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Picking Up the iPhone Buzz

By Arik Hesseldahl Apple Computer's cryptic announcement that it's holding an "invitation-only event" in San Francisco on Sept. 7 has rekindled media buzz around the computer maker's planned release of a music-playing mobile phone, developed in conjunction with Motorola.

Apple (AAPL) and Motorola (MOT) are mum on the event's agenda, yet there's little doubt that this long-awaited device is enormously important to both companies. Jupiter Research estimates the number of wireless phones that support music will surge to more than 70 million by 2010, surpassing the number of portable MP3 players. In fact, sales of digital music players, including music-ready phones, will break the 35 million-unit mark by the end of the year, the researcher says, citing a recent market study.

What's less clear: How much of a breakthrough is the Motorola iTunes phone, and will it be a hit with consumers?

COMPETING HANDSETS. Apple certainly isn't the only company building a strategy around letting its customers load music onto phones. Users of iTunes rival Napster (NAPS) can already import downloaded music from their computers to phones, via its Napster To Go offering. The service works with phones from Motorola, Samsung, and AudioVoxx (VOXX), among others, and is based on a software platform from Microsoft (MSFT).

Napster To Go uses "side loading" technology, which bypasses wireless networks operated by carriers such as Cingular Wireless, Verizon Wireless (VZ), and Sprint Nextel (S). In June, Napster and Swedish telecommunications concern Ericsson (ERICY) announced a plan to develop an over-the-air download service for wireless service providers.

If, as reports suggest, Cingular Wireless opts to carry the Motorola-Apple device, it won't be the only provider with a handset that doubles as a music player. Verizon Wireless already offers two phones that let subscribers transfer music from PCs and says it's planning a rival online music service in the coming months. Meanwhile, Sirius Satellite Radio (SIRI) said in June it will supply streaming music to Sprint Nextel.

SEEKING REVENUE STREAMS. While little is know on pricing plans for the Apple-Motorola service, consumers may balk at having to pay anything more than 99 cents per song. And some users are likely to be on the lookout for a service that provides access to a wide range of entertainment choices, says Jupiter Research's Michael Gartenberg. "Carriers believe that music will do for them what the camera phone didn't do, which is deliver revenue from wireless data,'' he notes. "Buying single songs as a download on the phone won't be the model of choice, as opposed to streaming lots of different content."

That could enhance the appeal of the service being planned by Sprint and Sirius, Gartenberg thinks. That offering would allow consumers to tune in to live streams of music rebroadcast from Sirius over Sprint's data network, running up data charges the entire time. "The carriers are far more interested in the service revenue," Gartenberg says. "There's no reason they couldn't make a streaming music service available very soon. The network is there, and the music is there."

It's also likely that carriers will want to give consumers a variety of options. "I don't think you'll see Cingular declaring that iTunes will be its sole solution," says an executive at a competing music service. "The carriers are looking for revenue sharing to support the model, and the music labels will view wireless downloads as an opportunity to try and raise the price of a download."

THE "APPLE GLOW". Still, no rival service bears the mighty imprimatur of Apple and iTunes, and that could make all the difference here, says Gartenberg. "No one has been able to shake this notion of buzz around iTunes," he says (see BW Online slide show, "How iPod's Phone Rivals Stack Up").

Based on documents Motorola filed with the Federal Communications Commission in May, the phone will allow users to load music -- bought from the iTunes Music Store or ripped from CDs to their iTunes playlist -- directly from computers to the phone. For selecting and playing music, the phone has an iPod-like screen interface.

For Motorola, the device would be a hot addition to its new lineup of mobile gear (see BW Online slide show, "Motorola Puts Design First") and would extend the "Apple glow," Gartenberg says. And it would enable Apple to broaden the iTunes platform beyond its hugely popular iPod music player.

Cingular could benefit from the association by featuring the phone in its stores and hopefully boosting revenues from sales of calling plans. But that's only if the price is right -- and consumers don't opt for the growing number of rival mobile music choices on the way.

With Olga Kharif, a reporter for BusinessWeek Online in Portland, Ore.

Hesseldahl is a writer for BusinessWeek Online in New York.

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