Operators are beginning to deploy full-track digital music services as a way to increase revenues, boost customer loyalty and slow churn. But if carriers are going to compete with Apple Computer Inc.’s iTunes, they may want to take a hard look at the iPod.
While the wireless industry has yet to iron out the business-model wrinkles for full-track downloads, many other pieces of the puzzle are falling into place. Operators are building on relationships with record labels and artists to offer impressive music portfolios, and 3G networks have eliminated much of the pain that often accompanies browsing for content on a handset.
Pricing structures are becoming more consumer-friendly, as well. Although Sprint Nextel Corp.-which late last year became the first U.S. operator to launch a full-track service-continues to offer dual downloads at a cautious $2.50 per song, Verizon Wireless is courting music lovers aggressively with its Vcast Music. The service allows subscribers to download tunes to their handsets for $2 each or to a PC for $1 per song.
Cingular Wireless L.L.C. and T-Mobile USA Inc. have yet to launch full-track services. However, all of the nation’s wireless operators have already developed significant businesses around ringtones and other music offerings.
Thus, the industry appears to be well-equipped as it steps onto the full-track mobile music playground. Finding the right hardware, though, is proving difficult.
“Without a doubt, we think there’s a lot of room for improvement when it comes to making a music-friendly mobile phone,” said IDC research analyst David Linsalata. “There are just a lot of things that MP3 players do really well that phones aren’t quite up to speed on.”
Apple itself gave evidence to the hardships in creating a music-friendly handset last year when it teamed with Motorola Inc. to launch the Rokr, an iTunes-capable phone for Cingular’s network. The long-awaited device failed to live up to substantial pre-release hype, and users reportedly returned the handset at three to six times the industry average.
Motorola continues to work with Apple though, embedding iTunes software on U.S. versions of its new Slvr. However, it is hedging its bets with a second version of the Rokr, due out later this quarter-the device will support Motorola’s own iRadio service.
Other manufacturers have reported modest successes, including Sony Ericsson Mobile Communications L.P., which earlier this month said it has sold more than 3 million of its Walkman phones since the first branded handset hit the market six months ago. The company also unveiled a new Walkman model due in the third quarter that features 4 gigabytes of flash memory storage capacity-the same as the iPod Nano-and a Symbian operating system.
Nokia Corp. is making a strong play for mobile music lovers with its 3250, which features dedicated “music keys” on the back of a swiveling keypad. The handset, which is not yet available in the United States, also offers an FM radio, 10 hours of audio playback and a 3.5-millimeter headphone jack.
“It automatically changes the interface” as users switch from the traditional keypad to the dedicated keys, said Matti Kuorehjarvi, Nokia’s director of broad appeal, as he showcased the phone earlier this month at the 3GSM World Congress in Barcelona. “And it stops the music with an incoming call, then restarts with the end of a call.”
BenQ-Siemens also is targeting music lovers with the EF91, an HSDPA-enabled handset that supports MP3s and features virtual surround sound as well as a “display lyrics” feature that shows the words of songs being played. The phone is due later this summer.
Most new music-friendly phones tend to be high-end handsets with price tags to match, however, highlighting the difficulties-and costs-in bringing such devices to market.
Perhaps the biggest headache in building a music phone is the ever-present nightmare of digital rights management. While vendors like Apple can afford to churn out digital music players with proprietary technology in an effort to “own” the customer, handset manufacturers often must support a number of DRM solutions from different carriers and content providers.
Nokia experienced DRM-related delays with its N91 music-capable smart phone. The model was slated for launch late last year, but was held up as the company had difficulties implementing Microsoft Corp.’s anti-piracy software on the device. The N91 is expected to ship in the next several weeks.
Memory issues too stood as a substantial hurdle for manufacturers. But recent declines in the price of flash memory have given handset makers the chance to add vast amounts of storage to their devices with little extra cost.
But the industry continues to struggle with cumbersome user interface issues, and manufacturers may be years away from an intuitive music-focused device that captures music lovers the way the iPod line has.
However, mimicking Apple’s ubiquitous digital music player may not be the path to prosperity either, Linsalata warned. At least for the near future, users may be more willing to carry two devices-a phone and a dedicated music player-than to use their phones to store and play back digital music libraries.
“Ninety-nine times out of a hundred, when a mobile phone tries to be for something other than voice first, it fails; N-Gage (Nokia’s gamer-targeted handset) is a classic example of that,” Linsalata said. “People always buy mobile phones for the voice connectivity. Any other feature-while it may receive a huge focus-will be something that is still secondary. Changing that mindset is still a huge hurdle.”
