The business of mobile music

While music is one of few services capable of eliciting strong emotional ties and response from consumers, it hasn't corresponded with revenue when offered on the mobile handset. Wireless carriers and other music providers have traditionally relied on an à la carte business model, but that is giving way to monthly and even yearly subscriptions as music searches for a winning mix on mobile.

Sony Ericsson, the third largest handset-maker, paved the music category in 2005 and has since sold more than 100 million Walkman phones. Through this time, the à la carte business model has produced only a slim margin for both Sony Ericsson and its carrier partners, said Martin Blomquist, head of content acquisition and management for Sony Ericsson. He called the business model outdated — the same thing the music industry has been working on since the '70s. Subscription services, on the other hand, have had varying success depending on the value that consumers attach to the service.

“It's difficult to price it right, and no one makes money besides the labels,” Blomquist said. “If you do it in the correct way, which we have, there is a possibility of using music service as a revenue driver for both us and the carrier. But for carriers, it's more of an acquisition of customers. With all due respect, in subscription, it can be music or whatever type of content transferred to the network. They don't make money from the music; it's just the subscription.”

For Sony Ericsson, the service itself is what generates revenues, but the only player in the ecosystem actually making money on the content is the content provider. Blomquist said it's important to Sony Ericsson to have the service either way because of its perceived value in the converged environment the world is moving toward. This migration to dual-mode delivery of mobile music has been the path of most music stores, according to Strategy Analytics. Based on its survey of consumers, 81% of people would pay $1 for a conventional download, and 81% would pay $1.20 for the same download directly to their mobile phone.

The company launched PlayNow in September to give consumers unlimited access to 1000 recent songs preloaded on the phone, as well as millions of additional songs that can be downloaded for free. Part of the price of PlayNow for the initial year is built into the $199 device. After the first year, the service costs $14.99 per month, and consumers can keep up to 300 of their favorite songs for playback on any compatible device.

“It's a difficult mixture, but you would not sell just the music service on a phone,” Blomquist said. “It'd be way too expensive. You build propositions and combine it with tariffs that you have and come to a position where the price point is regarded as being a good value for money. If you separate the product, the cost structure is almost impossible. When you combine it, you have something very attractive.”

Fellow global handset leader and music competitor Nokia has spent the past year rolling out its unlimited download music service, Comes With Music, which it claims has been a success around the world, both in terms of customer adoption and carrier response. It's a success that Nokia hopes will transfer to the U.S., but carriers here may not be ready or willing to adopt the all-you-can-eat approach.