September 7, 2005
Mobile Music Buys May Bring Meager Carrier Profit
NEW YORK -- Cell phones may become the new way for the iPod masses to download and listen to music in the coming years, but wireless companies may not see much of a boost to their profits from selling such services.
The biggest U.S. mobile service companies are considering selling phones that can play songs and some have plans to deliver music to phones over the wireless airwaves, in a bid to boost revenue as phone call prices drop.
Analysts expect Cingular Wireless, the biggest U.S. mobile service, to reveal plans on Wednesday to sell a new Motorola Inc. phone that comes with iTunes, the music store software from Apple Computer Inc., whose iPod player dominates the portable digital music market.
At least initially, Cingular is expected to let users transfer songs to the phone from computers rather than through wireless download services.
POOR PROFIT MARGINS FOR SONGS
Despite all the excitement about wireless song purchases, such mobile music is likely to deliver much poorer profit margins than wireless carriers are used to from phone calls or other services such as ringtones, one analyst said.
"There's very little room for profits from the full over-the-air download market," said Yankee Group analyst Linda Barrabee who believes music industry players could benefit most from these new types of services.
The No. 2 and No. 3 U.S. mobile services Verizon Wireless, and Sprint Nextel Corp. have already said they are planning mobile music download services.
Pricing these services could require a tough balancing act between profitability and creating widespread demand since iTunes, Apple's high profile digital music service, charges only 99 cents a song, analysts said.
Sprint has said it believes wireless customers, which already pay as much as $3 for ringtones, will pay more for song downloads on-the-go than for downloads to their computer.
Yankee's Barrabee doubts mobility will be enough of an incentive to make wireless consumers pay more per song than iTunes charges, but she added that if operators match Apple's price, profit prospects look meager.
About 70 percent of the sale price for iTunes songs downloaded on computers goes to music industry players, according to Yankee, and the remainder is split almost evenly between Apple and transaction processors such as credit card companies, she said.
In a mobile music world, operators could eliminate the credit card industry's roughly 15 percent share of the pie by charging through mobile phone bills. Yankee estimated that operators get 20 to 40 percent of revenue from ringtones.
Carriers' options could include bypassing Apple by setting up a rival to iTunes, or going with other partners such as RealNetworks Inc. or Napster Inc., which control less of the music download market than Apple, according to Yankee'.
Or phone companies may justify a wireless song premium if they give consumers new reasons to download songs wirelessly, Forrester analyst Charles Golvin said.
For example, song recognition software could be used to identify a song playing on a nearby radio and then let the user buy it through the cell phone.
Barrabee suggested that subscription services that let consumers pay a monthly fee to play an unlimited number of songs without actually buying the song could give carriers a greater share of the revenue from such services.
Golvin believes carriers could ask for as much as $4 for a package that could include a full song, a musical ringtone and maybe some graphics all related to the same song.
(additional reporting by Kirstin Ridley in London)