Growth remains slow for mobile music services

By Antony Bruno

DENVER (Billboard) - Struggling music subscription services have opened a new front in their battle for legitimacy: the mobile phone.

But it's far from clear that the tactic will finally push them into the mainstream.

The unveiling of RealNetworks' partnership with Verizon Wireless to extend the Rhapsody service into the mobile realm follows a still-evolving alliance between rival Napster and AT&T.

Both partnerships are designed to reverse years of sluggish subscriber growth, skyrocketing customer acquisition costs and the inability of most MP3 players that are compatible with their services to make significant inroads against the market-dominating Apple iPod, which doesn't work with either service.

Yet while the benefits that the wireless operators bring certainly look good on paper, they have yet to make any significant impact.

'REVOLUTION' DIDN'T MATERIALIZE

Consider the case of Napster, which joined forces with AT&T in November 2006 when the two introduced a line of phones that enabled Napster users to sideload their subscription tracks. Jim Ryan, AT&T's vice president of consumer products at the time, suggested that the integration of mobile devices with music subscription services would revolutionize the subscription business.

"We can double their base in the next 12 months," he said. "We will solve the problem of subscription music and we will make a whole new business paradigm about digital music around subscription being real."

That didn't quite happen. From December 2006 to 2007, Napster's subscriber base grew 31 percent to 743,000, but Napster's January 2007 acquisition of AOL's 350,000 music subscribers likely played a significant factor in that spike.

The Napster-AT&T partnership did not expand to support over-the-air (OTA) song downloads until nearly a year later, and it still does not include a co-branded online service, the ability to bill the monthly music subscription tab to the wireless phone account or any joint marketing practices.

By contrast, the Verizon-Rhapsody pairing includes all of these elements and more. Whereas Napster is merely one music service among many available to AT&T subscribers (who can also opt for an iPhone), Rhapsody is the default music service for the entire Verizon network, both online and on mobile phones. Verizon subscribers can also add the cost of their Rhapsody monthly subscription to their Verizon phone bill -- which Verizon will promote exclusively online and in stores; that's something Napster can't yet do with AT&T.

In addition, the Verizon deal immediately makes Rhapsody-acquired tracks compatible with 10 kinds of phones, millions of which are already in consumer hands, such as the LG VX8700 and the new LG Dare. The Napster OTA service is available only on one AT&T phone, Samsung's Sync, while several devices support the sideloading feature.

MASS-MARKET APPEAL STILL ELUSIVE

This certainly expands the number of compatible devices available to both services. But mobile phones to date have not proved themselves robust content-acquisition platforms.

"There's not a whole lot of action on paying for content on the phone so far," Jupiter Research analyst David Card says. "But that's probably because the content on the phone is not that interesting. Rhapsody's a great product if you're a sophisticated music fan, but it has not proven to have mass-market appeal yet. Putting it on a phone may not make that much difference."