Summary
The market opportunity for mobile music services is definitely a lucrative option for carrier operators. There exist few major challenges which include a risk for exclusion from the delivery value chain because of other parties pushing their platforms or solutions at competitive prices. But creating a favorable ecosystem for music delivery by fostering value partnerships to offer cheaper options to its customers is one of the best approaches for a sustainable and profitable existence for carrier operators in the value chain. Moreover, higher engagement with its customers in suggested ways as below will also allow operators to maintain increasing share in the mobile music services business.
Market Size and Opportunity
With traditional revenue sources for operators (voice and SMS) declining, they are looking at VAS like music for riding their future growth. Money spent by mobile phone users on music that is received on mobile handsets (in the form of downloadable tracks and streamed music) will grow to represent ~4 percent of Mobile Media and Entertainment (MME) market in 2013, up from 2.3 percent in 2008. As high bandwidth (3G/4G) networks evolve across the world, along with advancement in handset technology with sufficient memory and feature-sets to support music downloads and transfers, consumers are estimated to buy over-the-air content more actively, which will drive the service adoption for mobile music. Another distinct factor driving the demand for mobile music service is ‘demand for on-the-go entertainment’, which will affect the replacement of portable music players (PMPs such as iPod) going forward.
Though the market for mobile based music services is estimated to rise at a CAGR of 28 percent, there exists competition from various digital music players, along with host of challenges faced by telecommunication players in delivering these services.
With adoption rates as well as ARPU levels increasing at decent rates going forward (though not as fast as TV on mobile),the market for music services on mobile seems to be a quite attractive one for carrier operators, since it represents a higher share of the total MME services revenues for carrier operators.
While mobile music is growing from a small base, it represents a good revenue opportunity for providers that get it right. When it comes to the ‘entertainment’ side of mobile music like streaming and full track downloads, they risk losing share to other players, which might include device vendors, record companies and other solution providers. Hence, carrier operators need to capitalize on the availability of next generation networks that can support high data traffic and production of high end handsets with enhanced audio-playback capabilities, which also translates into boom for mobile music industry.
Challenges with Mobile Music Value Chain
The number of layers in the value chain is one of the key obstacles for finding out a workable business model for operators. The operators are vying for a bigger share in the revenue stream, from other parties involved such as content aggregators, publishers, handset manufacturers, etc. Internet giants such as Google, Yahoo are reaching out with their music services directly to the user through mobile portals. There also exist challenges of figuring out the right content partnerships, pricing strategies, licensing deals, distribution channels and marketing. There are also a host of technical challenges to be addressed, such as Digital Rights Management (DRM), storage capacity on the mobile device and network coverage.
Another looming threat is the pricing i.e. how to reduce the cost of downloading for the consumer, where companies like Apple with their iTunes software have taken a lead. End users may be willing to pay a higher amount, with a premium afforded towards mobility, despite Apple’s iTunes which has essentially set a psychological barrier at USD 1 for a download. In predominantly prepaid markets, with the end users downloading music over the internet using their mobile, challenge posed by internet companies will be a hard nut to crack unless carriers find ways to reduce the final price to below 1 USD per song levels. Operators have tried leveraging subsidized handsets, but this has backfired since handset companies are increasingly tying up with publishers like iTunes, Napster, etc, cutting operators out of the loop.
Considering all the points above mentioned, it is definitely hard to say at this point whether operators really are in a better position than either handset manufacturers or third parties to make money from mobile music services, but there certainly are specific things that operators must to in order to turn the table on other parties in the value chain.
Recommended approach for Carrier Operators
With a slew of challenges to operate in this market, where the industry has not readjusted to a more conducive revenue sharing business model, there definitely exist few ways in which operators can best approach the mobile music opportunity.
Favorable Ecosystem for delivery
The ability of operators to build an attractive environment around their portal will be a key, also maintaining overall control over the partnerships with internet players, media and music providers. Also, operators need to harmonize the ecosystem by providing favorable flexibility to content providers for e.g. working with aggregators of choice; such methods can reduce cost of supply for operators. Like Apple iTunes does, even operators need to work with all its content providers individually in order to cater to their interests.
Engaging with the customer
Besides agreeing on successful revenue sharing schemes with these partner companies, the operators need to promote consumer awareness for their mobile music applications in order to boost adoption. Moreover, an operator must offer exclusive content aimed at niche markets, given the fact that most of the content is common for all operators. This will enhance consumer willingness to pay for premium services and operators need to leverage on this opportunity, to reduce the price for its service offerings.
As consumer awareness for such operator applications rises, standalone mobile music services could be partly funded by advertising. This can allow operators to offer music download services at a further rationalized cost to its customers.
Another way in which operators need to enhance service adoption and offer more viable music services proposition is if they are sold as part of service or device bundles with their voice or mobile broadband packages. Moreover, operators must look beyond mobile as a delivery platform and provide its customers seamless access and downloading services across various devices like PCs, PMPs, netbooks.
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Author: Devay Gupta, Consultant
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