Mobile music remixed: Operators tune in new features and services

Starting a band to meet girls is still a viable option in 2011--starting a band to make millions of dollars, however, is a far trickier proposition. The music industry is in sharp economic decline: Trade group the International Federation of the Phonographic Industry recently reported that sales of digital music increased by only 6 percent worldwide in 2010, even as the overall music market fell close to 9 percent. In each of the past two years, the rate of increase in digital revenue has roughly halved--assuming that trend continues, digital sales will fail to reach even $5 billion in 2011, and while that number represents a third of the overall music market, it still trails billions behind the total required to offset the ongoing drop in compact disc sales.

Mobile music sales are part of the problem, not part of the solution. The Recording Industry Association of America's annual report for 2010 states that mobile music units (including master ringtones, ringbacks, music videos and full-track downloads) fell to 221 million units last year, down 28 percent from 306 million units in 2009. The RIAA attributes the decline to a steep dropoff in ringtone sales, which plummeted 41 percent in 2010--in addition, ringback sales fell 26 percent and full-track downloads dropped 23 percent.

LiveWire Mobile's carrier partners include Sprint, Vodafone, Cricket and Bell Canada.

With mobile music at a crossroads, operators and their partners are weighing how to revive the segment's sagging fortunes. Some are embracing new, cutting-edge solutions, while others are looking to revamp and enhance traditional services to leverage more advanced devices and evolving subscriber tastes. "[Operator music services] remain a big piece of the equation--the digital download model and subscription services are always going to have a place," says Adam Thibault, vice president of sales with digital music and content provider Livewire Mobile, whose carrier partners include Sprint (NYSE:S), Bell Canada, Cricket and Vodafone. "Most users just want something that's easy to access and easy to use. Not everyone has an iPhone."

Sprint's Music Plus

In mid-April, Sprint unveiled Sprint Music Plus, a new application promising subscribers a single, streamlined destination to purchase and discover full-track downloads, ringtones and ringbacks. Launched in partnership with digital entertainment services provider RealNetworks, Sprint Music Plus touts DRM-free songs priced between $0.69 and $1.29--subscribers can search for content by artist, title or keyword, preview millions of tracks and tones, access recommendations based on their musical tastes and create custom playlists via the app's music library manager tool. Users may also purchase ringback tones and assign different clips to play according to who's calling and the time of day. All purchases are charged directly to the subscriber's monthly Sprint bill.

Sprint Music Plus lets users purchase songs, ringtones, ringbacks, and albums.

"Sprint Music Plus is something that's been in the works for about a year," says Sprint director of messaging and applications Mark Yarkosky. "We wanted to simplify the purchase process for consumers, and make sure we offer everything in one place without making the subscriber go through 10 different steps. We're just a month in, but early data suggests there's significant demand for simply getting music and setting up ringtones."

Sprint Music Plus can be accessed on Android smartphones via the Sprint Zone app--for BlackBerry devices and Java feature phones introduced after May 2010, users can visit their handset home screen, and subscribers with handsets launched prior to May 2010 can still buy ringtones and ringbacks via Sprint Mobile Web. "The nice thing about a service like Sprint Music Plus is that we can offer a common experience across multiple platforms--subscribers have a consistent experience independent of the device," Yarkosky says.

It's critical that operators continue to factor feature phones into the mobile multimedia equation, at least for the foreseeable future--feature phones still make up about 70 percent of the U.S. mobile handset market, after all. Moreover, prepaid subscribers are particularly voracious mobile music consumers, with Yarkosky stating that ringtones and ringbacks are "very popular" among Sprint's Boost Mobile and Virgin Mobile USA customers.

Improving the experience

At the same time, digital content solutions providers like Livewire Mobile are exploring approaches to improving the full-track download experience for subscribers and carriers alike. Late last month, Livewire announced an agreement with audio innovators Dolby Laboratories to introduce Dolby Media Generator, a set of formatting and storage tools promising higher quality, more bandwidth-efficient mobile music services. According to Livewire, it will encode its complete music catalog in the Dolby Pulse digital format, which is based on the High-Efficiency AAC audio codec and enables the delivery of stereo audio at bitrates of 48Kbps or lower, translating to more reliable and efficient delivery, reduced storage and bandwidth costs, and improved playback quality. 

