The mobile phone industry is predicting that large numbers of consumers will be streaming music to their phone by the end of the year, but debate is raging over how everyone involved will make a profit, and how they will split it.
The question of who gets a cut was sparked of when Motorola decided to hold off its announcement of the iTunes mobile phone. Many in the industry speculated that it wasn't Motorola, but the wireless carriers, that drove the decision to postpone the launch.
One analyst is suggesting that the launch of the Motorola iTunes phone was cancelled because the telcos refused to celebrate another feature that doesn't drive up network revenue.
Yankee Group analyst John Jackson told The Street: "This is a manifestation of conflict we'll see more and more as the phone takes on additional functionality."
Out of control
Charter Equity Research analyst Ed Snyder agrees. He said: "For the phone companies pouring billions of dollars into network upgrades for faster wireless access, every advance in digital media seems to represent another revenue opportunity they can't control."
Snyder expects music phones to be an even bigger success than the wildly popular camera phones that preceded them, but he notes the networks confronted difficulties cashing in on that trend.
"It's a losing game for the carriers. The iPod and MP3 crowd uses PCs to download music, and they won't be inclined to pay the phone company for tunes they already own. The carriers hate that answer because it means they don't get any part of the multimedia phone pie, just as they haven't gotten squat with imaging," he said.
The Seattle Times writes: "The iTunes service is a closed platform, meaning songs downloaded from it cannot be played outside the iTunes environment. For wireless carriers, that could potentially mean no cut of the revenue."
It seems likely that the carriers are expecting to make more of a cut. Subscribers have grown used to paying up to $3 for a ring-tone and the ring-tone market is worth $11 billion worldwide.
Cingular Wireless' chief technology officer Kris Rhine explains: "Crafting a workable revenue-sharing plan among carrier and partners remains a big hurdle. From the carrier's perspective, music is no different from the business model for other content, including ringtones and games.
"The difference is that before ringtones or mobile games were introduced, users had no price history for them."
Jewellery for geeks
Regardless of the debate, some in the music industry are convinced that mobile services could threaten the iPod. EMI Music senior vice president of digital development and distribution Ted Cohen said: "Such services could be a threat to the iPod and other stand-alone music players. If I have to make a choice between the phone and the music player, I'm going to choose the phone."
Rhine, the owner of two iPods, is less harsh. He says: "The more devices the merrier. I see different applications for both. This is all jewellery for geeks. You can never be satisfied with one set of earrings."
Nokia vice president of North American sales and channel management for multimedia Nigel Rundstrom insisits that when developing a handset, Nokia factors in the carrier's take. He said: "The operator is key to any mobile model. We have to consider them in the value chain."