Verizon just announced a deal with Warner to sell music video downloads for $3.99 a pop (or about double that of a ringtone). This may be good news for labels and bad news for music distributors. Good news because labels may get to set a value for music videos, which they have typically given away as promos (despite their costing more to produce than the track). [This has always been kind of a paradox to me -- you'll need to pay to download or stream the new Greend Day single, but you can download/stream the music video all you want.]

I'm going to guess that big distributors of music videos used to paying little to nothing for music videos -- MTV, AOL, Yahoo -- may get grandfathered in. (These sites are streaming hundreds of millions of videos apiece each month...Imagine if they had to pay the labels even a few cents per stream...) But new distributors wanting to promote music via music videos may now be asked to pay up from labels seeing this as a potential revenue stream, and pointing to a high profile player like Verizon, which sets a precedent.

Then again, maybe this only applies to mobile downloads, and so music videos will continue to be free online...

I was at a wireless content seminar and had a little revelation -- maybe the big labels have a shot at making a comeback. In the last several years they have lost 20% to 1/3 of their income, according to various sources. But wireless may give them a chance to recoup those losses and even surpass historic highs.

Last year the wireless music content biz -- mostly ringtones – easily surpassed 3 billion dollars in revenue and wireless is still only in its infancy! The networks are converting to 3G and will become capable of providing even richer content, including music downloads and music videos. Now, contrast this to the action on the web: sales of digital downloads, including iTunes, is at approximately $300 million. Yet the quality and abundance of music on the Web is presently much better than in the wireless space. What does this tell you?

Here's what I think it means and why it is excellent news for our friends at the big record companies. The key is the carrier! In the wireless space, T-Mobile, Cingular, Verizon, etc., are all actively commissioning content. They get a percentage royalty from sales of ringtones and music videos transmitted through their services in addition to receiving airtime charges.

But in the Internet space -- the carriers, or ISPs, do not share in the income from sales on iTunes or MSN Music or Rhapsody. They just make money from user subscriptions. That is why it is in their interests not to filter out Kazaa or LimeWire or eDonkey. In fact these "pirate" services enhance the attractiveness of high speed internet subscriptions. You could say that the ISPs are making a fortune from "free music." But in the wireless world the carriers do make money from sales of authorized music so they have a motivation to filter out free stuff.

The next big thing will be interactive streaming of music and video on your upgraded cell phone and this is one alternative way it could work: you will store your own music collection on a special server plus you will be able to buy additional music to place on that server. Then you will be able to access all of that music from your wireless phone. It will look and play like an iPod but the music will not be "in" the phone -- it will be accessible on demand basis from the server wherever you are in the world through wireless delivery. This will allow your phone to act like MP3 player without getting any bigger physically.

Unlike the online space, the carriers will monitor and filter out pirate services -- that is, services that do not share revenues with them. For this reason they will make every effort to accommodate the legitimate content owners who already do and will continue to share revenues with them. There will be far less "free music" in the wireless space -- the majors will finally be free again to make piles of dough.

Of course, this is an emerging technological area, and there is definitely free content floating out there. But as it stands now, we are not looking at another “Napsterization”, and it would really take a lot to make the tide turn to make mobile resemble the online world.

In the online world, the RIAA sues companies like Verizon. In the wireless world the record companies and carriers such as Verizon will cavort together like a group of lions hunting for consumers of music. Therefore, the labels may have a shot at recovering some of the income and decline in sales they have experienced in the last several years.

I used Google SMS several times this weekend as I was out and about:

-To check movie times ("movie 10010")
-To check the weather ("weather 02138")
-To look up the address of my friend's art gallery in Chelsea ("Andrea Rosen gallery new york")

Each time, I got accurate, relevant results back within seconds of pressing Send. Thanks Google!

Local information - news, weather, traffic - is going on-demand as a method of delivery. Traditionally, this info has been broadcast by local TV & Radio stations (and newspapers in the case of news & weather). In NYC, AM 1010 WINS is a news-only station and I believe the largest station in the market. You can tune in and you're guaranteed to hear traffic, news & weather every 10 minutes (interspersed with their ads of course).

Wireless IP technology poses a threat to local TV & Radio. Web brands like Google, Yahoo & MSN can use it to deliver this information to users at the push of a button. For that matter, these aggregators could be dis-aggregated with news providers working directly with the wireless carriers (Text "Weather" to short code ACCU for your local Accu-Weather forecast").