"The less time consumers spending downloading network bandwidth, the more time they're going to spend consuming content," Thibault says. "For operators, [Dolby Media Generator] means subscribers can buy more tracks at the same time while utilizing the same amount of bandwidth. We're seeing the same benefits--files encoded in HE AAC take up a lot less storage. It's a no-brainer for enhancing the mobile music experience."

Thibault contends that traditional mobile music services like full-track downloads will remain a constant of the operator platform despite the emergence of streaming media solutions, cloud-based initiatives and other next-gen efforts. "Consumers are looking for something basic and trustworthy," he says. "Streaming services are growing, but they take up a ton of bandwidth, and everyone's capping their data services. Device battery life is not ideal for streaming consumption, either."

Verizon and Rdio

Rdio lets listeners sync music directly to their mobile device on the Verizon Wireless network.

But some operators are beginning to embrace mobile music's future regardless of network and device limitations. This week Verizon Wireless (NYSE:VZ) added on-demand social music service Rdio to its V Cast Apps storefront, offering customers with select Android devices that run on the carrier's 3G and 4G LTE networks unlimited, on-the-go access to a cloud-based library spanning more than 8.5 million songs. In addition to anywhere/anytime listening, Rdio offers social media sharing tools, personalized playlists and seamless listening allowing users to check out music across multiple connected devices, including smartphones, laptops and PCs.

"Getting out of credit card billing is something we've been trying to do. Integrating direct billing through V Cast Apps makes it much easier for people to subscribe--you click one thing instead of typing in your credit card number," says Rdio CEO Drew Larner. "[Operator partnerships] are why we decided to pursue this business. The combination of devices, connectivity and network speed allows users to have a more satisfying experience. As we continue to keep improving our service and networks continue to evolve, [listening to music via the cloud] is something people will do more and more."

Even so, streaming services like Rdio pose significant new challenges to carrier networks already stretched thin by increasing data traffic demands. That's why the Rdio application offers subscribers the option to sync music directly to their mobile device via the Verizon Wireless network or Wi-Fi connection for offline listening. "We're working to make people aware of the offline feature--it's a means not to blow through your data plan and not overburden the network," Larner says. "You no longer need an iPod. Whether it's live, streaming music or cached content, one device can meet all your needs for music and personal communications."

Many analysts anticipate that streaming services like Rdio herald the logical progression of the listening experience. The number of mobile users subscribing to streaming services is expected to close in on 5.9 million by the end of 2011, and an ABI Research forecast issued in March projects cloud-based solutions will supersede conventional album and song ownership as consumers' primary channel to access music by 2016, with subscribers topping 161 million--a compound annual growth rate of almost 95 percent. Subscription-based mobile services like Rdio--priced at $9.99 per month--present an excellent opportunity for wireless operators and record labels alike to slam the brakes on eroding music revenues, but new challengers are on the horizon: Both Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) are expected to roll out streaming music services of their own any day.

Music in the cloud and in the future

That's why operator music services must continue evolving and expanding. "As 4G networks continue to grow, the user experience--whether it's downloads or streaming or managing a cloud locker--becomes a lot easier to do, and real-time manipulation becomes much more of a reality," Sprint's Yarkosky says. "In the future, you'll be able to access music on your mobile device from the cloud, pause that song when you get out of your car, go into your house and pick up the song on your home stereo exactly where you left off. 4G networks allow us to realize all this stuff we've thought about."

No less important, mobile music services also promise to drive additional revenue opportunities that go beyond purchasing and access music content--and the success of those services likely will hinge on carrier billing integration as well, guaranteeing operators remain a vital cog in the machinery for years to come.

"There are so many possibilities a service like Sprint Music Plus could explore. In the future, subscribers will be able to opt in for concert alerts for anyone in their personal playlist, and our ability to enable that kind of service from a notification, advertisement and ticket sale perspective will drive new revenue streams," Yarkosky says. "Those concepts aren't here today. But soon, listeners are going to be immersed in the music they enjoy--and it will all be enabled by open systems and higher-speed networks."