WASHINGTON (Dow Jones) - US wireless providers hope to strike gold in the growing market for music downloads.
Some analysts, however, predict they might dig up something much less valuable.
With most Americans already signed up for monthly cell phone plans, carriers like Verizon Wireless, Cingular Wireless and Sprint Nextel Corp. are looking for new ways to boost revenue.
Getting customers to sign up for costlier high-speed Internet services is one way to accomplish that goal. To attract customers to those premium features, though, wireless providers need to offer compelling content.
Hoping to mirror their success with digital ring tones - a global market that went from zero to $7 billion in less than five years - carriers are pushing into the market for downloaded songs.
The prices charged for such services, however, along with the sheer number of digital music alternatives, suggests their initiatives might not generate big sales or pose a threat to Apple Computer's popular iTunes site anytime soon.
"Music downloads have a place, but they are not going to be the revenue generator the carriers hope they will be," said Jane Zweig, chief executive of The Shosteck Group, a wireless consultancy firm.
One of the biggest obstacles to growth is the relatively high price that the carriers have been charging for songs.
For example, Sprint Nextel launched a service that allows customers to download songs to their mobile phones. The carrier charges $2.50 per song, and has sold 8 million tunes this year.
By contrast, Apple charges 99 cents per song and has sold 1.5 billion of them through its iTunes online store since 2003.
Verizon Wireless has launched a similar service and charges $2, though the company has not disclosed how many songs it has sold.
Cingular, meanwhile, is feeling pressure to match its rivals. The carrier has fallen behind after helping to launch the market last year when it became the first company to provide access to the iTunes service, through Motorola's Rokr phone.
On Thursday, Cingular unveiled a new service that will give its cell phone customers access to monthly subscription plans from digital music sites including Yahoo! Music, Napster and eMusic. The carrier will also offer access to music channels provided by XM Satellite Radio. Prices range from $8 to $15 a month. Customers could also buy individual songs for as little as 99 cents.
Cingular said it will allow direct wireless downloads next year, but executives do not believe that's the best strategy for selling music.
Not a competitive price
A big question is what price consumers will be willing to pay for such services. Analysts doubt most people will pay $2.50 or even $2 per song just for the right to download them directly to their wireless phones.
"If you're in front of your computer, you don't want to pay more than $1 a song," said Albert Lin, wireless analyst at American Technology Research.
Cingular executives have drawn the same conclusion. That's why the company has chosen the subscription model and will let customers buy songs for 99 cents if they download them directly to their computers.
The trick is to make it easy for customers to move the songs from their PCs to their phones. Cingular said it will provide software to make it very easy for customers to "side-load" music from one device to the other in just one click.
"The Cingular approach is smart," said Zweig, who believes a subscription model not reliant on direct over-the-air downloads stands a better chance of modest commercial success.
What's more, phone companies have limited network capacity. They cannot price songs so low that their networks become overburdened. The result could be more dropped voice calls and lots of angry customers.
Even if wireless companies manage to sell lots of music, though, they might not make lots of money. That's because unlike ring tones, which are usually produced by digital composers who work for a nominal fee, the business of selling music is more crowded. While phone companies reap the lion's shares of ring tone profits, musicians, music companies, handset makers, wireless carriers and Internet-download sites all want a cut of the action for songs.
"It's nowhere as profitable as ring tones," Lin said. "There are more parties to satisfy with the economic pie."
The quality of music-capable phones is another problem. Although the technology keeps getting better, Consumer Reports magazine said in its November issue that handsets still need improvement.
What's more, people constantly change wireless phones and limited memory prevents them from storing many songs on their handsets. Most people who download music keep it on large computer hard drives or media "servers." From there, they transfer the music to their wireless phones or other devices.
"These new phones are better than earlier models, but unless you must have one now, wait until the phone/music marriage is on a firmer footing," the magazine advised its readers.
Music lovers also have other ways of getting music onto their phones. They can rip CDs themselves or buy songs directly from online sites and then add the music to their phones.
Handset makers such as Motorola, Nokia and Sony Ericsson sell handsets with swappable memory. Customers simply have to transfer the music from their PC to their handset via portable flash cards.
"You don't have to do this over the air. You don't have to do this immediately," Zweig said. "There are a lot of alternatives available."
(END) Dow Jones Newswires"
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