Right Target Countries

     How? – Design of Products and Choice of Technology

     Impact? – Potential Enhancement of Financials in the Next 5 Years

Starbucks Entertainment has the Potential to Effectively Complement and
Further Develop the Company‟s International Strategy
 What our Company Stands for

    The Starbucks Experience
    • At our core, we give our customers a unique coffee experience
    • We commit ourselves to making our stores welcoming and
      distinctive places – to being the ―third place‖ for our customers

         ―… beginning in 2007, we started to see customer traffic slow in our
         U.S. stores. This is disappointing and unacceptable, but I assure you
         that we are taking dramatic steps to address this and transform our
         business to ensure that Starbucks continues to be the ―third place‖ that
         our customers make part of their daily lives.‖
                                                     Howard Schultz, CEO and Chairman

                      Starbucks Entertainment offers significant potential to support the desired
                      international expansion by leveraging on the operations built up internationally
                      and the hitherto success of Starbucks Entertainment in the U.S.

               Source: Starbucks Fiscal 2007 Annual Report.
Starbuck„s Music Platform is Based on Four Elements Including the Recently
Launched own Record Label
 Starbucks Entertainment and Hear Music

                                                                                                    Music Channel on
                                                                                                    XM Satellite Radio
                 Hear Music
                                                               Hear Music

                                                                                                                      in cooperation with

                               In Store
                             Record Sales                                                    Hear Music
                                                                                            Record Label

                                                                              Current Artists:
                                                                              Paul McCartney | Joni Mitchell | Sia
                                                                              James Taylor | Low Stars | John Mellencamp

              Sources: Wolk (2008),‖Something's brewing: with Starbucks' overall business picture in transition, billboard pores over the coffee
                       company's entertainment play.‖; http://en.wikipedia.org/wiki/Hear_Music.
Apart From CDs, Customers will Increasingly be Able to Purchase Music Via
the new iTunes Wi-Fi Music Stores
 Hear Music: Record Label & In Store Record Sales

                   Starbucks and Concord launched the Hear Music label as a joint venture in 2007
                   Six albums have been released so far
   Record Label
    Hear Music

                   New concept of artist contracts with 360-degree deal:
                        Label gets a proportion of all of the artist‘s sources of income

                   Ratios of in-Starbucks to out-of-Starbucks sales vary
                         25%-30% in-Starbucks sales for an established artist
                         Higher for a brand-new artist since the initial exposure is coming through Starbucks

                     Starbuck‘s sells limited amount of titles with a price premium, either as a retailer
                      cooperating with different labels, or by selling albums from its own label
   Record Sales

                     Products: CDs, digital downloads, and ―iTunes album cards‖
     In Store

                                       2007: Partnership between Apple and Starbucks on iTunes Wi-Fi Music Stores
                                       When entering Starbucks, customers can automatically buy and download songs
                                        currently playing at Starbucks from iTunes via iPhones, iPod Touchs, or Notebooks and
                                        Starbuck‘s T-Mobile Hotspots
                                       All U.S. Starbucks stores are planned to be covered by end of 2009
                      Sources: Kirstein (2007), ―Brands as music moguls‖;
                               http://www.apple.com/pr/library/2007/09/05starbucks.html; http://en.wikipedia.org/wiki/Starbucks.
Hear Music can Affect Starbuck‟s Bottom Line Both Through Direct Sales and
Synergies Through Enhanced Customer Experience
 Impacts of Starbucks Entertainment on the Overall Performance

                                                                        Indirect Impact
    Direct Impact Through Music Sales                                   Through Enhanced Customer Experience

    Selling music directly to customers within                          Listening to music helps customers feel at home,
    Starbucks stores                                                    encourages them to stay longer and buy more
                                                                        coffee and food products.

