Although there are numerous complexities in selling music over wireless, mobile-phone maker Siemens announced a new offering designed to give the world’s carriers a quick and simple way to jump into the market. European carrier MmO2 took the first plunge with its O2 Music service using Siemens technology, and Siemens said it is in negotiations with several unnamed U.S. operators for a similar deal.
Siemens is selling a white-label MP3 music player and music download service to wireless carriers, which the carriers will be able to brand as their own. The MP3 device connects to a mobile phone through either infrared or a cable and allows users to download MP3 songs wirelessly through their phones and then transfer the songs into the Siemens player. The company’s corresponding service includes deals with record labels to supply songs, as well as copyright protection, compression and encryption technology through Siemens servers.
O2 U.K., Siemens first music customer, is selling the MP3 device for about $168 and each song for about $2.50. Users can sample 30 seconds of each song before they purchase it, and O2 is currently offering a catalogue of about 100,000 songs. Siemens’ MP3 player-which holds about an hour of music-can connect to about 15 different O2 phone models, according to research firm Current Analysis.
The move is the latest in the long relationship between music and wireless. The wireless music market currently primarily consists of downloadable ring tones-a worldwide value of an astounding $4 billion, according to research firm Strategy Analytics. Ring tones usually sell for about $1 and typically sound like a series of beeps and chirps vaguely resembling a melody. Newer phones, however, can support what are usually referred to as “ring tunes,” which feature richer sounds that more closely resemble the original piece of music. Other aspects of the wireless music industry include calling tones (music subscribers hear when placing a call), music identification services and streaming music.
However, the advent of digital music and MP3 files adds a new dimension to the wireless music industry-despite the recording industry’s battle against online music piracy. With the success of Apple Computer Corp.’s iPod MP3 player, some in the wireless industry see an opportunity for similar profits. Specifically, the world’s handset makers are looking to add MP3 capabilities to their phones in an effort to spur sales. Indeed, Nokia Corp. recently released its 3300 “music phone,” which includes an MP3 player that holds about an hour of music. However, most such devices require users to connect their phones to their desktop computers or CD players to access songs, thus leaving the wireless carrier out of the loop.
Siemens’ MP3 device is one of the first to combine the MP3 digital music world with wireless. The device also includes digital rights management technology from SDC AG, a crucial aspect for the recording industry. The DRM technology prevents the songs from being copied and stops music files from being transferred and played illegally on desktop computers.
However, some believe wireless carriers should stay out of the digital music and MP3 business. Adam Zawel, a wireless analyst with research and consulting firm Yankee Group, said the chance for profits is too slim. According to Yankee Group, record labels typically take 60 to 70 percent of the revenues from legal MP3 downloads, and MP3 sellers generally see few profits after marketing and bandwidth costs.
“Don’t fight for this market,” Zawel advised wireless carriers.
However, if carriers do offer MP3 downloads, they must present their offerings so consumers do not compare the wireless music price with the non-wireless price, he said. MP3 files typically sell for $1 on the Internet. Carriers cannot deliver large files as economically as their fixed-line counterparts, Zawel said, therefore they must position the wireless experience as more than just another way to download music. Indeed, Zawel said that if wireless users were to pay for MP3s per byte, they would dole out about $200 per song.
Zawel said the most likely music-sharing scenario will involve home Wi-Fi networks and Wi-Fi-capable mobile phones, which will allow users to download MP3s onto their desktop computers and then transmit them through Wi-Fi networks to their mobile phones.
Others, however, see more hope for the wireless music market and downloadable MP3s. Current Analysis said MmO2 may enjoy positive revenues through Siemens’ service.
“While the company is claiming a first for this service, it is taking some risk in offering its own branded music player that will have to compete with the more familiar MP3 players and the increasing numbers of mobile handsets with their own integrated MP3 players,” the firm wrote in a research note. “However, if the trial behavior is repeated in the commercial service, this will offer O2 a credible additional revenue stream.”
