June 13, 2011 at 4:01 pm

Mobile Carriers Are Doing It Wrong, Music-Wise

mobile music 2010 midem

Many love them, some claim to hate them, and some profess not to care at all, but we all know smartphones are changing everything.

When it comes to the music business, mobile operators (you know, the companies who bill about a hundred bucks per month for your smartphone) have been backing the wrong horses and have lost control of a market they dominated when it was relatively small and meaningless.

Carriers’ traditional sources of music revenue — ringtones (and, to a far lesser extent, full track downloads) — are drying up, as mobile music has taken off due to consumers being able to install apps that make ringtones, deliver music, remix it, play it like a game, and so on, rather than buying it from their cellphone provider.

A recent Midem study based on research by Informa Telecoms & Media generated the following list of “key trends” for cellphone service providers and music. Across the board, they demonstrate how smartphones are cutting companies like AT&T, Verizon, T-Mobile, and Sprint out of the music equation:

“Digital-music-sales statistics published in many developed countries show a decline in the number of mobile full tracks being downloaded. The countries affected include France, Italy, Japan, Spain, and the U.S.

“Some key European markets have recorded sharp declines in mobile full-track sales over the past year or two. In Italy, for example, there was a 40 percent drop between Q1 2009 and Q1 2010.

“Rather than marking the demise of the full-track music format on mobile phones, the stats betray a shift among mobile users away from the services provided by… mobile operators and mobile content merchants to those provided by online players such as Apple and Spotify.

“It  appears that operators may have inadvertently accelerated this shift by abandoning feature-phone-friendly music-file formats in favor of MP3, which is increasingly focusing full-track consumption on smartphones, where the online brands have greater sway.

“The low margins of the full-track business are pushing a lot of mobile companies out of the market, reducing supply from their end and further encouraging the shift towards online brands. [ed. note: Did you even know cell service providers sold music?]

“Traditional mobile music providers such as Buongiorno are also migrating to unlimited music-subscription services. And they will be competing against similar services from online players in the app-store environment on smartphones.

“The biggest blow, however, has been the new world order ushered in by the rise of smartphone apps and the ‘over the top’ players from the online and computer worlds, most notably Apple and Google. It is these mobile outsiders that now dominate the mobile content scene, at least in developed markets.”

In a nutshell, Apple and Google — and the app developers who make stuff for their platforms — are eating the mobile carriers’ lunch. Ringtones still make up the majority of their revenue, and ringtone sales began declining steeply in the summer of ’09.

As for music apps, which the study found to be the most promising area in music, the carriers don’t see a cent from those. Is it any surprise, then, that we’re witnessing the end of the unlimited data plan, and the implementation of tiered wireless data pricing?

In a world where the cellphone carriers that deliver the lifeblood of music apps — wireless data — do not make any money from them, charging for data is the only option. Indeed, one wonders why they were ever in the business of selling music in the first place.