USA’s Mobile Music Frontier

In late March, Billboard presented its annual Mobile Entertainment Live conference as part of the larger CTIA wireless conference in Las Vegas, Nevada. Featuring panelists and keynotes from leaders in the mobile phone, digital content, and music industries, the conference focused on finally bringing mobile music to a truly mass audience in the United States. I took a plane from Boston to see it for myself and separate the facts from the hype.
Though it may sound surprising to an American, mobile music is actually equal to online music in terms of sales around the globe. In places like Japan and Korea, people are enthusiastic consumers of content like music tracks, games, videos, and ringbacks on their cell phones. Right now video ringbacks are being rolled out in Korea, allowing people to see a video message every time they call their friends. In Japan, mobile accounts for 90% of all digital music sales (which, impressively, have successfully offset the steady decline in CD sales).
Mobile Entertainment Live did not try to shy away from the problems and challenges facing mobile music in the United States. In fact, the conference attempted to face them head-on. Moderators usually did their best to encourage panelists to point the finger at each other. The titles of the panels asked questions like “What sucks?” and “Who’s dropping the ball?” Though all the disagreements were usually light-hearted and friendly, I couldn’t help but feeling that there was at least occasionally real tension in the air.
A Chaotic Market
Both mobile carriers and record companies see the success of mobile around the globe as proof that there is a lot of untapped market potential in the United States. Right now, there are more phones capable of downloading full tracks than iPods in this country. According to surveys cited at the conference, a large percentage of Americans are interested in using their phones for music. So why do only 5% of mobile users in this country actually use their phones for music?
By consensus, the biggest culprit is chaos. I heard variations on that same theme throughout the day. Consumers are often confused about what content is available, how to access it, and how much it costs. Each of those things varies from phone to phone and carrier to carrier. For example, customers used to buying ringtones may be surprised to find they need to pay a monthly subscription fee to use ringback tones, and then must purchase the right to use the track of their choice for just one year.
A similar chaos reigns among carriers and content providers, too. In contrast to Japan, there is little technical unity between the carriers and phone manufacturers. Each carrier has its own so-called ‘walled garden’ of content. That means customers using, say, Verizon, can only access content provided by Verizon and never via third-party services. It is a long and laborious process to make content compatible with all, or even most, phones and carriers.
Because it is such a new technology, there is no established business model for mobile music. Phone companies, handset manufacturers, record labels and others often have trouble hammering out workable deals. Pete Lurie of Virgin Mobile said that there are often simply too many people looking for a piece of the pie. “When there are 3 or 4 parties that each want 50%, it simply doesn’t work.”
Additional Problems
It is partly that impulse to maximize revenue from each and every transaction that has led to another one of mobile music’s stumbling blocks. While songs can be streamed for free and purchased for less than a dollar online, each track on a mobile phone usually costs $1.99. Ringtones and ringbacks cost even more. In an era where music stores often have a difficult time convincing consumers to pay anything for music, two bucks for one song can seem a bit steep. When one considers that music sales are derived from people’s disposable income in a worsening economy, the problem becomes even clearer.
During the Music Content Supersession, Craig Kaiser of AT&T defended his company’s service, laying out its strengths and many features. However, at one point moderator Antony Bruno cut in to ask him exactly how much it all cost. I found it very telling that Mr. Kaiser hesitated a brief moment before answering that tracks cost $1.99 each and the data plans he had mentioned require a monthly fee. He seemed to sense that his answer would probably not ease anyone’s skepticism. Some of the other panelists stressed the need to improve and enhance the user’s experience in all ways.
There certainly is room for improvement. Small screens and unfamiliar user interfaces make browsing content on many phones difficult and awkward. Special headsets are often required to listen to music privately because many handsets lack a standard 1/8” headphone jack. It is often necessary to purchase extra memory cards to supplement the phone’s small amount of storage space. Once songs are saved onto a mobile device, there is no convenient way to move that music onto a computer or a new cell phone.
Compare that to the seamless experience offered by iTunes. A music fan can rip CDs, purchase relatively inexpensive music, manage their library, create playlists and much more with a single program. That library can easily be uploaded to an iPod, iPhone, or burned onto a CD with the same application. The music experience on most mobile phones cannot hold a candle to that. It is easy to see why most consumers choose not to pay $1.99 a track on their cell phones.
Workable Solutions
The whole conference was not, however, simply a long series of lamentations. The panels, in particular, seemed to harp on negatives points while the day’s multiple keynote speakers tended to have a very positive tone. The speakers were all leaders in their fields and represented companies who are finding success in a difficult business.
The first keynote speaker of the day, Tero Ojanpera of Nokia, discussed his company’s new Comes With Music program. Customers purchasing certain Nokia handsets will be able to download an unlimited number of tracks for an entire year after the purchase. The subscription fee for that year is paid by the manufacturer and included in the purchase price of the device. When those 12 months are up, the customer can keep all downloaded tracks. The service is scheduled to roll out later this year. Universal is already on board with the deal while Nokia is still hammering out deals with the other major labels. Mr. Ojanpera declined to comment on details of the ongoing negotiations or the existing deal with Universal.
