Let's not get too excited just yet

Neeraj Roy
25 Apr 2007
00:00

In 2002, when Terry Semel took over at Yahoo!, the stock was trading at an all-time low. Several initiatives over the following quarters resulted in a resurgence, however. And not just in Yahoo!'s stock value: the very foundations of Web 2.0 were being laid.

Two fundamental things happened: broadband became a reality, and the PC was able to store more. Digital storage got a boost, and the first element to capture consumers' imaginations was entertainment. Enter-tainment consumption online grew at an astronomical pace, across paid, free and pirated categories.

One of the poster boys of the digital entertainment economy was Steve Jobs, with his iPod. As the iPod became a commercial success, so did it become the favorite punching bag for handset manufacturers and telecom analysts alike. All were predicting the iPod's imminent fall to the music phones announced by all major handset companies in 2005 and 2006. Music after all, accounted for nearly US$10 billion out of the $23 billion global mobile entertainment market in 2006. So what if most of it was made up of ringtones‾

We are now in a similar position to Semel in 2002. Handsets are coming with enhanced memory, and memory card prices are falling rapidly. Already 100 million consumers have 3G connectivity. Is this the main reason for all the industry optimism pegging music as the biggest driver of mobile entertainment over the next few years‾ Perhaps, yes, but is the optimism misplaced‾

Granted, there are some low hanging fruit for the music and mobile industry, as well as a serious business opportunity that could account for as much as 20 percent of total music industry sales. The latter will only happen if the entire environment is set to capture this opportunity.

The immediate opportunity to my mind is in embedded content. There are some great music phones on the shelves, but they are not yet top-line music devices. Until handset makers can design the ultimate user experience, they'll still want consumers to take baby steps toward adopting the phone beyond voice.

In the meantime, listening to a full song on a handset requires partnering with a select few early-bird record labels, which would stand to benefit from the millions of N-Series Nokia phones or Sony Walkman devices shipped each month. The handsets folks drive a hard bargain and have at instances embedded up to 100 songs, perhaps 10 free to the consumer and up to 90 that can be unlocked at a charge with a DRM-encoded activation key.

The other bigger opportunity is to replicate the iTunes success story on the mobile.

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