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Analyst: 50 percent of phones will play music by 2011

A market research report also predicts the mobile music market will be worth $6 billion by the end of this year.

Music players are losing out in popularity to phones that pull double-duty, according to a market research report released Monday.

More than 500 million music phones were shipped worldwide in 2007, which puts that category of device 300 million units ahead of regular old portable music players, according to the report released Monday by MultiMedia Intelligence. The company is forecasting that by 2011, of the 941 million handsets that will ship worldwide, more than half will be music phones. (The report defines a music phone as a handset that plays music files, and has a memory card slot.)

Sony Ericsson W980
The Walkman-branded W980 phone from Sony Ericsson is a phone but looks like a music player. Phones that play music are quickly outpacing standalone portable music players. Sony Ericsson

As the developed world begins to be saturated with cell phones, handset manufacturers and wireless operators are forced to look elsewhere to keep their profits up. For leading handset maker Nokia, its secret to staying on top of the competition is its growing business in emerging markets, like China, India, the Middle East, and Africa, according to my CNET News.com colleague Maggie Reardon.

The operators of wireless networks also need ways to increase revenue. So, though not everyone has a need for a data plan if they don't want e-mail on their phone, music is something almost everyone can relate to. Right now the most promising driver of profits on cell phones is music-playing capability.

"Music has been the first 'killer app' for the operators to drive the consumption of premium content on the handset," said Frank Dickson, chief research officer for MultiMedia Intelligence. To that end, MMI predicts the mobile music market will be worth $6 billion by the end of this year. "With such significant revenue and customer demand at stake, the operators' and handset providers' concerted efforts (will) use music as a central part of their handset strategies," the report says.

Update 1:55 p.m. PDT: As several commenters have pointed out below, buying a music phone doesn't necessarily mean it's used for playing music. (Case in point: my own Verizon enV has a 2GB microSD slot, and I've never transferred MP3 files to it. But that's mostly because my iPod earbuds don't work with the enV and I refuse to buy a separate set.) Music-playing ability was formerly a feature reserved for high-end phones, but as the technology gets cheaper, that means that those features will start to filter down to more inexpensive phones, which have always been the majority of the market.