Wednesday 7 March 2007


The WORD, March 2006

Two years ago I was standing in a crowded Underground carriage checking whom, if anyone, was wearing white earphones. At the time I was Head of Content at mobile operator O2. We were about to release a music download service but in the previous two months the iPod, already three years old, had started selling exponentially. It felt like a problem.

Near me a young businessman joked with his friends. He was the sole person wearing the white, but they weren’t quite right. Looking closer, I realised he had taken a pair of black earphones and scraped the colour off to the white underneath. That’s when I knew O2 had trouble.

O2’s music service was the first outside Asia that allowed music to be downloaded over the air to a mobile phone. We wanted the player to be cool, but it looked like something a telecoms engineer would make – grey, plastic, cheap. Next to the iPod – white, sleek, iconic – it looked mediocre. It wasn’t an iPhone.

In early 2004 Motorola announced a tie-up with Apple to produce such a device. For those mobile operators around the world developing their own services this was not good news. Rumours swirled through the industry that they told Motorola the iPhone was a no-phone – it wouldn’t be stocked or supported. Though unsubstantiated, continuing delays in production fuelled the chatter.

Last September, the “iPhone” finally appeared as the Motorola ROKR. Though its design looked average next to the iPod range it quickly sold 275,000. But in the parlance of the music business, it shipped platinum and returned gold. Its two key disappointments were that it only held 100 songs and you couldn’t download over the air. Rumour – again! – had it that Steve Jobs insisted on these limitations, since an Apple iPod-phone was surely on the way and he didn’t want competition.

Perhaps wisely, if Apple is developing a sleek white phone with loads of storage that downloads music from iTunes while on the move, it’s keeping John Cage-like silence. It will compete with manufacturers who view mobiles as fashion items, obsolete in six months, in which time they ship hundreds of millions. It will need to convince network operators to stock the device, including those who have their own music shop, are talking to Yahoo, Napster and Rhapsody about running a branded version, or license Nokia’s dual mobile-pc service. Just selling it through Carphone Warehouse or computer showrooms won’t be enough; an operator can easily degrade quality of service or block the billing of a mobile iTunes shop. Apple will find itself in a business that can treat it as irrelevant.

Music over phones isn’t a new idea. At a demonstration to Queen Victoria on the Isle of Wight in 1877, songs were sung from the other end of the connection, then they played a bugle, and from a connection to London, an organ. A few months later phone lines were laid to Paris and you could subscribe to the Opera. So almost 130 years later, we’re getting back to its original use.

In those early days no-one really knew what to do with the telephone – was it for talking or entertainment? And why would you want to talk on it, given messengers and an efficient postal service? (Three deliveries a day back then.) The press described it as “American humbug” invented by an “impostor” and “ventriloquist”.

Nothing much has changed. A recent journalist’s blog asked why you would want to download and listen to music on a mobile phone when it’s so much easier on a PC and the iPod is so much more elegant. His conclusion was that music to a mobile would never be successful.

In the short term he has a point. But like the telephone in the 1870s, it takes time to grasp why you might want it and then for it become essential. From 2000 – 2003 the iPod sold just three million. This year it’s estimated to sell 20 million. Mobile phones, however, will sell one billion. And that’s why so many people are betting that mobile music downloads will be a big market.

So what’s holding everything back? Being unique. The handful of services around the world all have proprietary systems, different music file types, different DRM, different commercial models, different content strategies. Until standards are in place, it’s likely to continue.

When pundits predict a mobile music future they look to Japan and Korea, where mobiles are used instead of computers for accessing the Internet and a standard system has made mobile music so successful that last year the huge Korean operator SK Telecom bought a major local record label. Rightly, it realised its future is in media and copyright distribution. Success came because the record labels and network operators sat together and agreed standards and pricing. In the West, anti-monopoly laws and self-interest prevent a similar environment. Record labels, buoyed by a multi-billion pound global ringtones market, assume mobile customers will pay £1.50 a track for the privilege of immediacy - ‘impulse purchase’, as marketing folk describe it. As a result they have forced through mobile music contracts designed to guarantee such a price.

