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Carriers still trying to find right notes in mobile music: VZW latest to alter strategy

Carriers still trying to find right notes in mobile music: VZW latest to alter strategy

Full-track music download services continue to spin their wheels in mobile, but Verizon Wireless is hoping to get some traction by overhauling its offering.
The carrier last week launched a new offering that couples an all-you-can-eat subscription with an over-the-air option that dispenses with the headaches of anti-piracy software. The service makes good on on a partnership announced nearly a year ago teaming the nation’s No. 2 carrier with MTV Networks Inc. and RealNetworks Inc., which operates the online service Rhapsody.
Vcast Music with Rhapsody is a $15-per-month service that grants unlimited access to more than 5 million tunes; access is denied when the subscription lapses. Verizon Wireless customers can also – or alternatively – pay $2 to download both a DRM-protected tune to a handset and an unprotected copy to a PC. Unprotected PC-only downloads are also available through Rhapsody for $1 each.
The offering is supported by nine devices already in the market, and the latest version of LG Electronic Co. Ltd.’s Chocolate will be the first handset optimized for the service when it hits shelves in July.
“This is significant for us, launching the joint service with Rhapsody, for a few reasons,” said John Harrobin, Verizon Wireless’ SVP of digital media and marketing. “First, when we launched Vcast Music in January 2006, we were surprised that 90-plus percent of purchases were made over the air by the mobile phone. Clearly, people valued the ability to discover new music spontaneously, but we had to improve the PC experience because that’s where they manage their music.”

Managing the music
Helping people manage their music is one thing, of course, but whether carriers can cash in by selling tunes is still far from clear. While hard data regarding downloads – and, more importantly, revenue – is hard to come by, there is little evidence that any mobile version of Apple Inc.’s iTunes is gaining ground. AT&T Mobility offers both an all-you-can-eat music service and over-the-air downloads, but the offering has not been aggressively marketed since its November 2006 launch. And Sprint Nextel Corp. last year was forced to lower the price for its over-the-air downloads from a hefty $2.50 to $1 in an effort to compete with online storefronts. Meanwhile, newcomers Nokia Corp. (Comes With Music) and Omniphone (MusicStation Max) , have yet to divulge figures regarding uptake of their services, which package access to tunes with the purchase of handsets.
Verizon Wireless’ latest effort offers a few reasons for hope, at least: the service includes a DRM-free component, allowing users to transfer the tune to any device – including Apple’s iPod, which dominates the stand-alone portable music player market. And just as Real will benefit from the reach of Verizon Wireless’ vast subscriber base, the carrier will enjoy a marketing effort touting the new Rhapsody to the tune of more than $40 million a year, thanks to MTV’s stake in the service.

Rent vs. buy
But the concept of renting music – as opposed to buying tunes – has failed to take hold, with MTV, Virgin Group, AOL L.L.C. and Yahoo Inc. all shuttering subscription services within the past year or so. And the rise of iTunes and its competitors and the sub-dollar per-song price point has resulted in whisker-thin margins for vendors. So the prospect of another link in the value chain – in the form of carriers, specifically – is dubious.
“The question is, how much are consumers going to download,” said John Barrett, director of research at Parks Associates, regarding Verizon Wireless’ new service. “I think the challenge there has been that kids get (music) free, and it’s hard to compete against that. It’s particularly hard for mobile to compete against that, because you’re paying a premium to get it to the phone. Kids, we know from our studies, are a bit price conscious. If they can wait a little while until they get home (to download a tune) and transfer it to the phone, that’s what they’ll do.”
And while iTunes’ price points of 99 cents per song and $9.99 per album were once industry standards, those bars are being lowered by new players such as Amazon.com and Wal-Mart.
Ringtones continue to generate substantial, if decreasing, revenues for network operators, and ringback tones – which must reside on the network, not the handset – provide a beacon of hope on the mobile music landscape. Also, it’s possible that ad-supported music services could take hold, giving carriers and their music-label partners a substantial new revenue stream.
For now, though, it may behoove network operators to stop trying to make money from song purchases and start using music as a way to create stickiness and sell other mobile goodies.
“At the heart of the challenge is that music for a while has been a loss-leader, which is worse than being a commodity,” Barrett observed. “Best Buy, Wal-Mart, Apple, they use music as a way to get people to buy other stuff. And the music business has really been struggling with that.”

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