As evidenced by the vast popularity of gadgets like Apple’s iPod, the demand for portable digital music is as obvious as it is universal. But how-and how well-the wireless industry will ultimately tap the mobile-music market is far from clear.
Music dominated the headlines out of last week’s 3GSM World Congress in France, highlighted by Nokia Corp.’s announcement that it is teaming with Loudeye Corp. and Microsoft Corp. on a new platform to deliver tunes to mobile phones. The white-label offering, which will be marketed primarily to third-generation operators, will allow users to browse, search, listen to and download ringtones and full-length songs to handsets and PCs. Music lovers also can use the application to synchronize music collections between phones and computers.
The deal drew attention largely because of the alliance between Microsoft and longtime foe Nokia, which has consistently parried the software giant’s efforts to enter the wireless market. But the ubiquity of Microsoft’s Media Player proved too tempting for the Finnish manufacturer, which will integrate the software’s compression and playback technology in its handsets, allowing users to download tunes to both computers and handsets and transfer files between the two.
Consumers also can use the platform to transfer music they already own onto their phones, and the platform will feature an Open Mobile Alliance-compliant digital rights management technology preventing users from passing files on to friends or posting them on the Web.
“If you have a CD and have taken content and put it into a media library (on a computer), you can move it (to your phone) using the same synchronization system,” said Mike Beckerman, general manager of Microsoft’s digital music division. “The work we’re doing with Nokia and Loudeye is to allow a seamless transfer of music regardless of what format that music came in.”
It’s likely that carriers will be inclined to embrace a white-label service that allows them to sell music downloads through a storefront. Although Nokia declined to name specific operators, it is currently negotiating with carriers looking to offer the platform.
Nokia expects to produce handsets with 4 to 6 gigabytes of capacity by next year allowing for 60 or more hours of music storage.
Digital music downloads have exploded during the past year. Paid downloads were up tenfold in 2004, with more than 200 million songs bought and transferred over the Internet, according to the International Federation of the Phonographic Industry.
But purchased transactions are still dwarfed by the overwhelming amount of illegal downloads, which numbered 870 million in January alone. Some music fans simply burn discs or e-mail tunes for friends, and “podcasters” are creating broadcasts of tunes that listeners can download and play back on-the-go at their convenience, like an on-demand, storable digital radio service. Podcasting first attracted notice late last year when former MTV VJ Adam Curry launched a digital music offering in August, resulting in countless music fans compiling playlists and making them available on the Internet.
The plethora of digital music sources may leave consumers unwilling to pay carriers for the novelty of downloading music directly to their handsets, according to Mike McGuire, a research director at consultancy Gartner/G2. And the same young, tech-savvy people listening to podcasts are the ones typically most likely to be early adopters in wireless data.
“These are very discriminating people, not just about mobile phones but about their content in general,” said McGuire, who’s done focus groups to measure how music fans might use their wireless phones. “They’re used to getting content wherever they want; they’re not used to these silos. They may say (to mobile services), `I can get my music 87 other places, so why would I get it from you?’ “
So while other types of mobile entertainment are typically delivered through the carrier, generating airtime and data revenues, music presents both an opportunity and a threat to operators. Music lovers could generate millions of dollars for carriers by using wireless applications to seek out new artists and download tunes and music videos. But if users decide to access tunes through other sources or use their libraries of CDs to stock their cell phones, operators will be completely cut out of the revenue stream.
That’s why some believe Motorola’s much-anticipated iTunes-capable phone, which is expected later this year, may give carriers pause. The phone will use the Internet’s most popular paid music download service, addressing a substantial market that may already view a computer as the heart of its digital music system.
Another liability for Nokia’s platform is its lack of interoperability. Although the service will eventually be rolled out to other manufacturers, only users carrying one of the Finnish manufacturer’s wares will initially be able to use the new service.
“Music downloading is a crowded space, with strong competition from both legal and illegal camps,” wrote Bena Roberts, Current Analysis’ wireless analyst for Central Europe, in an intelligence report. “Operators can challenge for customers, and making a mobile download interoperable with PCs is critical, but so is making it accessible to all mobile devices, not just Nokia’s.”
The carriers will continue to have enormous leverage. They could choose not to subsidize phones they don’t feel will generate revenues, requiring consumers to spend an extra $100 or more for certain music phones. And they remain the primary point of contact to the subscriber, controlling what and how content is offered through their networks.
Because they can dictate how services are marketed and delivered to their subscribers, carriers may end up determining the success or failure of the mobile-music market. They’d be wise to model new platforms on tried-and-true digital music offerings currently gaining traction on computers, according to David Linsalata, an analyst in IDC’s mobile devices program.
“People want to listen to music, and having it high quality, having it portable, is a proven concept. But you want to have consumers only have to change their behaviors just a little bit. It’s not a revolutionary step,” Linsalata said of mobile music. “It’s more like an evolutionary step.”
