Alarm bells ring as music downloads go mobile
By Natalie Hanman

It's enough to leave record-label executives trembling: researchers in Sweden are developing an application that could allow music to be sent wirelessly from one mobile device to another. It's a concept that threatens content owners' rights and, especially, revenue, just as illicit internet file sharing does.

The Push!Music prototype being developed at the Future Applications Lab at the Viktoria Institute in Sweden is a mobile, peer-to-peer (P2P) music-listening and sharing application that runs on Wi-Fi-enabled devices. It allows users to "push" music to others in the area. In effect, you are opening your mobile music collection to others. It's a digital rights management migraine in the making. "There is no reason why P2P will not exist on mobiles - it existed on the internet," says Thomas Husson, a mobile analyst at Jupiter Research.

Bluetooth, which allows content such as music to be wirelessly exchanged, is already a popular mobile-phone function with many uses, some less savoury than others. Happy slapping - when a person or group hits an unsuspecting victim as an accomplice films it - has been virally passed between mobiles using Bluetooth.

The speed and ease with which such content spreads is astounding. Yet mobile operators claim they are not responsible for what their customers exchange. "There is good technology [but] some are using it for criminal purposes," says Simon Dyson, senior analyst at Informa. "I don't think there's anything mobile companies can do to prevent it. Because Bluetooth has so many uses, and so many applications use Bluetooth, it's not feasible to stop shipping handsets that use it."

While Push!Music insists the project's aim is not to create an illegal way to share files, the mobile and music industries risk missing out on a lucrative market if they are not prepared for wireless song-swapping. "They want to get it right from the start to avoid the problems with file sharing," says Dyson. "They see it as a real money maker."

However, as the Mobile Music 2005 report by the analysts Informa Telecoms and Media concludes, getting the process right is proving a challenge. In just seven years, mobile music - from ringtones to full-track downloads - has grown into a business worth $5.5bn (£3.2bn). Many analysts believe that within five years, the mobile could replace the iPod as the most popular digital music device. But that can happen only if issues such as compatibility, licensing, pricing and digital rights management are resolved.

The runaway success has been ringtones, which accounted for 89% of global mobile music revenues last year. By contrast, full-length music downloads contributed 1%; that's $4,912.7m from ringtones and just $65.1m from full-track downloads.

Hot competition

Competition to be the best in providing full-track mobile downloads is hotting up, as talent, trusted branding and technology combine to create the most popular device, such as SonyEricsson's Walkman phone and the Rokr mobile from Motorola and Apple. Operators have been busy, too: Vodafone launched full-track downloads in November 2004 as a flagship element of its 3G services, boasting 1m downloads by the end of February 2005.

So the industry is ready, but is the public? Why should they bother buying mobile music when internet downloads are faster, cheaper and easier to navigate? Mobile music does offer some advantages. First, it satisfies the impulse buyer. A consumer could hear a song they like, use their handset to identify it through technology provided by companies such as Shazam and buy the song immediately.

Second, music downloads offer the opportunity for bundling offers, allowing consumers to buy a ringtone, wallpaper, ringback tone and video tone along with a full-track purchase; teenagers, a target market, love the mobile's element of personalisation and bundles provide this in one easy, mobile move.

Third, "dual download" systems could capitalise on the popularity of ringtones: if you buy a full-track download on your mobile, you also get it sent to your email or online account. "The two aren't going to be separate," says Dyson. "The internet has taken off in terms of music but the mobile is catching up. In Japan, mobile downloads are more popular than internet downloads."

There's no need to worry about your mobile signal cutting out in a tunnel: if you have downloaded the track to your mobile, it will work like an MP3 player. Only streaming will be affected by a lack of reception or if you lose reception while downloading.

But even if consumers start downloading songs to their mobiles en masse, how do you prevent them sharing them illegally? After all, it only takes one person with a PC and a Bluetooth-enabled MP3-playing phone to start a P2P nightmare. Record labels have suffered a huge loss of revenue because of their tardy reaction to file sharing. Since the first monophonic ringtones in 1998, DRM has been applied to ensure files cannot be spontaneously copied as easily as on the internet.

Reward offers

The Open Mobile Alliance has released two sets of DRM specifications, the second of which, OMA DRM 2.0, came out in February 2004. But it is so complex, manufacturers are still testing it. When ready, it will allow sophisticated subscription and streaming models; the ability to prevent a track being forwarded to another device; and "superdistribution", a viral marketing tool that allows users to send a track to a friend, who can play a 30-second clip. If the friend buys a licence for the full track, the original user is rewarded.

Orange looks as though it will be first to launch OMA2 in handsets in the UK later this year. Francis Keeling, the commercial director of new media and digital services at the record label Universal Music UK, praises the format's superior security: "Mobile piracy is a threat but the big difference between the P2P threat now and five years ago is there are many legitimate services providing good browse-and-buy alternatives across PC and mobile."

EMI hopes to deter mobile music users from acting illegally by promoting legal downloads. It recently undertook a trial with Nokia in Finland where, in the controlled environment of a coffee shop, consumers could stream songs and music-related content. In the UK, it promoted Coldplay's album X&Y by offering streaming content at railway stations.

But content isn't the only component of success. Apple's success with the iPod and the iTunes Music Store lies in its style and simplicity. The mobile music industry needs to make the legal experience of Bluetoothing music user-friendly and fairly priced, so those seeking music won't try to do it illegally. But as Torsti Tenhunen, the head of sales and marketing at Nokia Ventures Organisation, concedes: "If a user is transferring a song that is not DRM-protected, then there is nothing we can do."

Instead, content holders must accept a certain amount of revenue is always going to be lost. "Most handset manufacturers are aware users rip their CD collection from the PC to the phone and share it," says Husson. "The question here is more, 'how long are mobile operators going to subsidise those phones?' The answer is: 'As long as the mobile remains an acquisition tool'. And the number of music phones sold is increasing dramatically."