Moving Beyond Ringtones
By Yuki Noguchi
First, there were musical
ringtones. Then came "ring-back" tones -- tunes that play while a caller waits
for someone to pick up a mobile phone. Now cell phones are offering streaming
music, with access to online music stores on the way.
The wireless industry is making a big push into the music business, taking cues
from Apple Computer Inc.'s iPod and from its own success selling more that 182
million mobile phones.
Verizon Wireless said this week that it would offer a music-store service and a
music-player cell phone around year-end. Cingular Wireless LLC is considering a
similar deal with Motorola Inc. and Apple's iTunes music store; Napster Inc. and
Swedish phone maker Ericsson plan a similar joint venture. In December, Sprint
Corp. launched a music channel service that streams commercial-free music and
music videos, and it plans to work with Sirius Satellite Radio Holdings Inc. to
offer more music channels by the end of the year.
"Apple really pioneered digital music and has created such success that
everyone's eyeing it and wants a piece of it," said Darcy Travlos, an analyst
with market-research firm CreditSights. But there are pros and cons to making
cell phones multitask as music players.
The primary appeal of the cell phone is its ubiquity; nationally, more than 60
percent of people carry a cell phone, making the potential audience huge. The
success and profitability of other add-on functions, such as picture messaging,
ringtones and various entertainment services, is bolstering the case that the
cell phone could become the Holy Grail of consumer electronics: the all-in-one
"I strongly believe people will use cell phones as their multipurpose tools, and
one of the most logical choices for that is music," said Roger Entner, an
analyst with research firm Ovum who said he recently observed teenagers on
Boston's subway system playing loud music on their cell phones.
Last year, ringtones generated $400 million in sales in the United States, and
the total will reach $600 million this year, he said. "I see all the success of
all the MP3 players . . . [and] they beg to be integrated into something that is
already providing a great level of utility. Cell phones will do to the music
market what they have already done to the camera market."
But some skeptics point out mobile music has yet to make a big splash in Europe
and Asia, which tend to lead the United States in wireless trends.
"The question is, how do carriers make money?" said Ping Zhao, a senior analyst
with CreditSights. In Korea, news and entertainment content combined only make
up about 0.5 percent of carriers' revenue -- not enough to create a big
incentive for cell phone carriers to discount music-ready phones for customers,
Besides, Zhao added, music on cell phones comes with some trade-offs. Playing
music can limit the phone's battery life. It's also difficult to replicate the
iPod's simplicity on cell phones. Cell phone headsets often come with one "earbud,"
for example, a potential turnoff for consumers who want to listen to music in
stereo. Finally, to make mobile music profitable, cell phone companies must
strike a price low enough to appeal to customers and high enough to cover
licensing payments to the artists and recording labels.
But digital music in general is far outpacing its hard copy equivalent, growing
rapidly while sales of CDs have declined at a rate of between 5 percent and 7
percent a year since 1999, Travlos said.
Mobile music in the phone industry could eventually make up half or more of the
digital music business, Entner said, if the price is competitive with iTunes,
which charges 99 cents a song. If the songs are sold at $2 or $2.50 each, as
some services have suggested, the sales could be much lower, he said.
"The music category -- everything from ringtones to ring-backs to video -- is
just beyond hot," said Jeffrey Nelson, a spokesman for Verizon Wireless. "But we
are still looking at a whole host of business issues before we launch the
service," he said, including ironing out how to pay artists and recording labels
and making it a profitable business for the company.
Sprint keeps track of ringtone sales the way the music industry keeps billboard
"Beyonce has gone platinum with more than 1 million sales of ringtones," said
Nancy Beaton, Sprint's general manager of wireless music and personalization.
Rap star 50 Cent and R&B singer Usher have reached gold and platinum levels in
sales, she said. "We're trying to create a whole eco-system around music,"
Beaton said, so customers start to think of their phones as substitutes for
their music players.
D.C. resident Nicole Fann, a Sprint customer, hasn't yet made that transition.
"Right now I am thinking nothing could replace my iPod," said Fann, who carries
both cell phone and iPod with her everywhere. But, she added, "It would be nice
if I could have both in one."