Local TV & Radio should also use these new technologies to offer this information to their users in an on-demand fashion, and as an extension of their brand. Radio could use one of their sub-channels enabled by HD technology to effectively provide on-demand local info.

The point is that, 5 years from now, when I'm driving in my new car with my wireless handset in its dock, I should be able to get the latest sports scores, stock quotes, my horoscope, the weather forecast and traffic info for my planned route, with the push of a few buttons rather than wait for this info as I do today. Better yet, traffic info should automatically be fed to my on-board navigation system, which would use it to optimize and/or recalculate the planned route. I'd be willing to pay for something like this.

The major labels hope that over-the-air downloading of full-length songs to cell phones for instantaneous listening will be the next big thing. But Sprint, the first to introduce this service in the U.S., may not have gotten things exactly right.

HIGH PRICE FOR SONGS

First and foremost the songs are priced at $2.50 each. You can buy the same songs on iTunes for 99 cents. The New York Times review of this new service (David Pogue) asks the obvious question, “What are they, nuts?” What makes Sprint think it can charge two and a half times as much as music they can legally obtain elsewhere? "It's a new market, the first service of its kind, serving a different type of customer," Jackie Bostick, a Sprint spokeswoman, said. "We are not necessarily going after people who are downloading tons of music online." (Translation: "Please don't bring up the iTunes thing.")

But at least one customer, according to the NY Times article, perceives logic in Sprint's strategy: "It's the same reason I pay $8 for a hot dog at a baseball game. I could have the same dog at home for 23 cents, but I pay the premium because it gives me the hot dog where I am, when I want it." Also $2.50 a song is actually less than the price of many ring tones. As hard to believe as it seems to adults, teenagers throughout the world are eager to pay $2.50 each or even more, just for a 20-second excerpt of a hip hop or pop song to use as a ring sound. Now they can get the whole song for just $2.50. There's another mitigating factor: Songs you download directly to the phone stay on the phone, but the $2.50 also includes a second copy of each song, which you can download directly to a Windows XP computer. You can also burn them to a CD, play them on two other computers and transfer them to a MP3 player. But they will not play on an iPod, only players using Microsoft's Plays For Sure.

SIDELOADING

At $2.50 a download, however, the consumer may be tempted to “sideload” music files from their desktop into the phone. Apparently the record companies have been unable to get the headset manufacturers to prevent this capability. Since many consumers have already paid for, or otherwise obtained, huge amounts of music on their computers, it would seem that they may prefer to load their phones for free rather than pay an additional $2.50 per song.

ADDITIONAL FEES

In addition to the $2.50 per song, in order to get the new service you must buy one of two expensive phones: the Sanyo MM-9000 for $230 or the Samsung SPH-A940 for $250, including rebate and a two year service agreement. Then you must pay for Sprint’s Internet connection service called Power Vision for $15-$25 per month, and a higher-capacity memory card that starts at $60. According to the NY Times “Online, the overwhelming reaction to Sprint's pricing is disgust and sarcasm.”

LIMITED CATALOGUE

The catalog offers only 250,000 songs. This is approximately an eighth of iTunes’ repertoire. The most famous artists from the four big record companies (Universal, Sony BMG, Warner and EMI) are here, but you won't find many classical performers or indie labels or artists. Sprint says the catalog will improve.

NO RINGTONE ADAPTABILITY

And you can't use your downloaded songs as ring tones. If you like a certain track, you'll have to pay $2.50 for the ring tone, and another $2.50 for the whole song. On the other hand, if Sprint and the labels allowed for this capability it would completely cannibalize ringtones which reached 4 billion in sales worldwide last year.

WHAT SPRINT GOT RIGHT

From a design standpoint, at least, Sprint got a lot right. When you click the Music icon on your phone, you wait about only six seconds before arriving at the online music store. Navigation is quick and easy. With a couple clicks you can search by song title or band name, using the number keys to enter text. You can also browse by musical genre. You can listen to a free 30-second preview, or press the buy button and download the complete track. A typical song arrives in about a half a minute, ready for playback or you can create a playlist. Incoming phone calls automatically pause the music.

CONCLUSION

Although Sprint’s service is a start, this form of delivering music will get no where fast unless improvements are made, especially reducing the price to compete effectively with other sources of digital music. Until then, the NY Times may be right in asserting that “The average music fan is to be forgiven for concluding that the whole enterprise reeks of greed.”

Sprint’s new music store is available in the 75 cities identified at www.sprint.com/wirelesshighspeeddata.