Mar 6, 2006 12:00 PM,

Mobilizing music

by Kevin Fitchard

Is mobile music the domain of the handset or the domain of the network? That's a tricky question, but one the wireless industry must answer in coming years if the concept of phone-as-music-player becomes half as popular as it's expected to be.

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Currently, handset vendors and carriers appear to have conflicting ideas about the proper business model for mobile music. Although carriers like Verizon Wireless and Sprint are launching music portals that seek to keep music services and downloads confined to their portals, vendors are releasing handset after handset with greater memory, supporting open standard file formats and multiple forms of access. In the case of Motorola's iRadio, vendors are even creating music services that will work on their devices independent of the carrier.

While these strategies might seem divergent, vendors claim they are actually quite convergent. Infrastructure always precedes services, said David Ulmer, senior director of marketing and strategy for Motorola Digital Media Solutions. Motorola and other vendors are creating the enabling technology that will eventually power operators' own music services, Ulmer said.

Although any given operator's vision for a mobile music service will differ substantially from Apple's iTunes, those operators' visions also differ substantially from one another. Motorola has to create a device or devices that can accommodate all of those visions.

“Developing a mobile music business requires much more than putting a play button on a phone,” Ulmer said. “What we're doing is creating multiple music offerings for different kinds of services.”

For carriers that want to partner with Apple, Motorola has an iTunes phone. For those that want a white-label digital radio service, Motorola has iRadio. For those that want a music-capable phone off of which to launch a closed-garden or end-to-end portal, Motorola can customize a handset to their needs, Ulmer said.

Sony Ericsson has had perhaps the biggest success among the vendors in selling music devices. Launching its first Walkman phone in August 2005, Sony Ericsson sold 3 million handsets in four months, all at price points far from cheap. The vendor just announced its first Walkman handset geared at the mass market, the W300i, which Sony Ericsson expects to be available for below $150 after carrier subsidies and rebates.

The Walkman phones play MP3 and ACC song files, support direct transfer from the PC and even allow a customer to turn any song file into a ringtone. For a carrier with a closed-garden music portal, those features would be viewed suspiciously.

But Suzanne Cross, Sony Ericsson product marketing manager, said the Walkman phones are only as open as carriers want them to be. Features on the phone can be disabled — restricting songs to particular file formats, integrating the music player client into a carrier's user interface and turning off the ringtone conversion feature — per any carrier's request.

“Our strategy is fairly agnostic,” Cross said. “As a baseline, we'll put out an open-standards phone, but if a carrier comes to us and asks us to put restrictions on the device, we'll definitely do it.”

Ranjan Mishra, a wireless analyst and senior partner with Mercer Management Consulting, said the gap between what vendors are building and what carriers want isn't as narrow as the handset vendors make it out to be, but it isn't exactly accurate to characterize those differences as carrier versus vendor. Both carriers and vendors are trying to map out new territory in what is a completely new frontier, and nobody has figured out what the final business model or models will be, Mishra said.

One thing is certain, Mishra said. Focusing on where the song comes from — over the air or from a PC — is a dead end. No customer is going to buy more than a small percentage of his or her music over the wireless network. The business models have to revolve around the whole ecosystem of wireless music. Acclimating customers to listening to music over their phones can lead to more ringtone and music-oriented wallpaper sales — both of which have higher margins than a 99¢ song download.

A proper music portal and user interface generates demand for synchronization services and browsing music online, all of which funnel customers to 3G network services that generate high recurring monthly revenue, Mishra said. Even handset sales can become a new business for wireless carriers if they can go beyond the subsidy-based sales model, he added.