              Impulse purchase revenue driver                                         Brand extension

       4.4 m CD sales in the U.S. last year                               Music can be varied tactically in each store
        (22% growth)                                                        (depending on the time of day and the store
       Originally offered 5-20 CDs over the year;                          location)
        now, 20 CDs at a time                                              Mainly unique non-mainstream music is
       Sales of a CD at Starbucks over 6 weeks                             selected which is highly appreciated by
        typically accounts for 5-10% of the album‗s                         customers
        overall sales                                                      New music can be accessed easily

                                               Bottom line is affected via…
                                    … new sales through music
                                    … additional core business sales through synergies
                                     (spread of fixed costs)
                Sources:   Leeds (2008), ―Does This Latte Have a Funny Mainstream Taste to You?‖
                           Kirstein (2007), ―Brands as music moguls‖.
Starbucks Entertainment‟s Success Builds on Both Starbuck‟s Strong Brand
and Network as well as the Ailing Music Industry
 SWOT Analysis of Starbucks Entertainment

         STRENGTHS                                                                         WEAKNESSES
     Leverage on the global Starbucks brand                Issues regarding the growth strategy
         Recognized as one of the ―100 Most Valuable            Shift to more mainstream music in order to

          Global Brands‖ by BusinessWeek
     Extensive retail network of Starbucks with loyal

         Including world‘s largest Wi-Fi network
     Competencies in marketing and innovation
     Ability to encourage high rates of impulsory buys
                                                                  increase sales volumes imposes adverse
                                                                  customer impacts
                                                                 Limits on growth due to restriction to support
                                                                  function  W
                                                                  ―We don't want Starbucks to become a music
                                                                  store. We want Starbucks to sell the highest-
                                                                  quality music within the environment of being the
                                                                  world's finest coffee purveyor.‖ H.Schulz, CEO

         OPPORTUNITIES                                                                            THREATS

     Fundamental changes in the music industry             Technological changes and unforeseen
                                                             developments in the music industry

                       O                                                       T
         Digital music and piracy disrupting revenue of
          traditional labels                                     Lower margin in digital contents require higher
         Own label with innovative concept including             volumes
          royalty sharing, distribution etc.                     Piracy issues
     Strong partnership with Apple                         Potential competitors in the retail sector

Starbucks Entertainment: Global Delivery of Music

     Why? – Enhancing Customer Service and Generating Incremental Revenue

     Where? – Selecting the Right Target Countries

     How? – Design of Products and Choice of Technology

     Impact? – Potential Enhancement of Financials in the Next 5 Years

Distinct Success Factors for an International Expansion Have Been Identified
Which can be Measured by Key Performance Indicators
 Criteria for Country Selection

                                  Critical Success Factors
    Success Factors in the US     for Country Selection      Key Performance Indicators

      Well-established brand                                Necessary conditions
                                     Presence of brand       Total number of stores
      Extensive retail network      Maturity of brand       Length of presence in the country
                                     Awareness of brand      Number of stores per capita
      Sophisticated marketing
       competence                                             Public recognition through awards

      Broad and loyal                                       Sufficient conditions
       customer base                 Music revenue           Music industry sales per capita
      Music industry situation                               Piracy rate
                                     Opportunity to reap
       offers demand for              music potential         Total taxes on music
       innovative music sales                                 Coffee consumption per capita

Starting Point: All 41 Potential Countries Considered
 Country Selection: Starting Point

Step I: Creating Long List by excluding countries with neglectable number of
stores (23 countries remaining)
 Country Selection: Step I

    Excluded: Lebanon | Qatar | Bahrain | Austria | Oman | Puerto Rico | Peru | Chile | Cyprus | Jordan | Bahamas | Ireland |
    Brazil | Egypt | Romania | Denmark | Netherlands | Czech Republic

Step II: Creating Short List by excluding countries with low maturity index
(presence, maturity, and awareness of brand; 5 countries remaining)
 Country Selection: Step II

    Excluded: Switzerland | France | Singapore | New Zealand | United Arab Emirates | Kuwait | Indonesia | Saudi Arabia |
    Greece | Spain | Turkey | Australia | Malaysia | Thailand | Germany | Philippines | Mexico | China

