CNN video coverage on South Korea's Cyworld(SNS)

Last week(10/18) CNN.com/Asia introduced South Korea's social networking service - Cyworld, which is considered Facebook of Korea. (Video clip below)

Cyworld, which means Cyber World, shows off 21 Mil. subscribers, almost 45% of total population in Korea. The web community site is a cultural phenomenon. Almost every young people logs on to the site on a daily basis or even more to make and decorate their own personal, virtual rooms-we call it minihompy!(mini-homepage) with photos or BGMs(BackGround Music) which is automatically played when somebody visits the rooms.



The thing is that Cyworld is one of the top music services in Korea as well. In the first half of 2007, Cyworld just passed 200 Mil. download mark for BGM since launching its paid BGM service and it made $ 100 Mil. in revenue. Unlike other social networking services which highly depend on ads sales, it has made meaningful success in creating big revenue source of music.

Now Cyworld is trying to expand their presence globally including U.S. But it is struggling to overcome cultural difference. More will be covered later...

Korean music market : 2000 to 2007

Korean music market has gone through as big turbulence as global or even more. Here is some numbers telling how offline CD sales has been dramatically slashed and this physical sales decline has not been offset by digital sales increase.

As for CD sales, it has marked all time high in 2000 with $450 Mil. like below. But afterwards it continued to decrease and finally last year reached the level of one-fifth of its peak. On the other hand, digital sales including online and mobile music grows by 26% CAGR, but still fail to compensate for drop in CD sales.


* Estimated 2007
(Related article written in Korean)

The thing is, unfortunately this trend would continue in 2007 and the market seems to be at a standstill. It is said that music is more popular than ever with fast penetration of music devices like music phone or mp3 player, but the industry is suffering due to piracy like illegal download and file-sharing.

Music industry won the digital piracy case...

In the last week, there was a symbolic event that the music industry won the first court case against piracy. Reportedly, of the more than 26,000 lawsuits that record labels have filed against alleged pirates since 2003, this case was the first to actually be tried before a jury. And also this shows that simply making the songs available, not an actual transfer of a digital-music file was a copyright violation.

I think it would make meaningful impact on customers' behaviour, combined with new ideas like selling some songs on iTunes and Amazon.com without copy protection or offering free music to people willing to watch ads. That is, we could expect that more users are willing to get out of black market and join the paid one. Of course, the piracy would never go away and these lawsuits might make people angry, but people would tend to think twice about downloading illegal music and turn to legitimate music of innovative service providers with greater user experience. If so, who will be the winner? A la carte download without DRM protection like iTunes or all-you-can-eat subscription service like Rhapsody or ad-supported free music like SpiralFrog.com?