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SK Telecom Moves Deeper into Asian Music Industry

7 March 2008

- Buys Joint Control of Taihe Rye & Gets Super Girl Li Yuchun

- Makes It Harder for US Labels

- Impact on Apple Unclear

How important is music to the health and well being of mobile phone operators?

Well, South Korea’s largest mobile phone service SK Telecom this week purchased a 42.2% share of the Chinese music company Taihe Rye (TR) Music for about $10 million.

Taihe Rye is reportedly well known throughout mainland China. It has rights to about 1,000 songs of a number of China’s most popular artists including Li Yuchun who won the “Super Girls” talent competition in 2006, proving for the umpteenth time that content sells hardware and service.

SK Telecom and Taihe Media, which also owns 42.2% of Taihe Rye Music, will both be equally involved in managing the company.

Each will appoint three TR Music board members. SK Telecom will designate the COO and CFO; Taihe Media the CEO.

SK Telecom China Holding president Seok Hwan Lee said the Chinese market has an “unlimited growth potential in both the music and convergence.” The move, he said, will enhance his company’s competitiveness in record production and expand business models in the digital music industry and help Taihe Rye Music to “become a leading music label in Asia.” He said SK Telecom would continue to look for other related business opportunities.

South Korean films, television dramas and pop music are popular in China. SK Telecom believes the value of the Chinese music industry will almost double over the next two years. In addition to the booming Chinese economy increasing the market size, the Chinese government is expected to boost its efforts to deter music piracy.

SK Telecom owns JYP Entertainment, one of South Korea’s largest music labels, Seoul Records, a leading distributor and iHQ, a major movie producer and talent management company.

Executives from JYP and iHQ attended the Beijing press conference where the Taihe Rye investment was announced and promised to work together synergistically with Taihe Rye. A signed agreement calls for the companies to allow for exchanges between singers and producers in China and other Asian markets, jointly discover and promote new entertainers and pioneer new entertainment markets.

The South Korean mobile phone market is considered saturated. SK Telecom has about 20 million mobile subscribers in South Korea, about 51% of the country’s market. It owns 6.6% of China Unicom, China’s second largest mobile phone service.

The move means US and European-based labels will face tough competition in China as well as throughout Asia. SK Telecom and Taihe Media intend first to build Taihe Rye into China’s largest label, and then make it strong throughout Asia.

SK Telecom’s moves give Apple’s iTunes and iPhones a stronger music label that it’ll have to make deals with. Because SK Telecom won’t have to negotiate to get Taihe Rye content and Apple will, the move increases the strength of two of Apple’s potential Asian competitors - that is unless Apple can get SK Telecom and China Unicom to sell iPhones.

Hey, isn’t that the reason that Sony gave way back when it was buying Columbia Pictures and then developing Sony Pictures - so it would never again be caught short of content when it launched a new physical media. Having those two studios did ensure that Sony got prime time content for its Blu-ray media, which just forced Toshiba to shutter its HD DVD efforts. The closest thing that Apple has to owning its own label and studio appears to be the relationship it has with Disney and its ABC TV for movies and TV shows and the one it has with EMI. Disney was the first to give Apple videos to distribute. EMI was the first and is still the only major label to give Apple DRM-free music.

SK Telecom’s Chinese mobile phone services UNISK (a joint operation between China Unicom - 51% and SK Telecom) and Viatech (a Chinese mobile portal with over 10 million subscribers), will offer Taihe Rye content.

For more on Super Girl Li Yuchun see: 

http://french.china.org.cn/english/NM-e/146535.htm 

http://www.time.com/time/asia/2005/heroes/li_yuchun.html

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