Step III: Selecting target countries out of short list by evaluating music
revenue potential and opportunities to reap this potential
 Country Selection: Step III

    Candidates: Canada | UK | Japan | Taiwan | South Korea

UK and Japan are Identified as the Most Appropriate Countries for the
Starbucks Entertainment Expansion
 Country selection: Short List and Final Selection

                         Especially high affinity to music
                         Mature country with good store penetration

                         Starbucks‘s most experienced country outside the U.S.
                         Technologically sophisticated population

                         OECD identified Canada as having the highest per capita incidence                                Canada
                          of online file-swapping
                         Estimated 65 unauthorized download for every legitimate download

                         Low willingness for music consumption
                         Small market with relatively low amount of stores

                         Lowest overall maturity ranking                                                                  S. Korea
                         Especially low store penetration

                Source: IFPI (2008), ―Music Market Data 2007‖; IFPI (2007), ―The Recording Industry 2006 Piracy Report‖.
Starbucks Entertainment: Global Delivery of Music

     Why? – Enhancing Customer Service and Generating Incremental Revenue

     Where? – Selecting the Right Target Countries

     How? – Design of Products and Choice of Technology

     Impact? – Potential Enhancement of Financials in the Next 5 Years

To Successfully Enter the UK and Japanese Markets, Distinct Market Entry
Strategies Have to be Developed
 Key Determinants for the Music Entertainment Strategies in UK and Japan

      1       Enhancement of Coffee Experience             2         Additional Profit Generation

                Correct degree of localization
          C           Mix of global, local, & micro           C
                                                                    Investment in the right medium: CD
          S            content                                 S     vs. digital media
          F     Correct selection of artists and genres       F    Choice of strategic partner with a
          s      to create an atmosphere that fits to          s     strong market presence
                 the Starbucks brand

               Foreign music sales of total sales
          K                                                    K    Investment in the right medium: CD
               Percentage of national/foreign artists               vs. digital media (online, mobile)
                within the year‘s Top 10 selling albums        P
          I                                                    I    Choice of strategic partner with a
          s    Existence of city specific music taste /       s     strong market presence
                local music scene

Market Entry Into UK With a Medium Level of Localization, the Focus on CD
Sales, and Apple as a Strategic Partner for Digital Content
 Market Entry Strategy for the United Kingdom

    Degree of localization                             Music Share
      Play local and global music with slightly
       more focus on national artists
      Apply micro-level strategy in selected areas      45%
       such as London                                                 55%
      possible mix of global and local music: 40:60
      Local expert for music selection required

    Technological medium
                                                           High willingness to
      Concentrate on providing music via CDs
                                                            pay for physical
      But: Also enter growing download market,                  media
       especially via online sales

    Strategic partners                                    Apple‘s market share:
      Extend the cooperation with Apple for the                  75%
                                                         (Benchmark USA: 88%)
       download business

Market Entry Into Japan Requires High Level of Localization, Focusing Only
on Mobile Sales Through a new Partnership That has to be Established
 Market Entry Strategy for Japan

    Degree of localization                                  Music Share
      Strong focus on local music mixed with well-                                   9 out of the top
       known global artists                                                             10 albums in
                                                            26%                       2006 came from
      Apply micro-level strategy in selected cities such
                                                                                       national artists
       as Tokyo & Yokohama
      Possible mix of global and local music: 20:80                74%
       (whereof up to 30% micro content)                                      National
      Local expert for music selection required                              Foreign

    Technological medium                                      Digital Sales      9%
                                                              Channels                              Mobile
      Concentrate only on digital media
      Focus on mobile sales                                                       91%

    Strategic partners
                                                                      Apple has no presence
      Establish new partnership with strong local                     in Japanese market
       mobile content retailer such as Label Mobile

Starbucks Entertainment: Global Delivery of Music

     Why? – Enhancing Customer Service and Generating Incremental Revenue

     Where? – Selecting the Right Target Countries

     How? – Design of Products and Choice of Technology

     Impact? – Potential Enhancement of Financials in the Next 5 Years

With the Help of an Assumption-Based Approach, We Derived P&L Forecasts
until 2012
 Analyzing Starbucks Entertainment in Japan and UK: Methodology for Calculations

