Mobile money spinners

With the mobile music industry set to be worth US$32 billion in 2010, content delivery specialists are eagerly spying new market opportunities in the sector.
Analysis, Delivery & Transmission
Total end-user generated revenues ($m) from mobile music (ringtones, ringback tones, paid-for full tracks and subscription-based full track/streamed m
Total end-user generated revenues ($m) from mobile music (ringtones, ringback tones, paid-for full tracks and subscription-based full track/streamed m
Analysis, Delivery & Transmission


With the mobile music industry set to be worth US$32 billion in 2010, content delivery specialists are eagerly spying new market opportunities in the sector.

With annual revenues generated by mobile phone music downloads set to double over the next two years, content providers and telecommunications specialists are in the box seat to capitalise commercially.

Recent research by US-based market analyst Gartner predicts that revenues will rise to US$32.2 billion by 2010 - up from US$13.7 billion in 2007 - despite competition from digital music player manufacturers and a host of challenges faced by telecommunications carriers in delivering these services.

Mobile music, which includes services from basic ringtones, 'realtones' and ringbacktones to more sophisticated full track downloads and streaming, has existed since 1998 when the first ringtones were commercialised.

It is the second most popular mobile data service, despite falling considerably behind short message service (SMS) in terms of use and revenue.

According to Gartner, two distinct factors are driving the use of mobile music: personalisation and entertainment.

The use of ringtones and ringback tones is part of the trend to personalise mobile phones as a form of self-expression.

However, the mobile phone can now be used to play music, in some situations replacing portable music players like the popular iPod for entertainment.

Stephanie Pittet, principal research analyst at Gartner, says that while mobile music was growing from a small base, it represented a good revenue opportunity for service providers that "get it right" from the outset.

"Mobile carriers have a strategic advantage when it comes to delivering ringtones, as they already know the end-user's network settings, handset and personal preferences."

"However, when it comes to the 'entertainment' side of mobile music like streaming and full track downloads, they risk losing share to other players, which might include device vendors, record companies and other solution providers," she explains.

More recently, Apple has stated its intentions in the sector with the high-profile launch of its iPhone device.

Mobile access to iTunes, along with other digital music shops such as Microsoft's Zune offering (which will allow WLAN access to its music shop) will compete directly with mobile carriers' portals.

However, Gartner says a range of factors are helping mobile carriers secure access to new revenue streams.

"The mobile phone has become the device that people carry everywhere, in all circumstances," says Pittet.

"Over-the-air downloads mean that people no longer have to be at a desk to plug in the device. Billing via a mobile phone is secure and easy, and for operators, it is easy to target customers with personalised content because one mobile phone SIM card is used by one person most of the time."

"Carriers must figure out how to develop the right content partnerships, pricing strategies, licensing deals, distribution channels and marketing. There is also a host of technical challenges to be addressed, such as Digital Rights Management (DRM), storage capacity on the mobile device and network coverage."

The Gartner findings are supported by a recent report published by Juniper Research, which attributed rising mobile music sales revenues to the rapidly increasing number of cellular service subscribers in developing markets.

Juniper Research envisages that the global mobile subscriber base will rise from 2.96 billion in 2007 to 4.14 billion in 2012.

Of equal importance to the growth of the overall number of subscribers is the increasing penetration of 3G technology, which enables many of the most attractive forms of mobile entertainment, particularly bandwidth hungry applications such as mobile TV, video, online 3D games, and full track music services.

By 2012, the company predicts around 88% of mobile handsets worldwide will be either 2.5G or 3G enabled; some 34% of the base will be 3G enabled.

Gartner found that spending varies dramatically from region to region, with the market in Asia-Pacific (including Japan) worth more than twice that in North America (US and Canada).

In 2005, Asia-Pacific consumers accounted for more than 40 percent of the total worldwide spend on mobile music, and while that proportion will decrease slightly by 2010, this demographic is still forecast to dominate the market.

Western Europe is the second largest region for mobile music, with total spending forecast to top US$9.1 billion by 2010, while North America is forecast to reach US$7.1 billion.

In mature markets, growth in ringtone revenue is starting to slow, and will start to slump in Western Europe this year. This slowdown does not mean that the market will become unattractive, since download volumes are staying healthy.

However, realtones are now the 'cash cow' for mobile music in these markets, representing 65 percent of ringtone downloads in North America and 70 percent in Western Europe.

Gartner predicts the Asia-Pacific region will lead the way when it comes to downloads of full track content to mobiles. Countries like Japan and South Korea already account for the majority of full track downloads to mobiles.

The opposite is true in North America, where users favour PCs and prefer to 'sideload' content to their mobiles.

User-generated content (bands and musicians making their music available via the web for download) will make its way to mobile phones, helping mobile carriers to avoid digital rights issues. Gartner is already seeing this in some Asian markets.

Juniper Research

Locked out

While Apple's iPhone has captured the hearts and minds of yuppie consumers the world over (yes, even in grey markets such as the Middle East) the touchscreen wonder has failed to raise the same enthusiasm among third-party music software developers, who have been unceremoniously denied access to the platform.

Apple's new iPhone SDK third-party developer software suite blocks access to iTunes-related programmes, effectively ensuring users will only be able to download new music via iTunes' Wi-Fi service in selected markets.

While it's no surprise Apple has moved to shore up one of its greatest assets in the short-term, the decision could come back to haunt the company given the large number of open-platform-based 3- and 4G-capable iPhone rivals reportedly in development from the likes of Sony Ericsson, Nokia and Samsung.

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