Industry continues struggle with full-track music : OTA or side-loading, results remain mixed

Whether it’s through a transistor radio, a Walkman or an iPod, on-the-go music has an impressive track record as a business model. But when it comes to revenues from full-track downloads, their may be little room on the dance floor for carriers.
Mobile music sales-generally comprising ringtones, ringback tones and full-track downloads-are expected to surge in the next few years, exploding from a $1 billion global industry last year to $7.3 billion in 2011, according to eMarketer. More than 50 million U.S. consumers will generate more than $1 billion in mobile music revenues in 2010, IDC predicts, as wireless music services threaten to surpass their online counterparts in overall sales.
Where operators fit in the value chain-if they fit in at all-is far from clear, however.
Full-track lag
Carriers and content providers have cashed in on the ringtone craze, of course, convincing users to pay a few dollars for a 30-second clip of popular tunes. And while many believe sales have plateaued-the publishing firm BMI projects a $50 million drop-off in ringtone revenues this year from 2006-ringback tones have quietly continued to gain steady traction.
But full-track downloads, which have long been viewed as a potential cash cow for both operators and music labels, have been slow to find an audience. Instead of paying a premium to carriers such as Verizon Wireless and Sprint Nextel Corp. for over-the-air downloads, subscribers are opting to sideload tunes from their existing libraries onto new, music-friendly handsets, according to a new report from iSuppli Corp.
“Sideloading is really coming into its own because of the proliferation of local interface choices in mobile handsets,” iSuppli analyst Frank Dickson said. “These interfaces easily allow subscribers to connect their phones to PCs or other devices in order to download content without even needing the wireless carriers.”
That trend will continue, according to the market research firm, as more phones come to market with USB connectivity and Bluetooth technology. Embracing the alternative
AT&T Mobility and Alltel Corp. have embraced sideloading with music services that encourage sideloading. Alltel’s Jump Music interfaces with online retailer eMusic, which offers more than 2.5 million tracks in the DRM-free MP3 format; AT&T Mobility’s recent offering works with several distributors including Napster and Yahoo Music.
Verizon Wireless and Sprint Nextel, meanwhile, have taken a different tack, opting to gain ground as a kind of mobile version of Apple Inc’s iTunes service. While both operators allow sideloading, their services are built around carrier-branded music storefronts. Both carriers say their full-track services have been successful, of course. Sprint Nextel recently cut its download price from $2.50 per song to iTunes’ 99-cent price point. Verizon Wireless meets the iTunes price for computer downloads, but charges $2 for OTA delivery.
Managing margins
Given the razor-thin margins of digital music sales, it’s unlikely carriers will fill their coffers at the expense of music lovers. Then again, that isn’t really the point of most mobile music services, according to John du Pre Gauntt, a senior analyst with eMarketer.
“From a carrier perspective, music retail is not the main business that they’re in,” said du Pre Gauntt. There is no way that a tier-one operator can sell retail music in a way that’s going to trip the stock price. What music is valuable for, especially as you get into Europe and Asia, is poaching customers from other carriers.”
Connecting with customers
Network operators can leverage technology to offer features others can’t, such as recommending tunes to subscribers based on their listening habits and demographic profiles. But carriers would be wise to use community-based services and other offerings that enhance stickiness instead of focusing on projected revenues from mobile music, du Pre Gaunt noted.
“Mobile music is basically something everyone clues in to,” said du Pre Gauntt. “That’s a typical human behavior. If you can align well with that, you’re going to make money. The consumer behavior is finally going to be the one that wins out.”