                               Strong international growth and continued, yet slower US growth
                               Each international store assumed to make the same amount of sales
      Core Assumptions
                               Fixed prices for CDs, downloads etc. assumed (e.g., $15.99 for CD)
                               No CD sales and no label sales and Japan; CD and download sales in UK

                             First projections of US market development including coffee, CD, and download
      U.S. as Base Case       scenarios were determined
                             US market model was then applied to other markets by using market multipliers

                             Revenue generation through CD sales and music downloads in addition to
      Two-Way Benefit         traditional coffee sales
                             Sales increase by a certain synergy rate due to improved atmosphere

                                  Forecast of P&L data for Japan, UK, and USA
     Overall Model for 5-         Calculation of net income based on synergies and entertainment sales
        Year Period                   How does Starbucks Entertainment affect the bottom line?
                                      How much money can we expect to make?

Expected Effects on Total Net Income for Japan and UK Combined Will Slow
Down to 7% in 2012
 Five Year Forecast: Impact of Music Sales and Synergies on Total Net Income

  2007                                                2012
  Total Net Income (In m US$)                         Total Net Income (In m US$)

    27,8                   3,5               +12%        47,8                                      +7%
                0,2                                                              13,2


   without    Music    Synergies   Total                without    Music       Synergies   Total
   music      sales                                     music      sales

Thank You For Your Attention.

The Backup Slides are Geared to the Leading Questions…
 Backup Overview

           Why?                 Where?                  How?               Impact?

                           Criteria for Country
        Hear Music                                Key Determinants     Financial Analysis

    Performance Impact                                                   Key Financial
                               Steps I & II        Market Entry UK
     (Direct & Indirect)                                                   Findings

       SWOT of SB          Short List & Final
                                                  Market Entry Japan
       Entertainment          Selection

   Slides in

   Slides in

Starbucks Entertainment Appeals to Adult Persons Often Buying Impulsively
 Starbucks Entertainment Customer Profile

    The “Typical” Starbucks Entertainment Customer

    • Adult customers who have fallen out of the habit of buying
      music find it convenient to do so at Starbucks
    • People looking for a new and easy way of buying music
    • They do not want to hear mainstream only, but music
      beyond the top 40
    • Often, they are impulse buyers willing to pay a premium
    • Lastly, people who don‗t know where to find CDs              ―I want to come in and
      anymore, especially the right ones                           be surprised. If they do
                                                                   get more mainstream,
                                                                        why bother?‖

After Having Stepped in the Music Industry by Acquiring Hear Music in 1999...
 Facts About Hear Music I


                                                                                March 21, 2007:
                                                                                Sir Paul McCartney was
                  Starbucks purchased
                                                                                the first signed artists
                  Hear Music
                                  2005:                      March 12, 2007:             July 2007:
                                  Six-week exlusive retail   Launch of the Hear Music    Joni Mitchell was signed
    Hear Music began as
                                  partnership with Alanis    record label by Starbucks
    a catalog company
                                  Morissette                 and Concord Music Group


     Currently, Starbucks is one of the top 40 music-oriented retailers and has flourished selling music
     Its biggest success was Ray Charles' Grammy-winning ―Genius Loves Company‖, with total sales of 2.86
      million records; 25% of those were sold at Starbucks locations
     A string of other Starbucks co-releases and exclusives with various labels were launched

... Starbucks Launched its own Record Label together with Concord Music
Group in March 2007
 Facts About Hear Music II

