Why iPhone will change the mobile music business

iphonemusic.jpgThe introduction of the iPhone later today will signal a sea change for the music industry, especially mobile music. It won’t solve the music industry’s woes immediately, but it will herald a new era in which music can elegantly coexist with a phone on the same device.

Music-enabled phones have been around for a few years, but they have been woefully inadequate — little storage capacity (64 MB – 128 MB has been standard for flash cards), disabled side loading, and mobile storefronts with convoluted navigation and over-priced songs. It’s a small wonder that consumers ever used any of these phones for music. According to JupiterResearch almost 30 million US consumers will have music capable phones by the end of 2007, but very few will sideload or purchase music over the air.

The carriers have been largely to blame for shoddy music phones, with their walled garden approach. Though, the labels have also had a hand in the expensive and confusing pricing and licensing schemes. But both are actually starting to see the light. For instance, Sprint recently announced that they will sell songs from their download store for $0.99 instead of the $2.50 they had been charging. I guess their customers didn’t think the convenience was worth paying such a premium.

I’ve been a member of Sprint’s Ambassador program and have tried out a few music-enabled phones and found all of them lacking. To be fair, the latest one, the Samsung Upstage , isn’t bad — good, dual-sided design and the ability to accommodate 2 GB flash memory cards (though it only comes with 70 MB of internal storage and a 64 MB card).

As much as I’d love to carry around one fewer gadget, however, the Upstage isn’t enough of a music or podcast player for me to give up my iPod.

Nokia’s converged N series phones are a bit closer to an iPod experience, with the N91 getting an 8GB (like the iPod Nano). The N95 and the N800 Internet tablet offer Rhapsody subscription music service. And I tested the N95 music service and had an awesome experience.

Maybe the iPhone will be the ultimate device that can cannibalize its sibling. Like the iPod, the iPhone promises to provide a significantly better consumer music experience:

* You’ll be able to easily synch the music on your PC or Mac via iTunes.
* It will have 4 GB or 8 GB of storage – orders of magnitude greater than existing phones.

There are drawbacks to be sure. For instance, it will only be available on AT&T/Cingular, meaning that a large part of the market won’t even consider the iPhone due to being locked into a contract with another carrier (which I think is one reason why Apple announced the phone so far before the ship date — so that consumers with other carriers could let their contracts lapse).

It is also unclear whether podcasts will be supported and synched to the iPhone over-the-air (for instance, when the phone connects to a Wifi network, which I think is an under-appreciated feature). Then there is the price, $499 or $599, which is way more than most consumer-focused phones.

The ultimate success of the iPhone as a music device, and as a hit in general, will depend on a number of factors: how far the price points can come down; whether consumers go for the touch screen; when it will be available on 3G; what sorts of applications will run on it…The prospect of widgets and other apps such as Last.fm, Pandora and iLike being available on iPhone will only make it that much more appealing to consumers. And how quickly will automakers support docking in new cars? That would be powerful indeed.

The launch of the iPhone won’t directly impact artists or labels right away. They will indirectly benefit from more music being purchased via iTunes since it will expand the portable music player market.

If the iPhone will mark a new age of mobile music, it’s one that coincides with a shift in power away from the carriers. As others have observed, the iPhone won’t have links to AT&T’s content deck. AT&T is essentially being relegated to providing the pipes and data delivery instead of taking a piece of everything that happens on their pipes.

This is markedly different than how the carriers have operated to date and could set a precedent for other carriers to open up their walled gardens. That could make the US mobile content market look a lot more like Europe’s where revenue from off-deck content accounts for 80% of the overall market.

At any rate, if the iPhone performs as advertised, the music listening experience will be far better than any existing option, which will force existing handset makers to answer with comparable devices or risk losing significant market share to Apple.

So even if the iPhone is a bomb, it will have raised the bar for the entire industry and we will mark June 29th as the day mobile music took a giant leap forward.

[Raghav “Rags” Gupta is VP of Consumer Services & Partnerships at Brightcove, where he has worked since ‘05, prior to which he was a senior executive at Live365. His blog can be found at www.ragsgupta.com . The views expressed here are personal and do not necessarily reflect those of any Company with which he is or has been affiliated.]