I Phone for iTunes

Apple is set to announce a Cingular mobile phone loaded with special iTunes software, Ovum analyst Roger Entner confirmed for internetnews.com.

Motorola and Apple initially announced the phone partnership in July 2004. The plan is to let people transfer songs from the iTunes jukebox on the PC or Mac to Motorola handsets via a USB or Bluetooth connection, as well as to buy songs directly over the air from the iTunes Music Store.

Apple agreed to create a new iTunes mobile music player, and Motorola would make it the standard music application on all its mass-market music phones.

The original announcement didn’t mention any partnerships with wireless network operators. The iTunes phones were originally expected in the first half of 2005.

Entner said the companies would go public with the announcement September 7.

Apple has a long and sometimes rocky history with Motorola, which powered the original Macintosh with its 68000 series of microprocessors and, later, the PowerPC. IBM is now Apple’s sole supplier of PowerPC.

Motorola also supplied chips to Apple-approved Macintosh clones, but that program was phased out when Steve Jobs returned to Apple as CEO. Jobs recently announced Apple will migrate its Macintosh line to Intel processors next year.

According to Juniper Research analyst Windsor Holden, ringtones currently dominate the mobile music market, but full-track downloads will become an increasingly significant segment, with the total value of the mobile music market rising to $9.3 billion by 2009. Another analyst firm, Pelorus Group, expects mobile data services via cell phones to surge from just over $1 billion in 2005 to $15.3 billion in 2010.

Letting users buy and download music over the air will be a critical component of the service for Cingular, Entner said.

“That’s how Cingular really makes money. Just having an iTunes phone and not the capability of selling songs over the air is pointless. Music will be such a significant revenue opportunity,” he said.

In the short term, Jupiter Research analyst Joe Laszlo pointed out that buying songs from the iTunes Music Store might be a less than stellar experience.

“A consumer looking for one particular track from one particular artist will be in for a lot of tapping and scrolling,” Laszlo said. “Down the road, I expect cell phones and digital content to work well for impulse buys, such as getting an SMS that says, ‘We know you like Shakira; would you like to download a single from her upcoming album?’ There’s definitely some money to be made from that.” (Jupiter Research and internetnews.com are owned by the same corporation.)

Entner said the music/phone combo continues the all-in-one mobile device trend.

“The cell phone turns into the Swiss Army knife. Yes, it can’t do everything as well as the high-end, dedicated device, but it does it well enough for everyday purposes,” he said.

Laszlo said the right price point would probably be that of the iPod Mini, or around $175. While American consumers are used to getting free or subsidized mobile phones, he said.

“With the Apple and iTunes brands involved, it increases the odds you can shift the consumer mindset away from the cheapest price possible to, I want something cool. If the price crosses the $200 threshold, it becomes something many people want, few people buy.”

The effect on the portable music device industry will be as profound as the camera phone’s was on the mid-range camera market, Entner said, adding that the world’s largest camera maker is now Nokia.

On Friday, D&M Holdings said it would cease manufacture of the Rio, a pioneering MP3 player.

“It was foreseeable that the music player market would go same way as the camera phone,” Entner said. “The only thing that will be left in three or four years will be the $5 MP3 players from China. Everything else will be the cell phone.”

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