• by Mark Walsh  @markfwal, May 25, 2011

Market research firm NPD released findings today indicating the spread of smartphones has helped expand the mobile music audience. The number of active mobile music listeners increased by almost nine million last year, growing from 12% to 17% of Web users in the process. (comScore estimates as of March that about 18% of U.S. mobile users listen to music on their mobile devices).

On top of that, the ability to stream or download music is the second-most popular utility for iPhone and Android devices -- behind downloading apps and ahead of sending photos. But, not surprisingly, NPD points out that most mobile user still balk at paying for music. More people now place their own music collections on devices than are using Pandora and other mobile radio platforms.

The majority are turning to free or ad-supported options. "More than half of mobile music listeners currently prefer to listen to their own music, and most prefer free music to paying for it," said NPD entertainment analyst Russ Crupnick said. "That's a challenge for paid services to create and offer the most incremental value, which will be critical for companies looking to supplement the ad-supported model."

Pandora is a case in point. In its IPO filing earlier this year, the Internet radio service revealed that just $12.3 million of its $90 million in revenue for nine months of 2010 came from subscription revenue. It also had a loss of $328,000 during that period, down from $18 million during the year-earlier period. The company has been expanding ad options on its site over the last year.

The ad-supported model for digital music generally has few success stories. Music streaming site Spotify, which offers apps for the iPhone, Android and other mobile platforms, is one of the few other companies that comes to mind. It has roughly 1 million paying users and more than 10 million on its free service. A Reuters report today indicated Spotify is close to launching in the U.S.

Young companies like Spotify and Pandora are also under growing pressure from giants like Amazon and Google, which have launched music storage lockers in the last month, and Apple, which is expected to do the same soon after reaching deals with the major labels. That would allow iTunes users to store songs in the cloud and access them from wherever they have a Web connection. And when it comes to paying for digital music, Apple still owns the market, with iTunes accounting for roughly two-thirds of paid downloads.