"International wireless operators provide a sense of what's possible at the edge of this frontier. Korea's SK Telecom Co. (SKM ) offers a $5 a month music subscription that allows customers to download any of 700,000 songs to a phone, PC, or music player. That makes the subscription much more convenient than similar services in the U.S. because Korean customers can get any song they want, wherever and whenever they want it. Since the November launch, 300,000 people have signed up. 'We are not yet making money, but we see a big potential for profits from music,' says Shin Won Soo, a senior manager in charge of SK Telecom's music business, which is expected to go into the black with 800,000 subscribers. That conjures up the possibility that with music phones, consumers around the world could opt to pay a monthly fee for all the new music they desire, rather than buying individual CDs when they debut.
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The wireless companies are coming from far behind in setting up their music stores. Apple spent years refining its iTunes site and already has sold more than 300 million songs. Yet the wireless companies may have one advantage if they compete against iTunes on price. Because they already bill mobile customers each month, they wouldn't have to pay credit-card charges to Visa or MasterCard. That's not much of an edge over iTunes when customers buy a $9.99 album. But if they buy single songs for 99 cents at iTunes, the fees total a significant 17 cents to 20 cents. Bottom line: Verizon, Cingular, and Sprint could end up lowering their prices to $1 a song and still make more profit than Apple does. "Business models will absolutely change," says Richard S. Siber, CEO of wireless consultant SiberConsulting.
Actually, what Apple and most online stores do to make the credit card fees workable is to aggregate several purchases into a larger purchase. I recently bought a song for $.88 from Wal-Mart and I wasn't charge for a day or two - that is so that if I decide to buy something else, Wal-Mart can aggregate the two charges together and lower the overall credit card fee. As it is, I didn't buy anything else, for the profit-margin for Wal-Mart on my one tune was quite a bit lower than they would like. It's much better if you buy for the online music stores if you buy even two or three songs at a time.
Original text © 2005 Stephen Clarke-Willson - All Rights Reserved
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