Dancing to a new mobile beat.

Both recording companies and wireless telecoms providers want mobile music to strike a chord with consumers around the globe.

The story starts with the fact that total worldwide revenue for the music industry was $31 billion in 2005. In 2000 the total was a little under $40 billion, according to the International Federation of the Phonographic Industry (IFPI). This precipitous decline reflects plummeting global CD sales and the rapid and comprehensive shift to digital music by consumers.

Looking to the future, eMarketer forecasts that the global retail market for full-track downloads and master ringtones will deliver $7.75 billion in revenue by 2010. Within four to five years, mobile music will account for around 65% of worldwide digital music sales.

The music industry will pull out all stops to drive the market for full-track mobile music because it provides better security and higher price points than digital music on a PC, and it also yields independence from Apple Computer.

While mobile music is seen by the record companies as nothing less than a lifeline, the bottom line music labels is that mobile music retail sales, while significant, will still not see a return to pre-2001 revenue levels.

“There will come a point where consumers say ‘enough!’ in terms of paying repeatedly for the same music tweaked differently, such as a ringtone, a ringback tone, an alert tone and now full tracks,” says John du Pre Gauntt, eMarketer Senior Analyst and author of the new report, Mobile Music: The New Marketing Challenge. “Nevertheless, mobile music has the advantages over PC/Internet based digital music of better security and protection against unauthorized file sharing, and the price points for mobile music are often two to three times what they are for PC-based digital music. Moreover, mobile music is not dominated by Apple Computer’s powerful one-two punch of iPod and iTunes. The $0.99 price point for songs from iTunes might sell iPods but it does not compare to the potential $2-3 that is likely to be acceptable for near-CD quality, full-track downloads directly to a phone.”

For mobile carriers, music is the first non-voice, high bandwidth service where there is a demonstrable willingness-to-pay on the part of consumers.

“This comes none-too-soon for an industry that has spent billions of dollars on high speed networks with little to show for it except declining voice rates,” says Mr. du Pre Gauntt. “As of 2006, non-voice 3G services make up less than 10% of global carriers revenues. With mobile video is still in its infancy and mobile gaming a rounding error compared to voice in terms of revenue, mobile music is the only data service that can come close to generating a return on 3G investment in the near term.”

Both industries have embraced mobile music, not the least because for the past two years it has provided each with highly profitable earnings that have required little expenditure to acquire and serve customers.

“However, this will change in the move to a mass market, as mobile music begins to be directed by the tastes of more casual listeners rather than passionate music fans,” says Mr. du Pre Gauntt. “The era of ‘found money’ will end this year and be replaced by an era of ‘heavy lifting’ involving marketing mobile music services to consumers who now have multiple, legitimate choices for experiencing music anywhere they want on most any device.”

Over the next two years, the mobile music industry will become far more complex than it is today. New market entrants from the technology, retailing, and Internet industry sectors aim to join the party. As the opportunity scales up, most of the value creation will favor bundling, packaging and marketing more than having the biggest library, the fastest network or the cheapest price.

“During 2006, marketers should negotiate opportunistically, rather than for the long haul, with mobile carriers and music labels,” says Mr. du Pre Gauntt. “So take a seat, the warm-up act is over, and the real show is about to begin.”