Sprint Enters Turf Of ITunes, Napster With Song Downloads"
NEW YORK -(Dow Jones)- Sprint Nextel Corp.'s new direct music download service for mobile phones treads on turf previously dominated by online music stores.
Sprint's service marks the first time a carrier has allowed subscribers to buy songs directly through their cell phones. More companies are expected to join in, as the music service presents another avenue of growth that will offset the continued decline in voice revenue. But in entering this new and potentially lucrative business, the carriers will face competition from entrenched online players such as Apple Computer Inc.'s iTunes and Napster Inc.
Early Monday, the Reston, Va., wireless carrier announced the launch of its next generation Power Vision network. Power Vision is comparable to Verizon Wireless' VCast network, which offers video downloads and faster connection speeds. But in launching Power Vision, Sprint Nextel went beyond VCast with its music download service. Sprint plans to sell the songs for $2.50 - a premium to the typical 99-cent price point at online stores.
Sprint argues that consumers will pay a premium for the convenience. Customers who make a purchase will get two copies of the song - one formatted for the cellphone, and a version for the computer that can be burned onto a CD. The higher price covers the increased bandwidth used by the customer.
The wireless carrier doesn't believe it is competing directly against the online music stores, according to spokeswoman Jackie Bostick. But the PC song component of the download is a threat to the likes of iTunes.
"It's a competitive space," said Christopher King, an analyst with Legg Mason Wood Walker. "But I think there is enough demand to go around for that type of product set."
The analyst doesn't have any conflicts of interest to report.
There is also the question of price. "You're looking at a different economic model," said Mark Siegel, a spokesman for Cingular Wireless, a joint venture between SBC Communications Inc. and BellSouth Corp. "The industry has to think clearly over where exactly the appeal is."
Still, the wireless industry has no choice but to enter the business. Indeed, Siegel acknowledged Cingular will likely have a similar offering next year. The latest round of earnings from the wireless industry illustrates the need. Verizon Wireless posted third-quarter average revenue per user of $50.13, down from $51.85 a year ago. Data revenue, however, jumped 73% to $4.23 from $2.44 in the year-earlier period. Cingular and Sprint exhibited similar trends.
In a note, Bear Stearns analyst Phil Cusick said the Power Vision network could help Sprint attract more high-end customers and extend its lead in data revenue, which makes up 11% of its total revenue already. The analyst doesn't have any conflicts of interest to report.
King, however, doesn't see the music service as a major contributor to revenue. He believes the feature will be used to retain or win over customers.
Mobile phones that can play songs have been out for a few years. Last month, Motorola introduced its ROKR phone, which links up with iTunes, to much fanfare and hype. But customers had to download the song onto their computer before transferring it to the phone - a source of some disappointment for some industry analysts. During the launch, Chief Executive Ed Zander said the lack of high-speed networks was a deterrent against direct downloads, but he expected the capability to roll out soon.
Sprint will be using one phone from Samsung Electronics Co. and another from Sanyo Electric Co. Ltd., the only two capable of "over-the-air" downloads.
Sprint recently traded at $23.69, up 44 cents, or 1.9%, on volume of 6 million shares. Average daily volume is 11.7 million shares.
-By Roger Cheng, Dow Jones Newswires; 201-938-2020; roger.cheng@dowjones.com
(END) Dow Jones Newswires "
Posted to the site on 31st October 2005