Profit margins sway the mobile hit parade
Pay to play
Mobile operators have been crowned as the future kingmakers of digital music so many times, the coronet must be getting pretty greasy by now.
But how do operators choose what goes on the coveted, and extremely limited promotion space on a mobile music site's home screen?
Richard Wheeler, head of music partnerships for Orange, helped shed some light on the subject on Friday at MusicAlly's digital music convention, part of Brighton's Great Escape festival.
When the subject was first raised in a panel discussion, Wheeler, who joined Orange from Sanctuary, agreed that it was truly valuable real estate. Mobile users will only get to see 10, or at most 20 picks because of limited screen size and bandwidth. So to that end, Orange was developing sophisticated recommendation engines based on pinpoint demographics, he said.
A few minutes later, he augmented this with an answer that might be somewhere nearer the truth.
He admitted: "Yes, placement is based on the margin we get from the labels."
In other words, Orange will promote songs on which it stands to make the most money. The other panelists, from mobile operators T-Mobile and O2, looked sheepish. It's as well there weren't any journalists on hand to record the admission.
Well, just one or two.
Orange UK offered us this clarification:
"Orange's standard portal placement and customer recommended content are two entirely separate strategies that currently work well sitting alongside each other. Currently, our content is chosen by an editorial team based on song popularity. However, we are considering choosing featured content based upon margin."
But successive panels on mobile music showed that a cold wave of realism is blowing through the operators, as well as considerable wariness of Apple.
Panel moderator Steve Mayall from MusicAlly noted that operator 3's downloads had remained flat, at around a million month - and 3 is raising its prices saying the business wasn't economical
(3 wasn't there to answer back)
O2's head of music Matt Cockett said the days of operators throwing seven figure sums at individual artists were over. It didn't pay, he said. In one case last year, saturation promotion had actually resulted in the artist's sales declining that month.
The ringtone business is also showing signs of cooling off - with UMG saying revenues were down 20 per cent year on year. However, ringback tones - which is the song you hear when the call recipient is away or busy - have been a bonanza in Asia, but have yet to catch on in Europe - that's potentially a $2bn a year business waiting to happen (ringtone revenues dwarf the amounts raised by online download stores such as Apple and Napster: they grossed $6.6bn last year, as Steve Gordon explained here).
But Rob Lewis, whose Omnifone venture has unflinchingly addressed many of the problems of mobile music, saw more reason for optimism.
Nokia's market research showed that the desire to have consumer music on the one device - the phone - wasn't being fulfiled. Only 10 to 15 per cent of users played music on their phones, and those users acquired an average of six tracks a year.
"Nine out of 10 people haven't joined the digital revolution yet," he said. "The iPod is a bit of a pain: you need a PC and a credit card, and you need wires to sync. It's not something your grandmother can use."
He said the operators were in "the Last Chance Saloon". The real market was a billion mobiles, not "10 million iPods".
Lewis' MusicStation service promises a "celestial radio" of any music, on any device, anywhere - for £1.99 a month. He's gradually fleshing out the promise: 30 carriers have been signed up, and it reaches 70 per cent of the mobile handset market. It just has to be dead simple to use, he said. "Simplicity is what can beat an iPod".
We'll get a chance to see how the market responds to this proposition later this year, when MusicStation rolls out.
The iPhone may have been labelled "Newton 2.0" outside the US, where it's viewed as attractive rather than essential, but Lewis said the operators were far more terrified of the iPhone than they let on.
"Manufacturers are now very worried about the high-end consumer leaving the Samsung and the Motorolas." ®