Cingular to jump onto mobile-music bandwagon

Cell phone operators want a piece of the mobile-music market, but to cash in they have to offer services that lets subscribers download songs over their networks instead of from their PCs.

So far, Verizon Wireless and Sprint Nextel are the only two major U.S. carriers offering such a service, with modest success. Sprint, which a year ago became the first, claims that more than 8 million songs have been downloaded since it launched the service. And Verizon, which launched its service in February, claims to be selling more than 1 million downloads per month.

Now, Cingular Wireless, the largest mobile operator in terms of total subscribers, wants a piece of the action too. The carrier, owned jointly by BellSouth and AT&T, announced Thursday that it's partnering with Napster, Yahoo Music, XM Satellite Radio and eMusic to offer a new music download service that will eventually offer people the option of downloading music over the Cingular network.

News of the deal was first reported Wednesday by The Wall Street Journal. Initially, the service will only allow songs to be downloaded onto phones from users' computers, but starting next year it will allow what is known as over-the-air downloads directly to phones, the article said.

Cingular is no stranger to the mobile-music business. Last year, it partnered with Apple Computer and Motorola to offer the Rokr, one of only a few phones that plays audio tracks purchased from Apple's iTunes music store. The carrier is also rumored to be working with Apple on the upcoming iPhone, which could be launched as soon as January.

But until now, Cingular hasn't discussed plans for a service that would let subscribers download music over the Cingular network.

"By offering the service over their own network, Cingular gets to control the selection of songs and the customer relationship," said Susan Kevorkian, an analyst with market researcher IDG. "But it has to be careful that if it launches its own branded music service, that it doesn't muddy the waters with other partners like Apple, which it will now be competing against."

A Cingular representative made it clear that Cingular is still working with Apple.

"Apple is a wonderful partner," said Mark Siegel, a spokesman for Cingular. "And we expect them to remain a wonderful partner for us."

Making music with cell phones
When it comes to listening and storing music on mobile phones, people typically have two options. They can download files onto their phones from a computer or they can use a carrier's mobile network to download songs directly to their phones.

The first option, called "side-loading," doesn't cost the person anything if he or she already owns the songs. This means people can import songs onto their phones from CDs they uploaded to their computer or songs purchased from an online music service. Unfortunately for mobile operators, they can't make money from songs that people side-load onto their phones.

Over the past year, Sprint and Verizon created new services that offered customers the option of downloading music directly to their phones over their 3G mobile networks. Because carriers control how songs are sold and because they own the networks that deliver the download, they can generate revenue from the service.

Even though downloading songs directly onto phones is typically at least twice as expensive as buying it somewhere else and side-loading it onto a phone, consumers seem to like the convenience.

 

According to IDG, about 9.7 million songs will be downloaded over the air to cell phones in 2006. That figure is expected to grow over the next few years. By 2010, IDG predicts, about 54.3 million songs will be downloaded annually. This translates into cold, hard cash for carriers. Together Sprint and Verizon will generate roughly $59.7 million in 2006, according to IDG. And by 2010 over-the-air music downloads will generate roughly $1.2 billion in revenue.

"For only having just a couple of services in the U.S., the market has seen modest levels of success initially," Kevorkian said.

Both Verizon and Sprint have seeded the market for future growth by offering handsets that support their music download services. Sprint now offers seven phones that can be used on its high-speed Power Vision network, including the LG LX550 (Fusic) and the Samsung A900. Verizon has had 13 such phones--11 of which are still being sold--that support its V Cast services, including the Motorola Krzr K1m, Motorola Razr V3c and V3m, and the LG VX8500, also known as Chocolate.

But getting the right handsets into their customers' hands is only part of the equation. If carriers want to be successful in selling their over-the-air services, they'll have to make sure their services are priced appropriately.

Sprint and Verizon each charge customers a premium for the convenience of getting a song when and where they want it. While iTunes or a comparable music service might charge 99 cents per song for downloading onto a computer, Sprint charges $2.50 per song and Verizon charges $1.99 per song for downloads onto cell phones.

What's more, Sprint customers are also required to pay additional fees to access the network. The company recommends customers subscribe to one of three data plans, which guarantee them the $2.50 fee per song. The plans are priced at $15, $20 and $25 per month. The $20 plan allows people to get one free download per month. The $25 plan allows for four free music downloads per month. Beyond that, customers pay the $2.50 per song.

Customers can choose to download music without a data plan, but it costs them 3 cents per kilobyte of data. (The average song has about 700 kilobytes of data.)

"Downloading songs without a data plan would be expensive," said Aaron Radelet, a spokesman for Sprint. "If you add up the kilobytes you have to pay to download the song, it comes out to cost a lot more than the entry-level data plan."

In short, to download the first song from Sprint's music store onto a cell phone costs a customer a minimum of $17.50 ($15 for the data plan and $2.50 for the song). Not a cheap proposition when the same song can downloaded onto a computer for 99 cents.

Linda Barrabee, an analyst with the Yankee Group, said carriers will have a hard time attracting customers to new mobile-entertainment services if they don't cut these additional fees.

"For some consumers, the extra data fees price them out of these entertainment services," she said. "Most people are already paying about $50 a month for cell phone service. To tack on another $15 to $20 fee is big increase for something they might not see a whole lot of value in right away."

When Verizon launched its music service it also charged customers a $15 fee to access the network in addition to the price of the song. But the company quickly realized that people were reluctant to try the service if they had to pay $15 a month. So in September when it launched the new Chocolate phone, Verizon dumped the $15 monthly data fee. Now customers are only charged a $1.99 per song plus the minutes it takes to download the song, which is anywhere from 30 seconds to 1 minute.

"People were afraid to try the service if they had to commit to a $15 monthly charge," said Jeffrey Nelson, a spokesman for Verizon. "They had the handsets, but they were intimidated by this extra charge. So we gave them the opportunity to snack on different content. And if they like it, they'll keep using the service."