It’s all about convenience. Why carry an MP3 player along with a camera and a mobile telephone, when you could have all three in one combined device? Modern mobile phones have already challenged the need for a separate camera, and now the new breed of multimedia mobiles are taking on the portable music player industry, too.

The latest 3G mobile handsets offer both the bandwidth and memory capacity to present a serious challenge to established portable music players. Sony Ericsson has used the pioneering Walkman technology in some of its high-end devices to improve the quality of its music offering. Motorola now sell handsets with 512-megabyte memory cards as standard. And the Nokia N91, launched in September, comes with a built-in 8-gigabyte hard drive.

More important, service providers have recognised that music on the move is an opportunity to “add value” and attract customers. Vodafone, for example, has invested heavily in promoting mobile music services and live music events to stake a claim to what may be the next big sector of the mobile market. In October, it held the first Live Music Awards, in London, following a summer of successful music events held across the UK.

“Music is hugely important to us and interwoven with a lot of what we do now,” explained a Vodafone spokesperson. “The Live Music awards and the branded gigs this summer were very popular. It is something we are keen to be associated with because music is going to be very important to service operators and we want to be in front.”

Music downloads and streamed services are currently only a small part of the mobile services market but are set to grow quickly in the next five years. According market researchers Juniper Research, in 2006, worldwide revenues for downloads and streaming are expected to represent only 9 per cent of a total market worth $6.7bn. But by 2011, downloads and streaming are projected to take 32 per cent of a market worth $14.1bn.

Bruce Gibson, research director at Juniper, believes the market will be dominated by service suppliers, such as Vodafone and Orange. “Service operators will have a central role in developing the market for full-track downloads,” he explains. “With the current ring-tone market, there have been a lot of off-portal suppliers but the greater data volumes associated with full-track downloads makes it harder for them to compete.”

Mr Gibson adds, however, that operators are striking wholesale data deals with existing companies such as mBlox, a mobile transaction network, and Jamba, which creates and markets ringtones, that they hope will open up the market. Indeed, high data charges could be a significant market inhibitor in the short term. “The mobile music market could well be knee-capped by high data charges,” says Andrew Bud, co-founder and executive chairman of mBlox. “You are talking about rates as high as £10 per megabyte, which means a typical track could cost more than £20 to download. This is not going to happen.”

Mr Bud continues that service suppliers need to differentiate their data charges to cope with the high volumes involved in music downloads. “The problem is the operators need to keep their data charges high for some activities – such as internet browsing. But the billing model does not work for music. The answer is to move to a wholesale model – otherwise, the mobile music market will be dead in the water.”

Mr Bud points to the deal mBlox signed with Vodafone in April 2006 to offer music services in conjunction with Ministry of Sound, the UK dance music group, as an example of the way forward. “We buy the data capacity in bulk, restrict it to music downloads and absorb the cost it in the overall transaction cost. This way everyone wins.”

There is, of course, nothing to stop mobile phone owners loading their memory cards with downloads from their PCs or even “ripping” music from their own CD collections. Some of Sony Ericsson’s mobile phones, for example, include software to transfer music directly from a CD.

However, Mr Gibson at Juniper sees a specific market developing around direct download to mobile phones: “It’s a very different market to the iPod or MP3 player. Mobile phones are about instant gratification and people want the latest thing. They are not going to download a whole album – but they want the latest tracks and are prepared to pay a premium for them.”

Streaming services are also likely to grow in popularity. Vodafone recently launched its Radio DJ service, which enables the user to access 500,000 music tracks. “It lets you stream your own personalised radio station through your mobile,” the company explains. “You can specify things like music genre, mood, decade and so on. It lets you rate the music as you listen, learns what your preferences are and lets you tag tracks for download.”

The demand for music on mobile phones inevitably means the devices themselves are evolving – not only to include more storage capacity but also to offer better quality and better user interfaces.

Nokia says it expects to sell about 80m MP3-enabled phones this year and is paying close attention to the interface and playback quality. “The iPod is the benchmark,” explains David Williams, director of music services at the company. “So, we have to give the same level of experience. There is no reason why a mobile should not offer a good listening experience.”

Moreover, he is excited by the possibilities of person-to-person exchange of music. “Mobile phones are about connectivity and social interaction. Music is a strong element of this and we can see legal personal sharing of music as part of this.”

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