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Napster, Ericsson Bank On Cell Phone-Music Service

Service would support wireless and PC downloading of digital songs, but would carriers be interested?
Napster Inc. and Telefon AB L.M. Ericsson on Wednesday said they have teamed up to offer Napster's online music service to wireless carriers, a plan that could get a cold reception from the service providers.

Through the partnership, Ericsson, the largest supplier of cellular-phone networks in terms of revenue, and Napster would offer carriers a technology platform and a music service with a strong brand, the companies said. Napster currently offers music that can be downloaded to a PC or digital music player either through a monthly subscription or by purchasing each song separately.

With the combined service, when a consumer downloads a song to the cellular phone, an e-mail with the tune attached would automatically be sent to the person's PC, Brad Duea, president of Napster said. Music downloaded on a PC through Napster's subscription service could also be transferred to a cellular phone. Napster plans to introduce a subscription service for cellular phones in the future.

In order to take advantage of any of the services, however, the consumer would need a cellular phone with compatible copyright-protection software, Duea said.

Convincing carriers that they can make money will be key to the success of the new offering, experts say. There's no advantage to the carrier in supporting music downloads from anyplace other than the cellular network. Coordinating downloads from PCs or other sources, only means less opportunity for carriers to sell the same music to subscribers.

"Carriers want to collect the money from the cellular phone," Joe Wilcox, analyst for Jupiter Research said. "If you can download from a PC too, then this will cut them out."

While not commenting directly on the Ericsson-Napster deal, Mark Siegel, spokesman for Cingular Wireless was clear on what drives the carrier's interest.

"We look at every deal for music or any other application based on its revenue potential," Siegel said. "If we don't see the revenue potential, then it's intuitively obvious. Why would we do it?"

Nevertheless, for companies like Napster, whose major competitors include Real Networks Inc. and Yahoo Inc., cellular networks are a potentially major distribution channels. Market researcher Gartner Inc. estimates that global sales of handsets will come close to 750 million units this year, a 13 percent increase from 2004.

A small, but growing, percentage of those phones include digital music players, but it's uncertain whether carriers would subsidize those phones for people signing up for their services. Phones offered at a discount by carriers are popular among cellular-phone subscribers.

"What's the incentive for the carrier to sell a handset with a (music) player with no revenue opportunity," Wilcox said. Duea said a carrier would get a portion of the revenue from downloaded tunes, but would only share revenue from subscription services, if it sold the service to a subscriber.

Carriers could partner with an online music service and put together their own offering. But Duea argued that the Napster-Ericsson deal would give them a strong music brand and free them from content acquisition and application development.

Despite carriers' reluctance to integrate cellular phones with the PC, that delivers the best service to the consumer, Duea said.

"If (carriers) really want the consumer to have the best experience, then they would be interested (in the PC)," Duea said. "They also share in the revenue, so they benefit as well."

Nevertheless, research indicates consumers may not want music players in their cellular phones. Jupiter Research has found that people do not want their voice communications diminished by the addition of other features. Music players, for example, use up battery life, which means less time for talking.

"Our research shows that people are perfectly happy to carry two devices," Wilcox said of cellular phones and music players. "There's always problems in converging devices."

The Ericsson-Napster service could also offer more than music, including ring tones, images and video content, the companies said. The service is scheduled to be offered initially in select markets in Europe, Asia, Latin America and North America. It's scheduled to go live in Europe first over the next 12 months, but no details were released.

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