Quotes of the Day

All Nick Freer wants is his digital music, and he's even willing to pay for it. When the Hong Kong-based client-services director bought an iPod, it came with software to link with iTunes, Apple Computer's fee-based Internet music store that now dominates 70% of the online-music market. From his computer, Freer can browse every one of iTunes million-plus songs. He just can't buy any of them—consumers can only purchase and download iTunes tracks now in the U.S., the U.K., France and Germany, because the service only takes credit cards issued in those countries. "I find it very annoying," says Freer, who instead swaps music with friends and uses file-sharing networks.

Commercial online-music sites have hit it big in the U.S. and Europe, thanks to the success of iTunes, which recently sold its 100 millionth song. Even Microsoft is shouldering its way into the business. Last week, the software giant launched its U.S. online-music store, MSN Music. But to the frustration of millions of willing Asians with MP3 players and broadband connections, buying the latest hits online is difficult, because the big U.S. music sites are ignoring the region and local alternatives are few.

An Apple spokesman declined to discuss why iTunes is not offered in Asia, saying they don't talk about future marketing plans in the press. But according to industry experts, the added complexity of licensing music and handling digital rights in unfamiliar territories and fractured markets has dissuaded heavies such as iTunes, RealPlayer and Wal-Mart from catering to Asian users for now. Rampant online piracy in places like Taiwan and South Korea also means that many recording labels in Asia still view the Internet as an enemy, not a sales opportunity. They don't want to license tunes to online sellers, fearing songs downloaded legitimately would soon be widely circulated illegally. One of the main online priorities right now, says Yashudi Ide of Sony Music Entertainment, the Japanese electronic giant's record label, "is to protect copyrights."

A handful of enterprising entrepreneurs find that attitude anachronistic. They're trying to make space in Asia's $5.2 billion music market for legal downloads. In 1999, Sudhanshu Saronwala quit his job as the managing director of MTV Asia to co-found the Singapore-based online-music store Soundbuzz. The venture made little progress for four years, but after iTunes proved a commercial success last year, Saronwala is trying again. "The labels have seen that online can be a real, viable distribution channel," says Saronwala. "The domestic labels as well as the internationals—everybody has pretty much embraced it wholeheartedly." Soundbuzz signed licensing agreements with several major music labels earlier this year and relaunched their online store in Singapore in July. Users can now download tracks for $1.16 each from Soundbuzz's 250,000-plus song library, which Saronwala says should hit 500,000 by the end of the year. Most importantly, Soundbuzz has forged a partnership with Singapore-based computer audio hardware maker Creative, which aims to make its new Zen Touch MP3 player work as symbiotically with Soundbuzz as the iPod does with iTunes. "I think we will create a buzz," says Sim Wong Hoo, Creative's CEO. "I believe the MP3 market will be as big as the cell-phone market."

That'll take time. Although Soundbuzz is set to become Asia's first regional digital music store, expanding soon into Hong Kong, India and Taiwan, its download numbers are still modest. Meanwhile, Asia's other pioneering online stores, like Max MP3 in Korea and iBiz in Taiwan, remain small and local. Japan, with its $4.16 billion music market and love of all things high-tech, should be an obvious opportunity for online-music sales. A survey by Japan's Nikkei Business Daily found that 47% of respondents would buy music from iTunes if they could. But Sony, the obvious candidate for market leadership (after all, Sony invented the portable music market with the Walkman), has been cautious. The company recently introduced a pair of updated hard drive portable players, the Network Walkman and Vaio Pocket, and earlier this year Sony Music Entertainment relaunched the Mora online store it runs with other labels, which currently offers 70,000 songs for about $1.44 each (iTunes sells most songs for 99 cents in the U.S.). "The [online] market is not mature yet," says Ide of Sony Music Entertainment. "There's not much reason or motivation to expand online-music distribution in a rush. We'd rather grow the market gradually."

Motivation, in the form of competition, is on the way. Last November, Apple opened its first consumer-electronics store in Tokyo—and the iPod has quickly become Japan's most coveted portable music player. Now the computer company plans an encore. An Apple executive said recently that the company plans to launch iTunes Japan within the next year. Meanwhile, other U.S. online-music sites "are absolutely looking to go international," says Michael McGuire, a research director with GartnerG2. A report by PricewaterhouseCoopers predicts that the growth of paid digital-downloading sites will eventually lead to a turnaround in the slumping Asia-Pacific music market; by 2008, they expect online music sales to break $500 million, 8% of the total market. "The fear of piracy still exists," says Jon Simon, head of new media for Warner Music Asia-Pacific. "But I think that fear every day becomes more an opportunity than one of loathing." When that happens, all those cute iPods will be good for more than just looking good.

• Bryan Walsh | Hong Kong
• MP3 players are hot in Asia, but online stores such as iTunes are still closed to the region's market