    Record Label

     Starbucks and Concord launched the Hear Music label as a joint venture in 2007
     Six* albums have been released so far
           Paul McCartney's "Memory Almost Full‖ (with 500,000 units sold)
           Joni Mitchell's "Shine"
           James Taylor's "One Man Band‖
           Sia's "Some People Have Real Problems" (sold more than 20,000 copies in its first week)
           Kenny G's "Rhythm and Romance‖
           Hilary McRae‘s ―Through These Walls‖ (debut album, Hear Music's first new artist signing)
            (* released April 15th)
     Glen Barros (president/CEO of Starbucks' Hear Music partner Concord Music Group) says about Hear
      Music record label:
           "Look for eight to 12 releases this year, in multiple genres and with artists in various stages of their
            career. There are a few genres that probably don't make sense for what we're trying to do, but for
            the most part we're noting to limit ourselves.‖
           "It really is a joint venture - we work on most issues together. But if you want to divide up the labor,
            Starbucks takes a lead role in the A&R selection, and of course the merchandising and marketing
            within the Starbucks channel; we take a lead role in the operation, marketing and sales to channels
            outside of Starbucks."

360-Degree Deals as an Innovative Concept for Signing Artists
 360-Degree Deals at Hear Music Record Label

    360-Degree Deals

     All revenue streams go into one collective pot, label gets a proportion of all of the artist‘s sources of
     Sia's agreement with Hear Music is supposed to be a 360-degree deal
     Glen Barros, president/CEO of Starbucks' Hear Music partner Concord Music Group:
            "To carve up different revenue streams, you're getting Into a very complicated and thorny mess. It's
             a much easier thing to say, 'Look, we're investing in you as an artist, and so all of those revenue
             steams you're generating as an artist are going to go into one collective pot. You get X, we get Y,
             and maybe that changes over time depending on how things go, but well be the financing vehicle,
             we'll be the marketing a promotion vehicle, as music companies typically do, and we'll figure out
             how to share it.‗―
     Starbucks Entertainment president Ken Lombard:
            "The concept of 360, of a relationship With these artist, is a very cutting-edge approach. It's a big
             part of our ongoing discussions with virtually every artist that we try to sign."

With an Exclusive Music Partnership with Apple, Starbucks Enters the Digital
Music World
 Starbucks and Apple: The Wi-Fi Music Store

     On September 5, 2007, Apple and Starbucks announced an exclusive partnership that lets
      customers wirelessly browse, search for, preview, buy and download music from the iTunes Wi-Fi
      Music Store at Starbucks
     Customers with Apple iPhone or iPod Touch are primary targets; however, customers using
      Macbooks or even other notebooks with access to iTunes can make use of the new offer
     Building on the T-Mobile Hotspot network including 5,800 stores, customers are able to access the
      iTunes Music Store while staying at Starbucks regardless of being a T-Mobile Hotspot subscriber
      or not
     When entering Starbucks, a company logo appears automatically enabling the customer to buy
      and download the current as well as the last 10 songs playing
     With a promotional campaign in October and November 2007, 37 ―Songs of the Day‖ were given
      away for free via special download cards which could be redeemed on iTunes

                                                           Wi-Fi Music Store has launched in around 1,000 stores in Seattle, San
                                                            Francisco and New Yorkin October and November 2007
      ―We think this is very cool.‖                        Roll-outs at another 800 stores in Los Angeles and Chicago are planned
                  Steve Jobs, CEO Apple                     until summer 2008
                                                           According to Lombard, Wi-Fi Music Stores should be installed in most
                                                            American Starbucks by the end of 2009

                  Source: http://www.apple.com/pr/library/2007/09/05starbucks.html; http://en.wikipedia.org/wiki/Starbucks
Currently, 4 Hear Music Coffeehouses Exists in the U.S.
 Hear Music Coffeehouses

          Santa Monica, California
          San Antonio, Texas
          Miami, Florida
          Bellevue, Washington

              Source: http://www.hearmusic.com/#STORES
The Short List is Based on Brand Maturity, Brand Awareness, and Market
Presence, Measured by 4 Different Categories That are Ranked and Weighted
 Country Selection Process: Deriving a Short List of Five Countries