Unfortunately for them, operator research shows that price is everything. And mobile music isn’t just competing with 79p at iTunes or the other 200 online music shops; it’s competing with ‘free’. If record labels are in denial about one thing in particular it’s that a lot of online under-25s just don’t want to pay. Whether it’s one person paying for a ringtone and then bluetoothing it to his friends or the millions using peer-to-peer sites, “free” is the currency of choice. Thirty-five to fifty percent of all Internet traffic is presumed to be p2p, roughly 25 billion downloads last year. At least half of it is music.

Music has become ubiquitous – in shops and supermarkets, leaking from earphones, arty punctuation to TV programmes – evolving into a continuous soundtrack to one’s life and the nearer it gets to ubiquity the more it becomes a commodity. It always starts expensive, gets cheaper, and then it’s everywhere. To use Stewart Brand’s 20 year-old phrase, information wants to be free.

This is anathema to the music industry, which intends to raise the price of online music. Labels and operators drive their content businesses on the belief that “mobile customers are used to paying and will be happy to pay”. But search long enough on an operator’s WAP portal and the open mobile Internet appears, filled with thousands of amateur sites giving away ringtones, images, porn and software. For now, it’s hardly noticed, but two Hungarians have created a copyright owner’s mobile nightmare.

“Symella” is a combination of Symbian, a mobile operating system, and the Gnutella peer-to-peer network. Yes, mobile p2p is here. Currently it only works on top-level Nokia phones, but it’s inevitable some young hackers will perceive a challenge and democratize Symella for all. From one perspective it’s the ideal solution: open system, standard MP3 files, no DRM, open to any network. Would operators, who could make billions from data charges, be too concerned? For them, music is currently a minor revenue source and if they can make a lot more money from a p2p network than an expensive, record industry controlled premium service, obeying industry threats to kill it may depend on whether the management want to rub shoulders with their musical heroes.

While making money from ‘free’ is obvious for some, what about the artist? Well, The Grateful Dead gave away music for 30 years and got rich from touring and merchandise. In the 21st century the money can also come from corporations. Advertising has been losing attention for years so there’s $600 billion a year looking for a better way to reach customers. Sponsorship isn’t new either, but the smart thinkers are proposing much more sophisticated relationships that benefit both sides. For example, Fair Trade could be a patron to Coldplay, so that mobile and online music is free while the company conveys a story more complex than having their name felt-tipped on the back of Chris Martin’s hand. For all its modernity, it’s eerily similar to a time when royalty and aristocrats supported artists.

If Apple develops an iPhone, will chief designer Jonathan Ive rethink the mobile as completely as he did the portable music player? The iPod navigation wheel seems improbable. When Britons send four billion texts a month, the standard keypad rules. Lustrous and sensuous of course, the question is whether the iPhone will be a music player that makes calls or a phone that plays music. Bring elegance and simplicity to phone navigation and mobile music interfaces; make social activities like blogging and sharing photos easy; erase the line between phone and computer. That would be radical.


What Do They Want And Will They Get It?

What They Want:
Keep their grip on the customer while extracting more money per month for services like ringtones, music and videos.
Change public perception of their “brand qualities” through exclusive artist deals and sponsoring events and venues.

Will They Get It?
Content usage continues to rise, but only the mega-fan will change operators because of exclusive artist content.
O2’s tactic to sponsor the Millennium Dome and offer their customers ticket upgrades and other perks could pay off.

What They Want
Reach the customer directly with artist-branded phones and white-label music services.
Change public perception of their “brand qualities” through exclusive artist deals and sponsoring events and venues.

Will They Get It?
To date, they have been inept at understanding media requirements and customer expectations in both phone design and venue sponsorship. It will probably take corporate cultural shifts for manufacturers to benefit.

What They Want
Ownership of mobile music and its pricing to maintain the belief that music is a valuable premium.

Will They Get It?
All trends point to music becoming cheap to free, with the money acquired elsewhere. If mobile p2p becomes popular, expect lawsuits to fly. Bands and labels with a committed following will fare best.

What They Want
A phone that looks cool, works, and is easy to navigate. Content that is reasonably priced.

Will They Get It?The customer is always right.

© J Ingham 2007


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