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Our 2005 report, “Get on Track with Mobile Music” predicted that most operators would aim high with per-track pricing, figuring that since ringtones can be sold for US$3, why can’t full songs be sold the same way? Indeed, most operators have decided to offer music downloads for considerably more than the iTunes benchmark of US$0.99. With Sprint’s recent announcement of over one million music downloads after just 4 months of service launch, it would appear that the market is in fact prepared to support current pricing, but, we argue, that is not the case.
Sprint’s “one million music downloads” statement doesn’t tell the whole story—not all of these downloads were paid for. Sprint reported over one million full-track downloads since the Sprint Music Store launched in late October 2005. If it was as straightforward as that, it would appear that subscribers are not being dissuaded from purchasing tracks for their cellphones at US$2.49 a go. However, Sprint’s one million download figure also includes the five-free-downloads, provided as part of a promotion at the music portal launch. In other words, it would take just around three percent of Sprint’s CDMA 1x and EV-DO subscribers to download five free songs each to reach the one million download mark. Hence, the actual number of paid music purchases may only be a couple of hundred thousand. Nonetheless, Sprint’s promotion goes to show that demand for mobile music is significant at the right price point - if the first five tracks are free and the sixth is $2.49, the price per track that won Sprint’s customers’ hearts was 41 cents.
The novelty element to mobile music may cover up the inflated pricing for now, but operators will, in the next 12 months, have to give in to the inevitable and drop prices to the US$1.25–US$1.50 range. Most mobile music portals have been in existence for six months or less, not long enough to determine whether current pricing is going to be the norm or not. Yet, consumers are inevitably going to compare prices for music on the internet and will, justifiably, wonder why downloading music to a cellphone costs an extra US$1.50.
The challenge in bringing down the pricing is the cost of the content; most tracks cost US$0.82–US$1.03 . Among the operators pushing mobile music are Amp’d Mobile, a US MVNO, which seems to be the most competitive as it has indexed the cost of mobile music downloads to iTunes. Yet, the MVNO may be receiving preferential rates on some content, resulting from its relationship with Universal Music (UMG owns a 20 percent share in the MVNO).
In an attempt to maximize the mobile music opportunity, over the next 12 months operators will strive to be more competitive, acknowledging that they are not the only source for music. The US$1.25–US$1.50 range covers the cost of the content and provides room for margins to be made. For subscribers, pricing is slightly higher than the going rate online, but is justified because they get the track then and there.
Music web portals provide a glimpse into the future of operator content portals; content bundles could disguise the cost of each product and cultivate a base of regular subscribers. Operators may need to consider alternatives if they intend to keep mobile music prices higher than the going rate online. One way to do this could be to blur the like-for-like comparison of mobile music vs. internet music pricing with mobile-specific bundles. Many music web portals now offer bundles of content from an artist, including music and video. Operators could further develop this model with bundles of music, video, ringtones, and graphics sold as a package. While US$2.49 for a single track may seem extortionate, it may be that the same track plus a ringtone and a wallpaper could look like a bargain for US$5.49. Another alternative approach may be to provide subscriptions for such services. Besides enhancing the perceived value of the service, subscriptions would create a recurring revenue stream for operators. However, handsets capable of handling DRM for monthly music “rental” need to reach more widespread adoption in order for this model to work.
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