If Amp’d Mobile Inc.’s bargain-basement full-track download music service was designed to get attention, it’s working.
The recently launched mobile virtual network operator made headlines a few weeks ago when it said it would match the price of Apple Computer Inc.’s iTunes service, selling full songs for 99 cents per download. The announcement was a shot across the bow of Sprint Nextel Corp., which offers tunes at the potentially prohibitive price of $2.50 each, and a pre-emptive strike at other U.S. operators that have yet to deploy full-track services.
But whether Amp’d’s opening volley signals the beginning of a long-term strategy or a simple publicity stunt remains to be seen. The company, which declined interview requests from RCR Wireless News for this story, has said it will stick to 99-cent downloads to compete with Apple even as it loses about 25 cents per transaction to record labels.
The operator comes out of the gate with an impressive music portfolio: EMI Group, Warner Music Group and Vivendi Universal’s Universal Music Group all reportedly have signed on, leaving Sony BMG-which is said to have balked at Amp’d’s pricing structure-as the lone major label on the sidelines.
And Amp’d has plenty of deep-pocketed allies, including MTV Networks, which two weeks ago announced a $50 million investment in the operator. The Viacom Inc. subsidiary also will work with Amp’d to create video content exclusively for mobile subscribers.
Regardless of what kind of bank account Amp’d has access to, though, its 99-cent download offering can’t last long, according to Andrew Cole, president of Cambridge Strategic Management Group.
“Amp’d’s pricing is totally unsustainable and will have to change,” Cole told RCR Wireless News. “One can only assume that Amp’d has a short-term entry strategy that will modify over time as they respond to increasing investor pressure to generate a profit.”
There’s no question that the stakes are high for wireless players looking to create space at the table. Mobile music is expected to explode into a $7.2 billion industry in 2007, according to London-based consulting firm DhaliwalBrown, more than doubling revenue from 2004.
But operators looking to cash in face a daunting task. The music industry’s efforts to encourage Apple to raise its per-song price are well documented, and New York Attorney General Eliot Spitzer is investigating allegations several publishers used price-fixing in an attempt to raise wholesale costs for digital music providers.
And it’s not like Apple is making a mint off its music service: analysts estimate iTunes nets between 5 and 10 cents per download; the company instead opts to maximize profits from its iPod line. Wal-Mart, which sells digital tunes for 88 cents each, is one of several providers actually undercutting iTunes.
As high-tech phones with improved music storage capabilities come onto the market, users are sure to want to “side-load” downloaded tunes from their PCs onto their handsets. So carriers looking to create a link in the mobile music value chain either must somehow convince users to pay a premium for mobile music services or find ways to compete head-on with online digital music providers.
One way to avoid the pay-per-song price war is to offer a subscription service. Yahoo, Napster and RealNetworks Inc. are among the Internet players trying to “rent” music, allowing users unlimited downloads for a monthly fee. Users pay a recurring fee and synch their music files each month to confirm valid subscriptions.
“Other carriers in North America and Europe are really starting to look at subscription services,” according to Stan Sorensen, senior director of product management and marketing for Melodeo Inc. “They’re starting to see that as being more advantageous to them.”
A subscription model doesn’t necessarily mean a better business model, however. Yahoo recently upped the monthly fee for its service from $7 to $12 a month, and competitors Napster and RealNetworks’ Rhapsody charge $15 a month.
While such fees may make for attractive revenue shares, they’re not likely to draw substantial numbers of music lovers. A recent report from Parks Associates found that such services will need to fall below $10 a month to gain much traction. To survive at a higher price point, music providers must be able to deliver more than just digital song downloads-which could create partnership opportunities for wireless operators.
“Pure-plays like Napster may not be able to lower their prices, but to counter low-cost competition, they can ally with telecom service providers or other broadband carriers to make their music services part of a bundled package,” said Harry Wang, research analyst at Parks Associates. “Napster’s recent partnership with BellSouth (which offers an MP3 player and three-month Napster membership to BellSouth DSL subscribers) is a positive move in this direction.”
Wireless operators looking to cash in on mobile music will need to be creative not just in how they offer their services but also in developing compelling music-based offerings. The NPD Group recently said $1.75 was an “optimal price” for mobile downloads, but a 75-percent markup may not be justified by a single song purchase.
To warrant the increase, carriers may have to take advantage of a phone’s connectivity, allowing fans to create communities and exchange information through their music services. And operators should look beyond single-track purchases to bundled offerings to differentiate themselves from established Internet music vendors.
It’s unlikely that a subscription model for mobile music will attract mass-market users anytime soon. Hardcore music fans may devour a monthly all-you-can-eat offering, but casual listeners won’t spend $10 a month just to download a song or two a week-particularly given the limited memory capabilities of most cell phones.
Instead, it’s likely that operators and other mobile music providers find a middle ground between Amp’d’s discounted offering and Sprint’s pricey service. That middle ground, expected to be in the range of $1.50, will expand to Web-based services as the lines between mobile and Internet music providers blur, said Cole. Retailers are already considering establishing pricing structures based on demand, charging more for the hottest songs while offering obscure tunes on the cheap, allowing them to raise prices overall while marketing some songs at or below the 99-cent level.
Meanwhile, Amp’d is enjoying the buzz it created in the already-hot mobile music space-even if it is paying for it every time a user downloads a tune.
“In theory, Sprint and other carriers are not trying to compete with the Apple-dominated (Internet-to-device) model. We believe, however, that the two markets will merge over time,” said Cole. “Amp’d will generate subscribers, and so its decision to make digital music as a loss-leader product is clever and aggressive.”