 Step 1: Reduction of candidates to 23
 countries                                                                      Step 2: Ranking of Brand Maturity, Brand Awareness, & Market Presence
  All smaller countries subsumed under                                    Number of     Years of     stores per      recognition    Maturity
   ―Others‖ in the AR are per se not                                         stores     experience 100,000 citizen through awards     Score       Ranking

                                                    USA (Benchmark)             10684          25          35.48              Yes            5
   developed enough to be selected
                                                    Canada                        830          10          24.86              Yes            5               1
 Step 2: Reduction of candidates to 5               Japan                         722          11           5.67              Yes          4.4               2
                                                    UK                            580           9           9.54              Yes          4.4               2
 countries                                          China                         353           8           0.27              Yes          2.9               7
  Countries are ranked in the categories (a)       South Korea
   Number of stores, (b) Years of experience, (c)   Mexico                        159           5           1.46              Yes          1.6              14
                                                    Philippines                   119          10           1.31              No           2.5              10
   Stores per 100,000 citizen, and (d) Public       Germany                       104           5           1.26              No           0.7              20
   recognition through awards                       Thailand                      103           9           1.58              No           2.2              13
  These categories are weighted as follows: (a)    Malaysia
   0.35, (b) 0.3, (c) 0.3, and (d) 0.05             Turkey                         82           4           1.15              No          0.35              21
  Each country is ranked in each category on a     Spain
   scale between 0-5; these are derived as          Saudi Arabia                   58           7           2.10              No          1.25              16
                                                    Indonesia                      58           5           0.25              No          0.35              21
   follows:                                         Kuwait                         49           8          19.56              No          2.75               8
         The 0.8 quantile represents 5 points      United Arab Emirates           47           7          10.58              Yes         2.35              12
                                                    New Zealand                    45           9          10.93              No           2.7               9
          (e.g. 80% of the 23 countries have 213    Singapore                      45          11           9.88              No             3               6
          stores or less)                           France                         37           3           0.58              Yes         0.25              23
         The 0.2 quantile represents 1 point       Switzerland                    35           6           4.63              No           0.9              18

         The ranking points 2-4 are equally
          distributed between the upper and lower
The Short List is Based on Brand Maturity, Brand Awareness, and Market
Presence, Measured by 4 Different Categories That are Ranked and Weighted
 Country Selection Process: Selection of 2 Countries on Two Continents

             Step 3: Selection of two countries suitable for the Music Entertainment

              Estimation of music affinity, music market potential, and average stay of
               customer in the store with the following categories (weight):
                    Per capita spendings for music (incl. Singles, Album, DVDs) (0.5)
                    Coffee consumption in kg per capita (0.2)
                    Extend of Piracy (0.2)
                    Tax on Music (0.1)
              Ranking in each categorie based on 0.8 and 0.2 quantiles (see above)

                                                                    Step 3: Music potential & Consumer Behavior
                                          Physical Music
                                          Industry ($ m)    Coffee Consumption       Extend of
                                            per capita      (kg) per capita (2007)     Piracy     Tax on Music    Score         Ranking

     USA                                            15.88                    4.04           Low           5.5%             3

     Canada                                          7.87                    3.83         High           18.0%            2.1             3
     Japan                                          17.72                    3.19          Low            5.0%            4.3             1
     UK                                             20.54                    2.17          Low           17.5%              4             2
     South Korea                                     1.43                    1.60         High           18.0%            0.3             5
     Taiwan                                          3.06                    1.20       Medium            5.0%            1.4             4

Awards by Country

Canada                                              Japan
 Starbucks Coffee Canada ranked sixth among the     Nikkei Business Publications ranks Starbucks No.
  ―Most Admired Corporate Cultures‖                   14 in the 2006 Annual Brand Ranking in Japan
 ―Canada‘s Most Responsible Companies.‖              among businesspeople
                                                     In a survey conducted by Nikkei Business
United Kingdom                                        Publications, Starbucks tops the brand rankings in
 ―Top 10 UK Best Places to Work‖ — 2006–2007         the Japanese restaurant industry category.
 Starbucks UK is recognized as one of ―UK Top 50    Ranked the ―Number One Restaurant Chain‖ in
  Best Places to Work‖ (ranked 34th),                 Tokyo, Japan —Nikkei Restaurants magazine.

