Mobile entertainment faces issues

As cell phone operators prepare to offer music and video services, they'll need to settle basic business matters.

The cell phone is quickly becoming the Swiss Army knife of electronic gadgets, offering users everything from traditional voice calling to music listening to TV programming.

But before mainstream America starts listening to music and watching TV on cell phones, the industry will have to iron out some critical issues.

Topics surrounding the distribution of music and video on cell phones are sure to be hot at the CTIA Wireless IT & Entertainment 2005 trade show in San Francisco, which officially kicks off on Tuesday. Joining telecommunications and technology giants such as Sprint Nextel, Microsoft, Intel and Nokia are media and entertainment moguls from Warner Music Group, RealNetworks, CBS Broadcasting and Major League Baseball.

The ring tone business has proven to be a lucrative money-maker for cell phone providers, generating $217 million in revenue in 2004, according to JupiterResearch. Wireless operators, content providers and cell phone makers all see huge opportunities in the addition of entertainment content.

"Entertainment is a huge focus for us in our strategy," said Clay Owens, a spokesman for Cingular Wireless, which is jointly owned by BellSouth and SBC Communications. "We see it as a big potential money-maker."

The recently announced Rokr handset from Apple Computer and Motorola, which allows users to download full-length songs from their iTunes libraries, could be a harbinger of bigger things to come in the mobile-music market. But limitations in the new product also highlight business model issues that urgently need to be worked out.

For example, the Rokr can hold only 100 songs, even if the consumer inserts a memory card with more capacity than the 512MB card that ships with the phone. Clearly, this looks to be a limitation imposed by Apple so that the new phone doesn't cannibalize Apple's iPod business.

Another interesting tidbit about the new Rokr is that songs downloaded into it from iTunes can't be used as ring tones. This is hardly surprising, given that Cingular, which provides the cellular phone service for Rokr, wouldn't want to lose out on any of its lucrative ring tone deals.

Users are also able to download songs only from their iTunes library stored on their PC, not directly from the iTunes Web site. This limitation could be a function of two things. First, Cingular hasn't yet completed its 3G network, so the network itself is not equipped to handle downloads of full songs. There's also likely an economic reason for the limitation.

According to a Reuters news report, Cingular is planning to launch a music download service of its own early next year, once it completes a big portion of its 3G network deployment.

Motorola and Apple aren't the only ones with a music-playing phone. All the major cell phone companies have announced mobile phones that will store and play music, largely supporting either MP3 files or Microsoft's Windows Media format. Nokia's N91, Samsung's SGH i300 and Sony's Walkman W800 are examples of handsets that play digital music files. But as of yet, getting music onto the phones has not been easy.

"There are still a lot of business model issues to work out," said Linda Barrabee, an analyst at Yankee Group. "The Rokr model, where songs from iTunes are loaded on a phone, cuts out the cellular provider, and they won't like that."

To combat their exclusion from the iTunes download service, the major cellular operators are already

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