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From Apple to Orange: How MNOs Can Make Mobile Music Profitable in an iTunes World
Pyramid Research, Inc., March 2007, Pages: 29
This 30-page report focuses on the way Internet model for legal digital music consumption has sculpted mobile models to date, how these models are not designed around the requirements of mobile operators and what changes need to be made to ensure that mobile music is a leading revenue generator and driver of data consumption for MNOs in the coming years.
On Making Mobile Music Work:
- The public perception of the cost for legal downloadable music has been defined by Apple’s one-size-fits-all pricing of $0.99 per track. This $0.99 threshold presents a significant barrier to entry for service providers looking to develop profitable mobile music business models.
- Despite the initial success of OTA models, we believe the degree of price differentiation between OTA and PC-based downloads will narrow considerably over the next two years. Operators will need to concede that iTunes remains the epicenter of all digital music pricing and therefore sets the bar for the price of all legal digital music, regardless of delivery mechanism.
- The key to escaping iTunes gravitational pull may lie in the bundling of services, content, and music. We believe the most significant shift in the mobile music market will come in the form of subscriptions.
On The iPhone Effect:
- Apple expects the iPhone to account for 1% of all handset sales globally by the end of 2008 (10 million units). We believe that this will be an uphill battle for a number of reasons: price, trying to be everything to everyone, copycats, and the fact that there is little in the iPhone for MNOs.
On the MNO Challenge to Disintermediation:
- The risk of MNO disintermediation is real, but MNO may be too strong to be kept out of the value chain: the likely evolution of mobile music is for a device that allows the user to access a virtually infinite library of content which can be customized at any time. The sheer scale of the mobile music opportunity in terms of enabled handsets means that operators will be very strongly positioned as the gatekeepers of access to subscribers.
Behind Steve Jobs’ Vision of DRM:
- Apple’s Steve Jobs want Digital Rights Management (DRM), to be removed. That makes sense for Apple, but we don’t see it. We believe that DRM will continue to have a significant role in mobile music, but it should be less about restriction and more about enabling new forms of distribution and experimentation for subscribers.
On MNO revenue from mobile music:
- The potential for mobile music is more attractive with subscription-based models: we estimate that the global market for “a la carte” mobile music would be worth around $US2.5bn to MNOs in 2011; with subscription models, mobile music market potential swells over US$4Bn in 2011 (not including ringtones, etc.).
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