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Sales of Music-Enabled Mobile Phones on the Rise

New evidence points to a clear rise in sales of music-enabled mobile phones.

Sales of mobile phones that are capable of downloading, storing and playing back full music tracks are on the rise, according to the latest data from NPD’s Mobile Phone Track service. On a quarterly basis, music-enabled mobile phone sales have risen from just over seven percent of new models sold in the second quarter of 2005 to 16 percent in the first quarter of this year. In unit volumes, music-enabled phone sales increased from just under two million to just over three million – a 100 percent increase in one year.

Welcome News
These numbers are welcome news to mobile phone manufacturers, carriers promoting music downloading services (see related Wireless Bulletin) and music labels hoping for a mobile bump – not to mention music fans looking for a convenient way to enjoy their tunes on a device they probably carry with them most of the time.

Availability
Several factors have contributed to the increase in sales for music-enabled phones. For one, manufacturers have begun introducing more models – currently there are approximately 67 phone models that play music now versus just 36 only a year ago.

Another factor is pricing. Prices for music-enabled mobile phones have declined from an average of $125 in May of 2005 to less than $93 in May of this year, which is a 26 percent decrease year-over-year. Music functionality is no longer reserved solely for high-end handsets. Customers in the mid-range can now easily afford a phone that doubles as a music player.

Carrier Music Stores
Leading carriers have been a factor in the increase as well. Their own mobile music stores, which offer over-the-air downloading capability, have helped stimulate the market. Sprint’s Music Store launched last fall and Verizon Wireless soon followed with the debut of its VCast Music download service in January of this year. Both carriers offer several mobile phone models capable of taking advantage of the service, and early adopters have helped generate revenue.

But this increase doesn’t necessarily mean the market is about to explode for music-enabled phones – at least not in the short term. After all, it took Apple several years of heavy and consistent marketing efforts before iPod sales really started to soar.

It will likely take a couple more years for the music-enabled phone market to really flourish, but the growth in the meantime should be steady. That’s enough time for mainstream consumers to give music-enabled phones a try, and for the trend to find its place.

The iPod Question
Many ask if these devices could become so-called “iPod killers.” Apple will certainly face new competition as these phones are increasingly adding storage capacity and better software for music management, making it easier for some consumers to ditch their iPods in favor of an all-in-one device. But well-received, stand-alone devices have a way of hanging around, despite threats from combination devices.

Apple, however, has other potential tricks up its sleeve. At this point, the company has an extremely comfortable lead in the digital portable-music-player market. Furthermore, it has been strongly rumored for some time that it’s quite possible Apple could enter the mobile phone business with a combination product of its own; one that keeps its brand and sales moving in step with competing mobile phones. Recently, Apple’s CFO Peter Oppenheimer said, “we’re not sitting around doing nothing in this regard” – an oblique reference to a possible iPod phone coming down the pike.

Will Zune Join the Fray?
Microsoft has also not entered the music-enabled phone market, though that might not be far off either. While telephony was not part of Microsoft’s recent announcement for its Zune music device, it’s not hard to imagine a Zune product with a cellular radio embedded for voice (and data) in future versions, especially considering the years and money Microsoft has already invested in Windows Mobile handsets.

Bottom line: Music-enabled phones are here to stay, and the competition among traditional phone manufacturers – as well as the possibility of Apple and Microsoft joining the fray – will only enhance the market for end-users. Competition has a way of doing that, after all.

- Neil Strother, Research Director, Mobile Devices