From the consumer’s point of view, 2005 is shaping up to be the year mobile music goes big-time. And nearly everyone in the wireless industry is scrambling to make sure they cash in.
Industry observers predict this year may do for mobile music what 2003 did for mobile imaging. Two years ago, camera phones took the market by storm, with 84 million camera phones sold worldwide, more than quadrupling sales from the previous year.
And the roaring success of camera phones is expected to spur sales of music-centric devices by helping consumers see the mobile phone as more than simply a vehicle for voice. Likewise, just as digital cameras still exist in an era of camera phones, the mobile music market is big enough for devices like the iPod to coexist with music phones, insiders say.
“I don’t think (portable digital music players) are going to go away,” said Glenn Kiladis, director of marketing for LogicaCMG. “Even if you look at Europe, where you see people carrying megapixel camera phones, you still see a very large market share for digital cameras. It will be the same thing with MP3 players; I think there’s still a large market for that.”
In fact, many insiders say music phones may help tap a market that digital music players have yet to reach-the casual listener. And music lovers may want two devices-one as a larger library of tunes, and a music phone for on-the-go listening.
The first music-friendly handsets hit the U.S. market months ago, but high price points, memory limitations and slow download speeds have prevented “music phones” from gaining much traction. That looks to change in the next few months as manufacturers rush to put more sophisticated models into consumers’ hands and carriers hurriedly build out next-generation networks for faster data transmissions.
Perhaps the most highly anticipated development so far this year is the expected release of an “iTunes phone,” a joint project of Apple Computer Inc. and Motorola Inc. that combines traditional cell-phone features with iPod functionality. Reporters got a sneak peek at the handset earlier this year, and the product is expected to launch by mid-2005.
“We can’t think of a more natural partnership than this one with Apple, the brand synonymous with easy-to-use, legal music downloading, and Motorola, the innovator in mobile technology,” Motorola Chairman and Chief Executive Officer Ed Zander said last year. “Being able to transfer songs you’ve purchased from iTunes to Motorola mobile handsets expands the market reach for both of us and drives new revenue for customers, delivering an amazing music experience to millions of wireless users.”
Apple has said it hopes to establish a mid-range price point for the new phone. But while consumers are sure to be attracted to the idea of downloading music files to their PCs and transferring those songs to their handsets, operators may not appreciate being effectively cut out of the revenue loop. And if carriers choose not to subsidize the cost of the devices to lure customers, the iTunes phone is unlikely to gain much market share, according to Eddie Tapiero, an analyst with Strategy Analytics.
The iTunes phone “doesn’t provide a revenue stream for the carrier; it will be very expensive relative to other phones, because operators won’t provide subsidies,” Tapiero said. “If there was some other system where the carrier gets part of the (music sales) revenues, then you would see meaningful volumes developing.”
Instead, carriers are exploring ways to meet music lovers’ every need via the phone. Digital music libraries such as Musiwave and Loudeye are working with carriers on applications that can identify songs and artists that music lovers submit from their handsets. Once the tune is identified, users are led by the hand to mobile storefronts where they’re enticed with ringtones, full-length tunes and images from the artist.
“Nokia has an arrangement with Loudeye, and we’ve come up with a service platform that we’re taking to operators in this market where the operator can brand services to the end consumer,” said Bill Plummer, Nokia’s vice president for external affairs. “Using that service, the consumer can access and download music over the air directly to the device. And when you start getting into 3G networks, that becomes an increasingly important value proposition. That is definitely something unique.”
Eventually, carriers could control the purchase of concert tickets, DVDs and T-shirts-in other words, everything fans can buy today at the local record store. While business models are still evolving-it is impossible to reconcile paying $3 for a ringtone but only $1 for a full-song download, for instance-such peripheral offerings could offset the slim margins operators may end up receiving for music downloads, according to Alberto Moriondo, the worldwide director of content and applications for Motorola’s personal communications sector.
“There’s not a lot of money to be made out of a download business,” said Moriondo. “But I think there’s a lot of money to be made on services. If you create some service that addresses the needs of end users, there is definitely an opportunity to make money.”
There are other ways to use phones to establish new business models, as well. Many carriers are looking to subscription services that automatically could deliver a certain number of new songs within a specified genre to users every month, exposing customers to music they might not otherwise experience.
Such an offering could also help overcome memory limitations on handsets, said Greg Clayman, vice president of wireless strategies and operations at MTV.
“In a desktop environment, it may make sense to have 100,000 songs,” said Clayman. “But on a handset, you may want to be able to say, `I trust this brand to choose for me, and to send songs to my device in a subscription scenario. That’s really compelling.”
So while it seems handset technology will soon catch up with the growing demand for music phones, a third factor may be lagging behind: slow wireless data networks.
It doesn’t matter how wonderful a handset might be, analysts say, casual users won’t embrace wireless music services until they can buy quality content cheaply-and quickly. While some markets with newer buildouts can handle data-heavy transmissions more efficiently, most users won’t put up with delays and inconsistencies to download songs to their phones over the air, said Chris Ambrosio, director of the wireless devices strategies service at Strategy Analytics.
“Music will be a `bridesmaid’ to imaging on high-end and converged devices for the next several years until 3G is more widely deployed,” Ambrosio said. “Then, it is up to device vendors to make significant improvements in sound-quality reproduction, storage capacity, wireless-fixed connectivity and the user interface to make cellular music a broader reality.”
