Portable music's future could be in your phone

Forget for a moment that nearly 70 million consumers have purchased iPod digital music players in the last five years. Or that over the holidays millions more will add new models to their collections.

The wireless phone industry will tell you that the days of the stand-alone digital music device are numbered. In coming years, they say, more music lovers will listen to music on their cellphones.

"There's always going to be room for stand-alone music players, but the sheer numbers favor handsets," says Eli Harari, CEO of SanDisk, which makes memory cards for cameras, phones and music players.

According to researcher Strategy Analytics, 1 billion cellphones will be sold worldwide this year. Twenty-five percent of them - or 250 million - will be handsets that can also play music. The firm sees shipments of music phones growing to 800 million by 2009.

But most consumers with these phones either don't realize they have that functionality, or rarely use it, says Rob Hyatt, executive director of music at wireless carrier Cingular, which this week launched five new music phones that work with online subscription services
Napster, Yahoo Music and eMusic.

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"We've sold a lot of devices, but adoption hasn't taken off," he says. "It's been a challenge."

It's not for lack of trying.

Verizon is pushing the LG Chocolate and Motorola KRZR music phones in TV and print ads. Sprint has the LG Fusic, which stands for the "fusion of fun and music in one device."

Cingular's flagship music phone is the Sync by Samsung. What sets it apart is the price: $49.99 with a contract. The Chocolate is $129.99, Fusic $149.99 and KRZR $199.99 with contracts.

The carriers have other music phones, but these are the ones that are being marketed heavily. They have color screens for watching videos; some have scroll wheels that look just like the ones on the iPod.

Music is a powerful selling point now that the days of wooing customers with phone service alone are over, says Ryan Hughes, Verizon's director of content.

Subscribers tend to get new phones every 13 months.

"This is an incredible opportunity for us to reach mass scale on a device people are constantly looking to refresh," Hughes says.

Consumers have been slow to embrace music phones for a variety of reasons:

•Ease of transfer. Moving songs from the computer, where most people store their digital libraries, isn't always easy. In general, consumers must drag and drop song files from their computer music directories to an external mini-memory card called a MicroSD, and then insert the card into the phone. The carriers give consumers little direction on how to do this.

•Price. Direct-to-phone downloads are priced higher than online: $2.49 at Sprint and $1.99 at Verizon, vs. 99 cents per song at Apple's iTunes store. Sprint customers also have to buy data plans that cost from $15 to $25 a month on top of regular cellular bills. Sprint says it has sold 8 million songs to date since opening its music store in 2005. Verizon says it is selling 1 million songs a month. In comparison, Apple has sold 1.5 billion songs in three years.

Yahoo Music chief Dave Goldberg says he's confident Cingular's strategy will energize subscription music, which has lagged behind iTunes in revenue and buzz. Extensive advertising and shoppers' thirst for new phones "will make it a lot easier for people to get started with subscriptions," he says.

"Cingular is a huge carrier, and it has the ability and wherewithal to get the word out. You don't have to buy a separate music player to experience subscription music, and that's great."

Yahoo and Napster both offer unlimited downloads as part of their monthly subscription plans. Songs expire if subscriptions are not renewed. Songs sold at eMusic aren't copy-protected and don't expire. Pricing at most services ranges from $10 to $15 a month.

An international tune

In Asia, people now listen to music on their phones more than they do on music players, says Strategy Analytics analyst Chris Ambrosio. He sees no reason this shift won't happen here.

If any company knows about the international popularity of music phones, it's Finland-based
Nokia. The company will sell 80 million music-enabled phones worldwide this year, says Nokia Vice President Bill Plummer. Nokia has several advanced models that aren't yet available in the USA, like the N91, a full-featured phone with an 8-gigabyte hard drive. That's enough storage space for over 1,000 songs.

The N91 sells for $599 in Europe and Asia, where carriers don't subsidize phones to entice new customers. So far, U.S. wireless companies have passed on the N91, but Nokia says it isn't concerned. "As the carriers launch more music services, we plan on being part of their rollouts," Plummer says.

Ambrosio expects music features to be as ubiquitous on cellphones as cameras are now - but without the quality disparity. Photo features on phones are rarely used because image quality is so poor.

"Music sounds just as good on a phone as it does on an iPod," Ambrose says. IPod owners won't be ditching their iPods for music phones - but more consumers will be listening to music on phones, he says. "The potential customer base of casual music listeners is much larger, and they're the ones we see buying the music phones," he says.

After all, along with wallet and keys, a cellphone is the one device people almost never leave home without. "It may take another six to 12 months, but there's no mystery here - it's going to happen," says Harari at SanDisk.