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Music Phone Wars
The Battle Lines Are Drawn, But Who Will Emerge Victorious?

The music-phone arms race is about to begin in earnest.

Major suppliers have all announced their initial weapons, and now the cellular world waits for the first major deployments.

But don’t expect this market to explode immediately, despite the current claims of manufacturers. Like any ground war, the first days of battle can be ugly and confusing. New types of mobile phones often have glitches and kinks to be worked out, and some fail to take off with end-users, for a variety of reasons. It’s important to remember that the first smartphones were not initially popular, until better second-and third-generation versions entered the market.

We can expect to see similar issues with these early music-centric models, before clear market winners emerge.

Likely rough patches will include the following:

Battery life — As any iPod user knows, batteries drain rather quickly; couple a music player with a cell phone, and this becomes a thorny problem.
Storage — How much cell-phone memory storage is enough? Typically, iPods come with at least 4GB. Will less than that level be enough to satisfy consumers?
Software bugs — Integrating a great music experience with a voice device sounds easy, but as we’ve seen in other complex mobile phones, software problems can sabotage even the best devices.
Music playback quality — The songs have to sound good, or there is no advantage to a cellular phone over a stand-alone digital music player. And speakers (on the device or in earbuds) must also perform well.
Price — Most U.S. consumers are accustomed to paying $125 or less for a new cell phone. Will adding an MP3 player and adequate storage get them to move up-market to expected price points beyond $200? Audiophiles and early-adopters will be the easy targets. Enticing large numbers of mainstream customers to buy is still an uncertain proposition.
Carriers and content providers — What can’t be known at this point is the way in which carriers and music content providers will respond to this new technology. Cingular is a good bet to be the first to launch the Motorola-Apple iTunes phone, and the operator is signaling a willingness to let consumers have fairly firm control over their music. Rival Verizon Wireless is likely to stick with a more “walled-garden” approach, with the expected launch its own music portal late this year.

Following are just a few of the products leading manufacturers have planned for their arsenals in the coming year:

Motorola and Apple’s collaborative iTunes phone is due out before the end of the third quarter. This much-anticipated device (first announced a year ago) could quickly become the category leader. In addition, Motorola plans to deploy a family of music phones under the ROKR name. These phones will feature dedicated music keys, an optimized music-player interface, extensive internal and removable storage, and longer battery life.
Nokia’s N91 is a sleek, yet robust, device that features a 4GB hard drive, and a 2MP camera. This flagship music phone is due to arrive in the U.S. market by the first of next year. But its high price -- roughly $550 before subsidies -- will limit its success. We can expect to see other, more affordable, music phones from this current market leader next year, as well.
LG recently deployed its VX8100, a multimedia EV-DO machine that includes MP3 playback capability with dual speakers and stereo sound, a mini SD memory card slot, a 1.3MP camera with Bluetooth compatibility. Verizon Wireless is selling the phone for as low as $150, though the carrier says MP3 downloads won’t be an available option for another few months.
Sony Ericsson will bank on the famous Walkman brand with its new W600. It features 256MB of memory and a 1.3MP camera. The W600 Walkman is expected to enter the U.S. market in the fourth quarter of this year. (Note: The company’s W800 Walkman, which features memory capacity of up to 4 GB and a 2MP camera, is aimed at European and Asian markets.)
Samsung offers two models: the MM-A800 and the SGH-i300. The MM-A800 features a media player with a flash card storage capacity of up to 512MB, and a 2MP camera. The i300, which runs the Windows Mobile OS, features a 3GB hard drive capable of storing roughly one thousand songs, and a 1.3MP camera. It is unclear, however, whether this product will be made available in the U.S. market.

From a device standpoint, Motorola has the best shot at leading its competitors. The company has built a solid portfolio over the past year, led by its iconic RAZR. Its partnership with Apple is also a huge competitive advantage, given the wide acceptance of the iPod. That said, the early leader is not always the one to finish on top.

Nokia is likely to win some high-end customers at first, but will struggle in the U.S. market due to its lackluster CDMA portfolio. Given time, though, Nokia will be a key player, especially as the company is likely to move music phones into the lower tiers.

LG, the flagship brand in Verizon’s handset portfolio – boasting about one-third of the carrier’s handset sales -- has a good opportunity to ride the CDMA volume wave with affordably-priced MP3-capable feature phones. The music capabilities won’t be the main draw for these mainstream purchasers in the same way that they would for an iTunes or Walkman phone purchasers, but LG devices stand a good chance of drawing casual listeners into the mobile music world early.

Sony Ericsson is the dark horse, and could parlay the Sony name and content connections into a winning model; however, given the fact it has exited the CDMA business, Sony Ericsson will be a follower in terms of overall volume.

Samsung will be another follower in terms of volume, but it is likely to capture a solid share of mid- and high-tier customers, since that is where it targets its phones.

Once these devices get into the market over the next six to 12 months, it will be interesting to watch which company will emerge the victor from the competitve fog of war.

— Neil Strother, Research Director, Mobile Devices