With all the excitement around music content at CES, and the question marks around the impact Apple’s iPhone could potentially have on the market - more specifically, if it will accelerate adoption of music-capable devices – this recent research from Telephia is right on target. While it can’t conclusively answer the key question which is even contained in the title of the research (Will Apple Kick-Start the Market for Selling Over the Air Music Downloads?), it does shed light on the dynamics that could drive mobile music services.

The research estimates there are now 23.5 million mobile subscribers in the U.S. who have phones with integrated music players. (That number has increased five times from the same period in 2005 - and nearly 20 percent of the new phones purchased in Q3 2006 were music capable.) “Many of these subscribers report loading music on to their phones via their PC, but only a small number have actually downloaded music over the air (OTA) from a wireless carrier music store,” the report said. In Q3 2006, just over 2 million subscribers – or about 8.5 percent of users with music-capable phones – had purchased music via OTA downloads.

Against this backdrop, music phones and OTA music stores were a huge part of the holiday push. Of the more than US$3.5 billion of carrier advertising dollars that was spent in 2006, US$234.3 million, or 6.7 percent, promoted music phones and music download services. Apple’s iPhone could move the adoption of music-capable phones and the acceptance of OTA purchasing into second gear, the report concluded. “By building on its loyal iPod user base and ability to deliver a seamless music purchasing experience, Apple could make a huge impact on the market for music phones.”

Some other interesting stats:

*According to the latest data from Q3 2006, realtones or truetones made up three-fourths of revenue for the quarter. And for the first time, ringback tones revenue share (14 percent) exceeded that of mono and polyphonic ringtones (11 percent).

*Mobile data services business is growing in all areas. Data services revenue is up 88% YOY in the U.S., with revenues at nearly US$3.5 billion in Q3 2006.

*Mobile download content revenue - which includes games, audio, applications, and video/TV - hit US$727 million in the U.S. in Q3 2006. Mobile video/TV revenue accounted for the lion’s share of revenues, posting sales of US$141 million in Q3 2006 and matching mobile game revenues.