China                                               South Korea
 ―Model Company for Sustainable Economic            Starbucks Coffee Korea named first on the
  Development‖                                        ―Korean Standard – Service Quality Index Coffee
 ―The Employer of Choice in 2005‖ awards for         Shop‖
  being one of the top 10 companies in China.        Starbucks Coffee Korea recognized as ―No. 1
                                                      Coffee Shop‖ — Brand Power Index of Korea.
China                                                Starbucks named ―Best Product of the Year‖ in
 ―Most Desirable Company to Join‖ as compiled by     Korea — JoonAng Daily newspaper.
  Cheers magazine in Taiwan.                        Mexico
                                                     Named as the second best place to work in 2007

              Source: Starbucks Report.
High Piracy Activities in Canada and South Korea; Medium Activities in
Taiwan; Low Activities in Japan, United Kingdom, and USA
 Piracy Report

 Priority Countries                                              Special Focus Countries

                                                                 The listing among the ―Special Focus Countries‖
                                                                  results in a classification of a ―Medium‖ extend of
                                                                  piracy (2 points)
   The listing among the ―Priority Countries‖
    results in a classification of a ―high‖
    extend of piracy (0 points)
                                                         Note: all other countries were classified as ―Low‖ extend of
                                                          piracy (5 point)

Taxes on Sound Recordings Vary Between 2 and 18 %
 Taxes on Sound Recordings

                                 USA
                                     Sales Tax: 2-9%, Import Tax 0%; total: 2-9%
                                      (varies by state)

                                 UK
                                        Sales Tax: 17.5%, Import Tax: 0%; total:

                                 Japan
                                      Sales Tax: 5%, Import Tax: 0%; total: 5%

                                 Taiwan
                                      Sales Tax: 5%, Import Tax: 0%; total: 5%

                                 South Korea
                                      Sales Tax: 10%, Import Tax: 8%; total: 18%

                                 Canada
                                      Sales Tax: 6%, Import Tax: up to 12%; total:
                                       up to 18%

              Source: Taxes on Sound Recordings
Market Entry UK

Localization                                                             Technological Medium
 High level of local music (7 out of the top 10                           In 2007, CDs accounted for 86% and digital
  albums in 2006 came from national artists)                                technology for 6% of total market volume in the UK
 Percentage of foreign music sales:                                       Mobile penetration: 112%
      USA: 5%
      Japan: 26%
      UK: 45%

Sales by Channel                                                         Digital Sales in US$ million
                                                                           Total growth: 73%
                                                                                Mobile: +40%                                   123
                                                                                Online: +98%

 Source: IFPI Digital Music Report 2008
                                                                                             Mobil        30
Online download services                                                                                                        81
 iTunes (75%), Napster
                                                                                           Online         41

                                                                                                         2005                  2006
                   Source: * IFPI Digital Music Report 2008; http://www.macworld.co.uk/news/index.cfm?NewsID=11414&Page=1&pagePos=1
The Origin of the top 10 Albums in one Year can be an Indicator for the Degree
of Acceptance for Foreign Music Within the Country
 Degree of Acceptance of Foreign Music
                                                Top 10 Albums 2006 UK
                                                #       Artist               Title                  Nationality
                                                1       Snow Patrol          Eyes Open              UK
                                                2       Take That            Beautiful World        UK
                                                3       Scissor Sisters      Ta-Dah                 USA
                                                4       Arctic Monkeys       Whatever People Say…   UK
                                                5       Kooks                Inside In/Inside Out   UK
                                                6       Razorlight           Razorlight             UK
                                                7       Oasis                Stop The Clocks        UK
                                                8       Westlife             The Love Album         Ireland
    Top 10 Albums 2006 JAPAN*                   9       Pink                 I'm Not Dead           USA
    #      Artist                 Title         10      James Morrison       Undiscovered           UK
    1      Kobukuro               Best - All Singles                JP
    2      Kumi Koda              Best - Second Session             JP
    3      Ayaka                  First Message                     JP
    4      Ayumi Hamasaki         (miss)understood                  JP
    5      Hikaru Utada           Ultra Blue                        USA/JP
    6      Kumi Koda              Black Cherry                      JP
    7      Exile                  Asia                              USA
    8      Kat-Tun                Best of Kat-Tun                   JP
    9      Remioromen             Horizon                           JP
    10     Spitz                  Cycle Hit 1991-1997               JP

