Now, they're getting ready to do something about it.
Led by Verizon Wireless and Sprint Wireless, the big phone carriers are edging toward releasing their own, aimed at persuading people to download or listen to music files over new broadband wireless networks. Slated to begin selling music perhaps as early as the end of this year, these services are prompting eager looks by record labels hungry to expand the reach of digital music.
The big phone carriers are edging toward releasing their own iTunes-like music services.
The planned wireless services could ultimately be the biggest threat to Apple's dominance of the digital music business.
The planned wireless services could ultimately be the biggest threat to Apple's dominance of the digital music business since the iTunes online music store opened in 2003.
All the major cell phone companies have now announced cell phones that will store and play music, largely supporting either MP3 files or Microsoft's Windows Media format. In a speechon Monday, Chief Executive Officer Ed Zander spotlighted music as one of the key growth areas for phones.
"Motorola is going to be very big in music in the coming year," Zander said. "We believe that music will be the next big thing."
Yet much will depend on the wireless carriers' early business choices, since they have little experience in the media distribution business. At least in the United States, music is likely to be as much as two or three times as expensive on wireless devices, with a smaller selection available for purchase, compared to services such as iTunes, analysts say.
That extra cost is in part because labels and carriers see phone consumers' willingness to pay $3 or more for ring tones--essentially phone rings customized with snippets of hit songs or other audio files--as evidence that they'll pay more than 99 cents for a full song. Carriers also think consumers may pay more for the convenience of instantly buying a song wherever they are.
"We're still very much in the infancy of wireless music," IDC analyst Susan Kevorkian said. "We expect that carriers offering wireless music stores directly to consumers will be focusing on offering music to people to capitalize on the impulse buy."
Nevertheless, the carriers' plans mark a convergence of interests between the giant mobile phone networks and record labels that could give wireless music legs.
Wireless carriers, particularly those moving to so-called third-generation, or 3G, broadband data networks need to find applications that will persuade customers to sign up for more expensive data plans. Downloading and streaming music has already proved to be a popular use for phones in Europe and Asia, to the point where South Korea's SK Telecom has invested in that country's largest record label.
For their part, record label executives see great potential in expanding digital music sales to the audience of cell phone users, which at more than 170 million in the United States alone dwarfs the number of people who have purchased iPods or any other MP3 players.
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A side benefit, some executives add, is that the mobile market may also expand the market enough toover the digital music business. The company's power has allowed it to stand in the way of features the record labels want, such as flexible pricing and compatibility between competing services.
"People say Apple dominates the download category, and that raises real issues for music companies and competitors," said one top label executive, who asked not to be named. "They ask how anyone could really change that. Well, I think that the mobile space provides