iTunes Will Trump Cellular Music On-Demand Service

By | December 21, 2004 at 12:00 AM

London – The new Strategy Analytics Wireless Internet Applications report, “Mobile Music on Demand Goes Centre Stage at Vodafone 3G-But Service Concept Questionable,” recognizes that mobile operators will struggle to generate volume sales of music through their new Music on Demand (MMoD) services, and alternative strategies are needed for success. Strategy Analytics predicts that these services will be generating $2 billion per year, compared with $57 billion for SMS, by 2009.

Over the past six months, mobile network operators, including Vodafone, Orange and O2, have set up digital music retail stores, which allow their customers to download full music tracks over the cellular network to their mobile phones-the equivalent of a mobile iTunes. Although mobile ringtone sales and online music services are both booming, Strategy Analytics concludes that online music stores based solely around cellular downloading capabilities cannot hope to compete with the lower costs, better interfaces, larger catalogues and faster transmission speeds of online sites offering music downloads over fixed broadband connections. Vodafone has stated that the target market for its 3G MMoD services is the “Young, Active and Fun” segment, age 25 – 35. However, Strategy Analytics believes that, while early adopters in this segment may use their phones as portable music devices, they are unlikely to source their music through the cellular channel. Consequently, mobile music on demand services will struggle to grow beyond a niche opportunity, generating $2 billion in 2009.

Although the number of phones able to access music services is expected to grow rapidly over the next 5 years, Senior Analyst, Nitesh Patel, notes, “We believe that mobile operators wanting to compete in the music download business must play to the strengths of mobility and combine the use of fixed online channels with bundled product offerings (including wireless alerts, video, MMoD and exclusives) sold on a subscription basis. Simply replicating iTunes over cellular networks is not going to be sufficient.”

David Kerr, Vice President of the Strategy Analytics Global Wireless Practice, adds, “We do not believe that technophile ‘music lovers’ who currently purchase music through physical points of sale (as CDs) or online, will migrate to cellular distribution. Given the slim margins afforded by music downloads, we view the low likelihood of achieving scale as a serious barrier to the longevity of mobile music on demand services.”

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