               Source: Top 10 by country 2006
Localization of Content on a City Basis only for Large Cities or Cities with
Especially Strong Local Music Scenes
 Localization of Content: Music Scene in Larger Cities (>1,000,000 citizen)

         Japanese Cities                  UK
  Tokyo              8,164,000 London
  Yokohama           3,220,000 Birmingham                1,020,589            Indicators: music events, festivals, local bars
  Osaka              2,624,000                                                      Tokyo has a wide range of live music
  Nagoya             2,155,000                                                       venues offering everything from the most
  Sapporo            1,672,000                                                       mellow jazz to the hardest of rock and indie.
  Kobe               1,477,000                                                      ―Tokyo has a thriving music scene so why
  Kyoto              1,461,000                                                       not take the chance to see some local bands
  Fukuoka            1,237,000                                                       live?‖
  Kawasaki           1,174,000
  Hiroshima          1,086,000
  Kitakyusho         1,026,000

                                                                              Hip-hop, especially of the domestic variety, is huge
                                                                               in Yokohama.

                 Source: http://www.ivebeenthere.co.uk/places/japan/tokyo/tips/live%20music
Market Entry Japan

Localization                                                  Technological Medium
 Very high level of local music (9 out of the top 10          In 2007, CDs accounted for 70% and digital
  albums in 2006 came from national artists)                    technology for 18% of total market volume in Japan
 Percentage of foreign music sales:                           Mobile penetration: 74%
      USA: 5%
      Japan: 26%                                             Digital Sales in US$ million
      UK: 45%

Sales by Channel
                                                                           Digital Music 8%       12%    18%*
                                                                           Music Videos 12%       12%

 Source: IFPI Digital Music Report 2008
 Within the digital market:                                                      Audio 80%       76%    70%*
      ―The mobile phone is the leading channel
        for entertainment and music in Japan.‖

Digital download services
• Mobile music retail service: Label Mobile (JV of                                       2005     2006 2007*
  record labels)                                               Leading country where digital sales have offset
• Online services: Strong presence of iTunes                    physical decline

                   Source: * IFPI Digital Music Report 2008
Strong Digital Music Market in Japan
 Music Technology Shares in Japan

       Statements on the Japanese digital music
                                                                       Figures for the worldwide digital music market
    • Digital growth is offsetting a fall in CD sales
    • The mobile phone is the leading channel for entertainment
      and music in Japan.
    • Mobile phone penetration is widespread, with over 100
      million mobile subscribers and 70 million 3G users.
    • Mobile music accounts for 90% of digital music revenues
    • Japan is setting a fascinating example to the rest of the
      world. It is the first market where sales of full-track mobile
      downloads, as opposed to mastertones, are the leading
      digital format, accounting for over 40 per cent of sales
    • One key reason for Japan‘s digital market success has
                                                                       • Digital market is estimated to account for 15% of the
      been the formation of a mobile music retail service jointly
                                                                         world‘s total music market
      owned by record companies:
      Label Mobile was established in 2001 and is today the
      leading provider of content to mobile operators. Local
      repertoire is strong. The big-sellers in 2007 included
      GReeeeN, Utada Hikaru and RSP.

                   Source: IFPI Digital Music Report 2008
DoCoMo is the market leader of Voice Communication and Leading-Edge
Mobile Multimedia Services in Japan


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