Comes With Music certainly eliminates many of the problems discussed above. The handset, based on the advertising I’ve seen, seems to be a highly functional music player. The cost, a mere $5 per month, will be invisible to the customer and perhaps even absorbed by Nokia. Questions do remain, however. Possible DRM restrictions on downloaded music are still unclear, but internet rumors indicate that tracks will be incompatible with Zunes and iPods and burning to a CD will incur an additional fee. How much these restrictions will affect the popularity of the product remains to be seen. Regardless, Comes With Music represents a fantastic step forward.
In fact, Comes With Music is not the only new thing coming from Nokia. Their new program, Ovi, will allows users to access, use, create, and share a wide variety of content using their their mobile phones. Ojanpera said Nokia’s goal was to create a new mobile experience, rather than to attempt to recreate the PC experience on mobile phones. I do not know how the public will react to Nokia’s new products, but I was impressed by their focus on a personalized, customizable experience.
Rob Glaser, the founder, chairman, and CEO of RealNetworks spent some time going over some of the same problems mentioned by panelists throughout the conference while discussing his company’s attempt to bring its Rhapsody service to mobile phones. He said that the chaos in the industry is squandering the enthusiasm of the young generation for new technology. Stressing that the restrictive services currently in existence are always in competition with the unrestricted ease of illegal downloads, Mr. Glasser insisted that companies must provide a simple and enjoyable experience to their users. The focus should not be on maximizing revenue right now, but rather on creating an experience customers can fall in love with. Once users are hooked, revenues will follow.
This philosophy is reflected in the development of Rhapsody on the Verizon network. Mr. Glasser vowed the service would not be launched until it works properly on all handsets sold by the carrier. He said that there was a long way to go before the product was perfect, but progressing technology will bring down prices and encourage adoption among consumers. For now, it is important to at least offer a functional, intuitive experience.
Here Glasser touched upon the iPhone, a topic that surprisingly did not come up very often. He said that while it offered superior features, Apple’s product had yet to reach its goal of a 1% market share. Many affluent and tech-savvy users will continue to flock to the iPhone, but the vast majority of the market will not. Its cost and availability on only one network are major barriers to mass adoption. This raises a dilemma for other companies: is it better to create a fantastic product for a limited audience or focus on the broader market? For now, RealNetworks and the other companies represented at Mobile Music Live seem to be opting for the latter.
Indeed, for all of this talk about how mobile is not taking off, it’s easy to forget that there is a phone mobile customers are enthusiastically using to purchase and enjoy music and other content. I was at first surprised that the iPhone was talked of infrequently and sometimes dismissively at Mobile Music Live.
But Peter Lurie of Virgin Mobile made a great point that I think helps explain the disinterest in the iPhone during the conference. The average mobile customer probably cannot or will not spend $400-500 on a phone, no matter how great it is. Customers are used to receiving free or heavily subsidized phones from their carriers. Add to that the fact that iPhones are available on only one network, AT&T, it becomes much easier to explain why the iPhone is not necessarily seen as the future of mobile music, despite being a truly great product.
Different Perspectives
Mathew Knowles, father of Beyoncé Knowles, has managed and produced Destiny’s Child and his daughter’s solo pursuits, among many others. He was an integral part of the negotiations that led to Samsung’s new Beyoncé-themed B’Phone. Not being in the mobile business, he spent little time talking about the technical details of the new phone. Rather, his focus was on branding.
Knowles is a major proponent of the developing “360” model in the record industry. Because record labels are most responsible for developing an artist, Knowles believes it is rather unfair for other companies to benefit from that “product” while the label struggles to break even. The B’Phone is an example of expanding products and revenues beyond the standard fare of CDs, concert tickets, and t-shirts.
But more than being a revenue stream, the phone is an exercise in branding. Because his background is mostly in the corporate world, Knowles says he is a bit different than most music managers. “I do not consider myself to be in the music business. I am in the branding business.” The B’Phone features her name on the front, Beyoncé-themed artwork, and a song recorded by the singer when she was only 10 years old. While the product may prove to be popular among her fans, its impact on the mobile and music business remains to be seen. Similar products, like the U2 iPod offered by Apple a couple years ago, have enjoyed some success but have not created any large wave of branded products.
Mobile Entertainment Live spent a lot of time discussing mobile content beyond music. Steve Jang of social networking site Imeem discussed his innovative website and how the company is making profiles available via mobile handsets. George Kliavkoff of NBC spoke about content created based on hit shows and the network’s dispute with Apple over iTunes.
Billboard’s Mobile Entertainment Live was interesting because it brought together a disparate group of people and allowed opposing viewpoints to be aired freely. While I left Las Vegas with no solid conclusions or answers about the future of mobile music, I felt confident that those answers would be clear in time. Fantastic people are working to create enjoyable, financially viable mobile music services for the masses using a wide variety of approaches. Eventually, one of those approaches will catch on. George Kliavkoff reminded the audience that the current issues with mobile content are uncannily similar to those with internet video 8-10 years ago and cable television long before that. If he’s right, mobile has a bright future indeed.

By Mark Schafer



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