Will subscribers ever tune in to mobile music?

To the surprise of almost no one, digital music revenues continue to cannibalize traditional physical sales: Apple's iTunes digital media storefront now accounts for 25 percent of all music sold [1] in the U.S., up from 21 percent last year and 14 percent in 2007, according to a new report issued by market research firm NPD Group. iTunes passed [2] retail giant Wal-Mart in early 2008 to become the nation's largest music seller, and its lead continues to grow--Wal-Mart now accounts for 14 percent of all U.S. music sales between its physical CD sales and digital efforts. Looking solely at digital music sales, iTunes is even more dominant, representing 69 percent of all U.S. purchases, followed by Amazon MP3 at 8 percent. What is somewhat surprising is that physical CD sales still dominate the U.S. market, accounting for 65 percent of all music sold during the first six months of 2009--however, NPD notes that given current growth rates, digital music sales should equal CD sales by the end of 2010.

But the surge in digital music consumption isn't translating to the mobile platform. A new Forrester Research study indicates that just 10 percent of U.S. mobile subscribers use their phones to listen to music at least once a month, and while that's up from 5 percent a year ago, it's still a negligible segment of the overall user base. In China, 70 percent of subscribers check out songs on their phone each month, and 27 percent of U.K. customers listen to mobile music--according to Forrester, that's due in large part because consumers outside of the U.S. are less likely to own a dedicated music player device, are savvier about the technological capabilities of their mobile phones and enjoy a wider variety of digital music options, including all-you-can-eat download services [3] from handset makers Nokia and Sony Ericsson. Even so, Forrester adds that 60 percent of U.S. mobile subscribers maintain they have no interest in buying music on their handsets, and even ringtones, once the bedrock of the U.S. mobile music marketplace, are on the wane: Earlier this month, research [4]firm SNL Kagan reported that U.S. ringtone [5] sales plunged from $714 million in 2007 to $541 million in 2008--a 24 percent year-over-year drop and the first annual decline ever posted for a U.S. mobile content category.

Perhaps the bigger problem is that the notion of full-track mobile downloads and ringtones seems more than a bit quaint in mid-2009--a relic of the pre-iPhone, pre-App Store era, before consumers grasped the complete potential of what their phones can do. That's what makes MySpace's acquisition [6] of social music discovery service iLike so intriguing: While most of the attention has fallen on what iLike's content recommendation technology will do to bolster the social network's online platform, the startup's mobile music solutions could be the real key to the deal. In mid-May, iLike announced [7] a new turnkey system promising recording artists the tools to create and distribute personalized iPhone applications featuring tour dates, photos, blogs, bulletins, videos and exclusive content, all customizable to the band's specifications--earlier this month, iLike said that more than 250 acts have created personalized iPhone apps, among them adult contemporary hitmaker Jack Johnson, country star Sara Evans and avant-rock pioneers Sonic Youth. These applications not only offer listeners a multimedia experience that's far more immersive and interactive than traditional full-track downloads--they also offer content that's unique to the mobile platform, specifically tailored for each artist and its fans. Now iLike's iPhone apps will presumably incorporate the MySpace brand and integrate with the social network's own music solutions and content partnerships, further expanding the scope of what they can offer. Mobile music as we currently know it may never take off, but it's not too late for a new wave of richer, more compelling music apps to turn the beat around. -Jason [8]