October 31, 2000 9:00 PM PST

Sprint PCS unveils wireless MP3 ambitions

Sprint PCS is launching a new online MP3 service linked with its mobile phones Wednesday, with an eye toward capturing a large share of a market coveted by companies ranging from Time Warner to MP3.com.

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Sprint announces MP3 enabled cell phones
Pragnesh Shah, senior director of e-commerce, Sprint PCS
The mobile phone company will start selling a new hybrid MP3 player and mobile phone manufactured by Samsung, which the company hopes will attract free-spending young consumers who are increasingly receptive to online music and all things wireless.

But the company's real ambitions lie in the service that comes with the phones. In conjunction with Web company HitHive, Sprint has created an online "storage locker" for MP3 files, where customers are meant to collect their music files for later download to their phone MP3 players.

"Carriers in the wireless market have an opportunity that (traditional) Internet service providers have squandered," said Aram Sinnreich, an analyst with Jupiter Media Metrix. "But it is going to be some time before the phone is a viable music receiver."

That's much the same strategy pursued by most of the big record labels, which have partnered with Musicbank and more grudgingly have given licenses to MP3.com to create the same kind of service. Sprint's version doesn't have deals with the record companies, so consequently will lack some access to music offered by the others.

But Sprint has designed its software so that loading the phone with songs requires a customer to use its custom software, or its storage locker. It's this tight link between the phone and the music software that Sprint hopes will drive people to use the music service in place of rivals.

The first version of the service, which requires subscribers to download and upload songs through a PC connection, may be more of a stake in the market landscape than a genuinely competitive service. But as the bandwidth available to wireless phones improves and carriers begin streaming songs directly to the MP3 player, telecommunications companies are likely to become a bigger force in the entertainment world, analysts say.

With even this cautious foot forward into the contentious MP3 world, some say Sprint PCS could be moving into a new realm of legal land mines and Machiavellian business relationships.

The MP3 storage locker has long been seen by the digital music community as a key part of a wireless future, when consumers using Walkman-like devices, phones, home stereos or any other music player could tap into a central collection of music from anywhere at anytime.

MP3.com and Myplay.com were among several companies to first take advantage of this notion, creating services where consumers could upload songs "ripped" from their CDs and access them at a later date. MP3.com went further, however, simply checking to see whether a consumer had the CD in their disc drive and then loading the song into the subscriber's locker from a central company database.

That removed the slow upload step for consumers but also prompted the major record labels to sue MP3.com en masse. Four of the "Big Five," including Bertelsmann Music Group (BMG), Sony Music, Time Warner's Warner Music Group and EMI Recorded Music, eventually settled with MP3.com, licensing their music to the company in return for hefty fees. The fifth, Universal Music Group, has held out for damages that could amount to more than $100 million.

Meanwhile, all but EMI have signed a deal with Net start-up Musicbank to license their content to that company's online storage locker service.

The multimillion-dollar lawsuits and Hollywood power games that litter the online music business show just how high the stakes are for Sprint's new market.

The company says the service kicking off Wednesday is just a first cut, which will expand once bandwidth and phone technologies improve. Once "third-generation" high-speed wireless networks arrive--a development still a few years away in the United States--the locker service could evolve into the equivalent of an online radio where consumers choose their own play lists, accessible from phones, car radios or many other devices.

That will take considerably more work, however, and not just from a technological point of view. The music companies have shown themselves loathe to let others control distribution of music, and Sprint would likely have to ally itself with the entertainment giants or one of their partners for that level of service. Today neither it nor partner HitHive have any business or licensing relationships with the music companies.

The Samsung phone itself, which will go on sale for $399 across the country Wednesday, allows subscribers to store 64 megabytes of data, which translates into about 20 songs. It comes with a set of earphones that double as the telephone's receiver and microphone. The music will cut out when a call comes in.

Not all analysts are convinced Sprint is willing to follow through on the ambitious path promised by Wednesday's announcement, however. The company is fighting for subscribers in a wireless world where growth appears to be slowing, and some say this is simply one new way to distinguish itself from competitors such as AT&T Wireless and Verizon Wireless.

"They're definitely trying to force themselves into the value chain," said Iain Gillot, a wireless telecommunications analyst with IDC. "But I'm not sure if this is a long-term strategy. It sounds more like a way to get kids into stores at Christmas than a great overriding strategy."

 

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