Finding the marriage of mobile and music: Record labels, wireless providers need to rethink their positions in the market

My e-mail inbox is teeming with pitches offering self-serving “predictions” for 2009 that read more like best-case scenarios for those hoping to cash in on mobile. But here’s a forecast of my own: 2009 will be the year record labels and carriers finally wise up and realize there’s no money in full-track mobile downloads.
At least, not in selling them.
Don’t get me wrong – there are some sound reasons to be reasonably optimistic about mobile music in general. Ringtone revenues may be flattening, but they’ll continue to serve as a much-needed buoy for a music industry desperately seeking ways to offset ever-plummeting CD sales. And ringbacks will continue to quietly gain steam as – like text messaging – they virally move beyond early adopters into the mainstream.
But it’s time to put an end to the carrier-as-iTunes scenario. Ringtones and ringbacks are the aural equivalent of bumper stickers, alerting friends and family to the preferences of the user. Full-length songs are designed to be consumed, on the other hand, not broadcasted. While many users are still willing to pay a premium for snippets of “personalization,” entire songs are a completely different kind of content.
And it didn’t take long for online music distributors to sprint for the lowest possible price point, leaving consumers eternally grateful to Apple and creating an industry of razor-thin margins. Over-the-air downloads result in even higher delivery costs, turning slim margins into loss-leaders.
There are other ways to make money in full-track downloads, though. Nokia Corp. and Sony Ericsson are following Apple’s pioneering move and using music to lure users to shell out big bucks for cool gadgets. And while ad-supported full-track services have yet to get legs online – thanks largely to the music industry’s onerous royalty rates – ad revenues may eventually play a major role in wireless music offerings.
“Paying for music is progressively becoming a niche activity as the value of recorded music is already in steep, possibly terminal, decline,” Screen Digest’s Christine Binns said in a report the market analyst firm released last week. “Operators and service providers are using music in different ways to add value to their service and make money. But increasingly a consensus is emerging that music has to be offered free.”
Binns suggests sound business models can be constructed upon bundled offerings as well as subscription services. But the attractiveness of a typical mobile music bundle is questionable – there’s something unpalatable about paying for both a full-length song and a ringtone of that same tune – and the viability of online music subscriptions is dubious. MTV, Virgin Group, AOL and Yahoo Inc. have all shuttered online subscription services in the last year or so; what hope can there possibly be for a mobile subscription service?
Instead, players in the space need some fresh ideas. Record labels must find innovative ways to get their stuff into the hands of consumers and expose music lovers to undiscovered artists – even if it means sacrificing immediate revenues in exchange for long-term gains. It’s imperative that the music industry view network operators as the modern-day equivalent of radio stations. Record labels should leverage wireless carriers as a marketing tool, instead of seeing them as a retail storefront. And, as Sony BMG has begun to do, they must experiment with mobile Web sites and downloadable applications as marketing tools.
There are a few signs of hope online, where Pandora.com is exposing fans to music they may never have heard. SpiralFrog is allowing users to download free tunes, and MySpace Music offers on-demand songs – and they’re all doing it with the help of ad dollars. Those models are slowly seeping into mobile – Pandora’s iPhone app has been a runaway hit with a total of 2 million users as of last week – but none is being leveraged as a marketing tool by either carriers or music labels.
Conversely, carriers would do well to stop trying to create a new place in an already crowded value chain. Like Nokia and other manufacturers, they should use music as a way to lure subscribers and create stickiness, not as another item to be sold. Because when it comes to full-track downloads, it’s not like they’re making any real money anyway.