Mobile music downloads: too early, yet too late?
Operators run the risk of strategic paralysis - they are being pulled in two different directions. They want to delay the launch to provide a better
service, but they are afraid of online music downloads cutting them out of the game.
Operators with plans for advanced data services should look at mobile music downloads as a test bed for new applications and as a way to market themselves to the lucrative youth segment. It is important for all operators to evaluate their positioning in the industry. Even if they are not going to launch a service, they should make their voice heard, especially with the content owners - the record labels. It is too early to launch a service, but too late to ignore it.
Too early: the service doesn't work well enough It is too early to bet on mobile music downloads, as there are still too many drawbacks. Mobile phones cannot offer the storage capacity or battery power of mid-range digital music players, standards have not been set for important parts of the solution (such as digital rights management and codecs) and network speeds are only starting to be adequate with the arrival
of 3G.
Mobile music downloads is a challenging service, and we do not expect operators to have a compelling mass-market offering until 2007.
Nevertheless, the competitive pressure is real. O2, T-Mobile, Vodafone, 3 Italy, Telenor and Eurotel have already launched, and most of the others are now considering their options.
Too late: the online shops are getting their acts together Operators have to move quickly in planning their strategies, as fixed
players are swiftly moving into the market. Telco companies are in a difficult position: the services are not ready for the mass market, but online shops (such as Napster, Rhapsody and iTunes) are closing in fast.
The floodgates have opened with the encouraging signs from online music services - Apple's iTunes service in particular. Apple reached the
remarkable target of 100 million songs sold in July 2004, and in the same month announced a partnership with Motorola. From 2005 Motorola will sell a phone with iTunes pre-installed - the PC players are quickly moving into the mobile world.
Mobile operators are being pushed to take a position. The media and financial institutions
are particularly interested in this area and are waiting for the operators' next moves.
Take a position, but don't rush to the market From the operators' point of view, music downloads will only be a great marketing tool in the short term. O2 is a good example of how to turn a blossoming service into an aggressive marketing campaign. The company is
advertising a service that few will use in the medium term, but it is also associating its brand with music and youth. Music downloads can also be used to hint at future growth plans for investors and to dazzle the media. The medium to long-term success of music download services is far from assured, but operators need to act soon to make sure that there is a place for them in the future.
Dario Betti is a Senior Analyst, Ovum.com
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