Table of Contents 1 Executive Summary...................................................................................................1 2 Mobile Music: An Introduction...................................................................................3 2.1 Global trends in digital and mobile music.......................................................................3 2.2 Mobile music in China..................................................................................................4 2.3 Definitions and report scope.........................................................................................4 2.3.1 WVAS classification in China...................................................................................4 2.3.2 Mobile music sectors in China.................................................................................5 3 Key Mobile and WVAS Trends in China......................................................................8 3.1 400 million users and growing......................................................................................8 3.2 Prepaid users increasing; ARPU decreasing....................................................................9 3.3 A new wave of rural, low-end users..............................................................................9 3.4 WVAS most popular with young, urban users...............................................................11 3.5 Inadequate enforcement of anti-piracy laws................................................................12 3.6 Few incentives not to use pirated goods......................................................................14 4 An Overview of China’s Mobile Music Value Chain..................................................15 4.1 Mobile operators........................................................................................................15 4.1.1 China Mobile.......................................................................................................17 4.1.2 China Unicom......................................................................................................17 4.2 Service providers.......................................................................................................17 4.2.1 Chinese Internet portals.......................................................................................18 4.2.2 WVAS specialists..................................................................................................18 4.2.3 Music-focused service providers............................................................................18 4.3 Content providers......................................................................................................19 4.3.1 Record labels.......................................................................................................19 4.3.2 R2G....................................................................................................................21 4.4 Government regulators..............................................................................................21 4.4.1 Ministry of Information Industry (MII)...................................................................21 4.4.2 The Music Copyright Society of China (MCSC)........................................................22 4.5 Revenue sharing models............................................................................................23 5 Mobile Music Sectors in China.................................................................................25 5.1 Overview..................................................................................................................25 5.2 Ringtones..................................................................................................................26 5.2.1 Ringtone revenue sharing....................................................................................27 5.2.2 Ringtone market size...........................................................................................28 5.3 Ringback tones..........................................................................................................29 5.3.1 Ringback tone revenue sharing.............................................................................30

5.3.2 Ringback tone market size...................................................................................31 5.4 Music IVR..................................................................................................................34 5.4.1 Music IVR revenue sharing...................................................................................35 5.4.2 Music IVR market size..........................................................................................36 5.5 Full-track downloads..................................................................................................37 5.5.1 Full-track download revenue sharing.....................................................................38 5.5.2 Full-track download market size............................................................................39 5.6 Streaming music........................................................................................................39 5.6.1 Streaming music revenue sharing.........................................................................40 5.6.2 Streaming music market size................................................................................41 6 Leading Mobile Music Service Providers..................................................................42 6.1 Music-focused service providers..................................................................................42 6.1.1 9Sky...................................................................................................................42 6.1.2 A8 Music Group...................................................................................................43 6.1.3 Beijing Longtech..................................................................................................44 6.1.4 Rock Mobile........................................................................................................45 6.2 WVAS specialists........................................................................................................46 6.2.1 Hurray!...............................................................................................................47 6.2.2 Kongzhong..........................................................................................................48 6.2.3 Linktone.............................................................................................................49 6.2.4 Tom Online.........................................................................................................50 6.3 Chinese Internet portals.............................................................................................51 6.3.1 NetEase..............................................................................................................51 6.3.2 Sina....................................................................................................................52 6.3.3 Sohu...................................................................................................................53 6.3.4 Tencent..............................................................................................................54 7 Conclusions..............................................................................................................55 7.1 Mobile music market forecast, 2006-2010....................................................................55 7.2 Service providers squeezed by mobile operators and content providers..........................56 7.3 A transition to an operator-centric value chain..............................................................57 7.4 The impact of 3G on mobile music in China.................................................................57 7.5 Operator restructuring................................................................................................58 7.6 The future of full-track downloads...............................................................................58

List of Figures Figure 1: The evolution of mobile music services in China........................................................7 Figure 2: Mobile subscribers in China, 2001-2010F (M)............................................................8 Figure 3: China prepaid and postpaid mobile subscribers, 2001-2010F (M)...............................9 Figure 4: China Mobile (CMCC) prepaid and postpaid ARPU, 2001-2005 (RMB)........................10 Figure 5: China’s mobile music value chain...........................................................................15 Figure 6: Mobile operator WVAS revenues, 2003-2005 (RMB B).............................................16 Figure 7: Service provider WVAS revenue, 1H 2006 (RMB M).................................................18 Figure 8: Record label market share (%)..............................................................................20 Figure 9: Music Copyright Society of China content license fees.............................................23 Figure 10: WVAS revenue sharing plans...............................................................................24 Figure 11: Mobile music price comparison in China, 2006 (RMB)............................................25 Figure 12: SP-CP-operator revenue share comparison (RMB per song)....................................26 Figure 13: Ringtone feature comparison...............................................................................27 Figure 14: Ringtone revenue share breakdown (%)..............................................................28 Figure 15: Ringtone market revenue, 2004-1010F (RMB B)....................................................29 Figure 16: Ringback tone user penetration, 2003-2010F (%).................................................30 Figure 17: Ringback tone revenue share breakdown (%).......................................................31 Figure 18: Ringback tone subscribers, 2003-2010F (M).........................................................32 Figure 19: Ringback tone revenue, 2003-2010F (RMB B) (inc. operator subscription fees)........33 Figure 20: Ringback tone revenue, 2003-2010F (RMB B) (exc. operator subscription fees).......34 Figure 21: Music IVR revenue share breakdown (%).............................................................35 Figure 22: Major music IVR service providers........................................................................36 Figure 23: Music IVR market size, 2004-2010F (RMB M)........................................................37 Figure 24: Full-track revenue share breakdown (%)..............................................................38 Figure 25: Full-track and truetone price comparison (RMB)....................................................38 Figure 26: Streaming music revenue share breakdown (%)...................................................40 Figure 27: WVAS providers revenue breakdown, 1H 2006 (RMB M)........................................46 Figure 28: Hurray! WVAS revenue breakdown by service, 1H 2006 (%)..................................47 Figure 29: Kongzhong WVAS revenue breakdown by service, 1H 2006 (%).............................48 Figure 30: Linktone WVAS revenue breakdown by service, 1H 2006 (%)................................49 Figure 31: Tom Online WVAS revenue breakdown by service, 1H 2006 (%)............................50 Figure 32: NetEase revenue breakdown by service, 1H 2006 (%)...........................................51 Figure 33: Sina revenue breakdown by service, 1H 2006 (%)................................................52 Figure 34: Sohu revenue breakdown by service, 1H 2006 (%)...............................................53 Figure 35: Tencent revenue breakdown by service, 1H 2006 (%)...........................................54 Figure 36: Mobile music market size by sector, 2004-2010F (RMB B)......................................55

Figure 37: The transition to an operator-centric mobile music value chain...............................57 Figure 38: Drivers and inhibitors to full-track download market growth...................................59