Music biz explores wireless frontier

SAN FRANCISCO - And so it begins. Wireless operators and record companies are starting to let mobile subscribers buy and download full songs over wireless networks directly to mobile phones capable of storing and playing music.

As a big first step, Apple Computer and Motorola have partnered to create an iTunes-compatible mobile phone, dubbed the ROKR, capable of storing 100 songs and currently offered by Cingular.

Will the result revolutionize both industries or just be another wireless hype machine met with tepid response and consumer apathy?

"We're heading into areas where there is no market research," says Andrew Seybold, a veteran wireless industry consultant. "The only way we're going to find out what consumers will buy is to try various things and see what sticks."

The opportunity is clear. There are 180 million mobile phones in the United States, most of which can be used to access the internet and buy products with charges added to the user's monthly phone bill.

The result is an on-demand, impulse-buy capability accessible to all age ranges that the still-struggling music industry sees as a lifeline out of the doldrums. Wireless carriers, meanwhile, hope access to music will be the application that compels subscribers to migrate to the new high-speed networks they have spent billions on developing.

HURDLES AHEAD

Research group IDC expects 1.8 million US wireless subscribers to download music wirelessly by the end of the year once carriers launch their stores. It forecasts the market will grow to 50 million users and $1.2 billion by 2009.

Yet for all the opportunity, fully realizing it requires solving significant challenges, which is expected to take several years.

The leading question is cost. By all accounts, downloading a song to a mobile phone will cost twice the typical rate of 99 cents online. For many, this is a doomed strategy.

"To pay double or treble the amount of what you would be paying for the same track online is not going to receive the traction they're looking for," says Nick Holland, an analyst at Pyramid Research. "They will probably start off with a price point that is high and then discount it quickly as they realize that demand is not as anticipated."

Record labels argue that music accessed wirelessly carries greater value than music accessed online, where the 99 cent per-track rate was set arbitrarily because of the threat of free peer-to-peer file sharing.

In addition, wireless consumers have been conditioned to pay for content, as reflected in the $2 or more they pay for master ringtones.

Wireless operators admit the price issue is something that they must overcome, but they're betting subscribers will find the convenience of mobility worth the extra cost.

"There is a premium that a customer is willing to pay for the spontaneity of being able to download over the air a song right there on your mobile phone," says Paul Reddick, VP of business development and innovation management for Sprint Nextel.

NO COMPARISON?

The main point that record labels and wireless carriers stress is that the wireless music experience is not meant to be compared with the online music experience, in either price or service. To get music fans to buy music wirelessly and pay more to do so, mobile music must be sold differently than ringtones and online downloads.

"Just thinking of mobile as a portable version of online is going to take you down the wrong path," says Michael Nash, senior VP of internet strategy for Warner Music Group. "We really have to think carefully about what consumers want, what's unique about mobile and where we're going to create propositions of value."

The leading school of thought in this regard is to treat wireless as an early-release platform on which fans can get early access to new hit music that otherwise is unavailable elsewhere. Another is to use mobile distribution to test-market emerging acts by releasing their music via mobile before placing larger bets on physical distribution via CDs.

The concern, however, is that a high cost of entry teamed with an unfamiliar interface and confusion over how the service works will keep wireless subscribers from experimenting with wireless music services.

"There's a lot of silliness going on between carriers and the labels," Yahoo Music VP and general manager David Goldberg says. "They're being overly greedy about things. Let's figure out how to build the market and then worry about how to split the money up."

USER-FRIENDLINESS

Ease of use is the albatross that has weighed down many new wireless initiatives in the past. Wireless operators are known for making bold claims about new services that ultimately fall flat because consumers do not understand how to use them. But carriers also have great resiliency, often relaunching services several times until they find the right fit.

"Most of the stuff they've tried out of the box (has) not been very successful," Seybold says. "Look at the first attempt to get on the internet. That was a terrible disaster."

The music industry is not one to turn to for help either. Labels completely missed the boat on the digital revolution by ignoring P2P file-trading services that music fans were flocking to behind their backs.

The biggest point of contention is interoperability: Will a track downloaded to a phone be accessible on the PC as well and vice versa? The early solution is to operate what is called a "dual-delivery service." For each wireless song purchase, two files are sent: one formatted for over-the-air delivery to the phone and another formatted for internet delivery to the user's computer.

While this satisfies the labels' security concerns, it could prove a difficult concept to communicate to customers. It also limits the ability of users to share music wirelessly with their friends. At least initially, only wireless subscribers using the same carrier will be able to share music clips.

The main reason wireless text messaging was so slow to develop in the United States was because of the same lack of inter-carrier interoperability. Once users could send text messages to their friends on other networks, usage skyrocketed.

The idea of buying music digitally remains on the periphery of consumer consciousness, and doing it with wireless devices is even more so. As such, carriers and labels have a marketing and education job to do if this market is going to flourish.

The prevailing view is that the music industry needs wireless music to work more than wireless carriers do, and as such should be doing the legwork to promote these services.

"We should take more responsibility for the future of our business," Universal Music Mobile VP and general manager Rio Caraeff says. "We need to start putting our money where our mouth is and start marketing this. (Carriers) are not good at music merchandising. You don't want Con Edison marketing 'Desperate Housewives."'

- REUTERS