The offpsring of the iPod and the phone

April 20, 2005

The mobile phone companies are making noise about starting their own music download services to compete with iTunes/iPod and Napster-to-Go.

BusinessWeek reports: iPod Killers?

With innovative services and snazzier phones, the telecom players figure they can swipe a chunk of the digital music market that Apple Computer Inc. (AAPL ) cracked open with its iconic iPod. That sets the stage for a battle between two industries. On one side are Apple and the other tech players concentrated in Silicon Valley that see the computer as central to the future of music. On the other are telecom companies, from Finland to South Korea to the U.S., that think the mobile phone can become the center of this emerging world.

The labels like these plans because they are not locked into the $0.99 price point for downloads or streaming subscription fees. Instead, the copyright owners seek to use the mobile download market to test out variable pricing and try to set a "market price" for music downloads.

Some analysts are skeptical that anyone would want to pay more than $0.99 for a song.

One knowledgeable source close to Apple says the operators are simply being unrealistic if they expect customers to pay $2 or $3 for a song, especially with restrictions. "If you can get something for a buck, why would you buy it for $3?" says the source. "Do they think people are that dumb?

However, the mobile market may be able to utilize variable pricing and command generally higher prices than iTunes, because it is satisfying an immediate demand. The mobile download enables someone to have it now and not have to wait to get back to a computer with iTunes.

The mobile network operators are choosing to pass on the Apple/Motorola iTunes phone, because it offers a way for users to transfer music from iTunes on their computer to the phone that does not involve the carrier in a transaction that generates money.

Most major wireless companies, including Verizon Wireless and Sprint, have balked at carrying the iPod phone. That's a serious impediment because the operators essentially control distribution by subsidizing phones. Why the resistance? Operators want customers to download songs over the air, directly to handsets. But with the iPod phone, customers would download songs to a PC and then copy them to the phone. "It's hard for people in any industry to support something that cuts them out of potential future revenue streams," says Graeme Ferguson, director for global content development at Vodafone Group PLC

If the goal of the mobile music services is to monetize every transaction, their mobile music services are doomed to fail miserably. I am reluctant to use wireless web services on my mobile phone because of the per-kilobyte pricing and high rates.

The iPod is a success because it allows collectors to leverage their existing music collection. Using iTunes to purchase music is not a requirement for using the iPod, but the iTunes music store integrates conveniently and transparently with one's established usage of iTunes as a music library organizer. The new use complements and adds to the existing use.

If the mobile music space does not allow users to transfer their existing music collection onto phone/music players, users will be extremely reluctant to adopt the phone as a music device. It would cost a non-trivial amount of money to reacquire a collection, rather than simply shift a collection into a new digital format.

The Wall Street Journal's Tim Hanrahan AND Jason Fry think that the mobile phone makers could mount a credible challenge to Apple, but are skeptical about their chances of victory: mobile phone challenges to Apple: Setting Challengers' Odds In Cutting Apple's Lead: "Phone makers and wireless carriers imagine big bucks from cellphone users downloading songs to hybrid phone/MP3 players, and think the fact that cellphones are already in so many pockets and purses give them an advantage when it comes to competing with Apple."

Previously: Copyright Owners and Consumers.

Posted by Andrew Raff at April 20, 2005 05:01 PM
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