Loser: Motorola Becomes a Disk Jockey

The latest entry in the music-downloading game comes from Motorola Inc., until now a straight-down-the-line hardware company. Why is it jumping feetfirst into services? Because, right now, that is where the action is.

Of course, the price of oil is high now, too, but that doesn't mean Motorola should start wildcatting. In fact, the Schaumburg, Ill., company may have bitten off more than it can chew.

Motorola bills its new service, called iRadio, as a total music system for the car, the street, and the home. Customers will need a special cellphone costing at least US $55 when purchased with a cellphone service package. They'll also need a Bluetooth adapter for their car stereo, for maybe $75. And last, they'll need broadband access in order to subscribe to the plethora of channels that iRadio will offer them, for about $8 a month. That last number--the eight bucks--is what Motorola is really after.

"It's mainly a subscription service, and we expect to make more from that than from the hardware," explains Paul Alfieri, manager, public relations, for Motorola. How will the company's gearheads fare in managing an entertainment-subscription business? They won't: "We've brought in folks from all different walks of life, and we're running iRadio out of our Tempe, Ariz., facility--away from our main set of engineers in Chicago and Philadelphia and closer to Hollywood," Alfieri adds.

Here's how it works. As a customer, you subscribe to channels that download music to your computer and then to your cellphone. You listen to the stored programming, hearing each song only once, and buy individual songs by pushing a button that marks them for downloading, then or later. When you get in your car, the Bluetooth adapter hooks the phone directly into the vehicle's stereo system, so that the song you're listening to can jump to your stereo speakers without missing a beat.

Meanwhile, when a regular phone call comes in, you can pause the song in mid-syllable. For an additional small fee, paid not to iRadio but to the cell service operator, the system can receive and store periodic weather and road reports and play them at your convenience. Finally, the phone can play your own songs, ripped from a CD or perhaps purchased from an online music store. Most downloads should work, as iRadio supports the main music downloading formats.

Why would major music labels--Universal Music Group, in Santa Monica, Calif., is the biggest one so far--agree to let iRadio break up their massive collections and beam them out in specialized channels? Because iRadio will advertise their wares, much as conventional radio stations do. In fact, a larger portion of a label's backlist of songs can hit the airwaves, because iRadio has so many channels. Also, by aggregating titles from many labels, iRadio increases the variety, which itself attracts new audiences.

In this it resembles existing online music stores, like Apple's iTunes and Rhapsody. And, like them, the iRadio system is designed to encourage impulse purchases, at a dollar or two per song. But Motorola won't see much of that revenue, because most of it will go to the record label and the cellphone service provider.

What is iRadio's competition? First, there's conventional radio. It has low fidelity, narrow choice (you hear what the station decides you're going to hear), loads of commercials, and the inability to stay with you seamlessly as you leave your car. But it's got one very big advantage: it's free.

"The challenge of centralized distribution of any kind is the customer's threshold of pain--you've got to pay $200 to $300 up front, and then there's the subscription," says Mike McGuire, research director with Gartner Inc., in San Jose, Calif.

Second, there's satellite radio--XM and Sirius--which have a pretty sizable pain threshold themselves, in the form of set-top boxes and installation fees. Satellite offers a lot of content, but its music, at least, can't be as varied as iRadio's because bandwidth limitations keep its channels in the hundreds. However, iRadio, can slice and dice its music archive in thousands of ways, creating, for instance, a channel for "female vocalist grunge rock of the '80s," as Alfieri says. He says that iRadio will have better fidelity, too, with at least 128 kilobits instead of satellite's 90 to 96 Kb. What's more, the signal comes in even when you're passing through a tunnel.

Yet all of these benefits stem from one big disadvantage: iRadio is a potted product. There isn't a massive market for potted talk. The Internet has a huge quantity of free, archived talk from programs broadcast weeks, months, or years ago on National Public Radio, the BBC, and now even the IEEE (see http://www.spectrum.ieee.org/webcasts). Yet only a small number of people prefer such bottled fare to what's available on tap, via the airwaves.

Finally, there are the Internet music sites mentioned earlier, Apple's iTunes and the Rhapsody service, and there's AOL Radio. They have no up-front cost, offer plenty of ways to browse, and may even provide free 30-second samples. Yet iRadio is hoping that people--at least people in cars--will be happy to pay iRadio to do the browsing for them, just as they rely on a chef to cook their meal and an editor to assemble their magazine.

So it comes down to this: Motorola's "value added" feature, the thing that will differentiate it, is its taste in music.

Assume for the moment that iRadio's disk jockeys are masters of their art. How will subscribers follow them over such a large number of channels? Is there any human alive who keeps tabs on even 50 print publications? Who among us can cite the names of half the channels in our cable television package?

For music, at least, consumers like being their own chefs. "One could argue that with an MP3 player and the Internet, I'm in charge of what I'm listening to," says Gartner's McGuire. "With some of these offerings, like iRadio and satellite radio, I can pick a genre, but I'm still dependent on somebody else for programming content. With an MP3 player full of music and podcasts, after a flick of the wheel, I'm listening to what I want."

Maybe this is why Web sites that offer music by subscription, instead of selling it by the song, have had only limited success so far, despite continual tinkering with price structures and with the relative weights given to customer fees and advertising revenue.

There is one pure hardware coup that Motorola, that old hardware company, can boast of: it has made one device cater to our every need. But does an ambidextrous Swiss Army knife of a cellphone do much for people now that they can carry around specialized gizmos the size of key chains?

McGuire doesn't think so. "Have you seen an Apple Nano?" he asks. "Half the time, people don't even know it's on them, it's so light. Why would you want a device that tries to do everything?"

Even the potential for add-on services is shaky. Motorola talks a lot about including Bluetooth in all its phones and products, so that iRadio will seamlessly knit everything from automobiles to television sets. But the add-on services on the horizon--notably video, which is popping out of business-card-size screens everywhere--won't help iRadio's initial target audience--people driving their cars to work. Sure, some subway riders may download a morning television show while they shower and then watch it while commuting to work, but they won't form the basis of a billion-dollar market.

Can it be that Motorola is casting about for a way to escape from its business making telecom equipment? It wouldn't be the first time a big company diversified beyond its ken. General Motors Corp. bought aerospace companies, Sony Corp. bought movie studios, and staid publishers poured money into dot-com media. Sony's fine for all that, GM is hurting, and staid publishers are hurting even worse, but the pattern is clear.

There's always a chance that iRadio will do for Motorola what iPod did for Apple. But then again, Motorola's investment in iRadio may prove to be the corporate equivalent of buying a two-seat roadster without a trunk. If so, chalk it up to a midlife crisis.

iRadio

Goal: Sell music by subscription.

Why It's a Loser Its success will hinge on Motorola's ability to play disk jockey.

Organization: Motorola Inc.

Center of Activity: Tempe, Ariz.

Number of People on the Project: Not available.

Budget: Not available.