Unlocking the Real Value of Mobile Music


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Paper co-authored with Giles Cottle of Informa Telecoms & Media on the impact of music streaming services on the economics of mobile operators

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Unlocking the Real Value of Mobile Music

  1. 1. Unlocking the RealValue of Mobile MusicA joint Research Paper from Informa Telecoms& Media and SpotifyOctober 2010
  2. 2. About the AuthorsContents Giles Cottle Adrian Blair Senior Analyst, Director of Informa Telecoms & European Business01 Media Development,Introduction Spotify Giles is a Senior Analyst for Informa’s Adrian Blair is02 Broadband and Spotify’s Director Internet Intelligence Centre, and heads of European Business Development. BeforeContext: The failure of up Informa’s coverage of online content. Spotify, Adrian taught Economics at Harvarddownload stores He regularly produces analysis, executive University’s Faculty of Arts and Sciences, briefings, reports and forecasts on a wide and spent 6 years in a variety of senior variety of topics, including online TV and management roles at Google. He holds an03 video, digital music, games, social media MBA from Harvard Business School and a BAPotential impact on core and online advertising. Giles has been from Oxford University. covering online content and media since adrian@spofity.combusiness of music streaming 2005. He began his career at media agency Initiative, where he analysed new media04 and advertising opportunities and advised clients including Unilever, Johnson &Best practice Johnson and General Motors. giles.cottle@informa.com05Illustrative business case06Executive summary Informa Telecoms & Media delivers strategic Spotify is an innovative digital music insight founded on global market data and platform created with the vision of offering primary research. We work in partnership music fans a legal and superior quality with our clients, informing their decision- user alternative to music piracy. Spotify making with practical services supported provides instant access to whatever music by analysts. Our aim is to be accessible, you want, whenever and wherever you responsive and connected, both to the want it, through a simple, clean and quick markets we serve and to our clients’ business to use platform whilst supporting the goals. For more information, visit: music industry via ad-supported and paid www.informatm.com subscription models. With access to millions of songs in high quality audio through your Subscribe to Connect, our free fortnightly computer, on your mobile and beyond, email – www.informatm.com/connect Spotify makes it easier than ever to play and share music legally. Join our Analyst Community group on www.spotify.com LinkedIn – www.informatm.com/linkedin02
  3. 3. Unlocking the Real Value ofMobile MusicA €1.1 billion opportunity for European operators in 201101IntroductionThe real value of music to a mobile operator In the last year alone, highly differentiatedis its potential to improve the bread and music streaming services like Spotifybutter metrics that keep every telecoms offering unlimited music via mobileexecutive awake at night – market share, have grown dramatically. By partneringARPU and churn. But when was the last time exclusively with such a service, operatorsyou chose your mobile provider because can finally compete for customers not onyou liked the look of their download store? the basis of how cheap their music is, butThe music download services operators by offering a cross-device music experiencelaunched prolifically over the last five that is uniquely attractive to consumers inyears are commodities which have almost their market. Telia in Sweden successfullyuniversally failed to deliver – adding pioneered this approach in 2010, and wemodestly to the value-added services expect others to follow in 2011.bottom line in the best-case scenario, whilehaving a negligible impact on the numbers Assuming one such operator in eachthat matter most. Western European market partnered with a music service, we believe that the directTDC and SK Telecom were pioneers in core business impact in 2011 would be €1.1challenging this gloomy state of affairs billion (US$1.5 billion), not to mention thebecause they offered services that were numerous other benefits and savings anradically different from anything else. operator could enjoy from such a service.Music helped TDC reduce churn by up to60% in the case of broadband and SKT This report can be read as a “how-to” guideto grow its mobile data revenue by 40% for operators looking for a share of this €1.1in just two years. Music’s potential as a billion opportunity. First we set the contextgame-changer for operators was shown by describing why many music services to– but the prohibitive up-front cost and date have failed to deliver for operators. Wecomplexity prevented others from following then examine why streaming services nowtheir example. Some tried, but ended up have potential to improve market share,ploughing millions of euros into services ARPU and churn in a way that previousthat rapidly failed, leaving operators with generations of music download stores werelittle to show from their investments. never able to do. Next, we set out some best practices to realize these gains, beforeThe fundamental reason TDC and SKT’s running through an example business caseservices delivered is that they offered a for an operator.customer proposition their competitorssimply could not match. We believe that now,for the first time, the ingredients are in placefor fast-moving operators to realize similargains quickly, and at a reasonable cost. www.informatm.com | www.spotify.com 03
  4. 4. 02Context– The failure of download storesMusic download stores were seen as an Fig. 1 Global operator non-voice revenues, 2009-2014attractive incremental revenue streamfor operators, but have largely failed tomeet expectations. The IFPI claimed thatrevenues for mobile single track downloadsremained stable in 2009. As well as the costof licensing tracks, operators have struggledto compete with Apple. Some users werealso put off because the music consumptionand listening experience was inferior onmany handsets to the iPod, although a newgeneration of smartphones is altering thatperception.Of more significance is the fact that mobilemusic as a whole, not just streaming, willstill only contribute a tiny proportion ofmobile operator’s non-voice revenues. Totalnon-voice revenues for mobile operators willbe US$365 billion in 2013, of which mobilemusic – including ringtones and ringback Source: Informa Telecoms Mediatones – will contribute just 5% (see fig. 1).It’s no surprise, therefore, that operatorsare starting to consider partnering withexisting music services, instead of creating Fig. 2 Mobile operator/music service provider tie-upstheir own. Foremost among these is Spotify’stie-up with Telia, the dominant Swedish Country Operator Music service provideroperator. Others are now following this lead, France Orange Deezerwith Deezer’s tie-in with Orange in France Sweden Telia Spotifyanother recent example (see fig. 2). UK Three Spotify US Comcast RhapsodyMusic for operators is a value-added service US Sprint Pandoraand, as such, will never be a core part oftheir business or provide a core part of their Source: Informa Telecoms Mediarevenues. The logic in partnering with anexisting provider is that greater benefit,theoretically, should lie in using music togain market share, up sell smartphones anddata plans, and reduce churn.04
  5. 5. 03Potential impact oncore business of musicstreamingMusic streaming services have several because, although it is an SK Telecom Why did TDC and SKTdistinct characteristics that give them service, it is offered by Loen Entertainment, succeed?potential to impact the core business of one of South Korea’s largest record labelsoperators in a way that previous generations and a subsidiary of SK Telecom. Fundamentally, consumers of musicof music download services were never able want easy, affordable access to a wideto. To understand why, it is helpful first to Like Spotify, MelOn allows users to access a selection of songs. TDC and SKT succeededconsider what lay behind the success of the large monthly catalog of music, via mobile, by spectacularly over-delivering on atpioneering efforts of TDC and SK Telecom. PC and other devices, for a flat monthly fee least one of these fronts relative to their of KRW5,000 (US$4.42) per month. A more competitors. limited free service is also available.TDC’s Play The launch of the service had an immediate In TDC’s case, the fact that all downloads and significant impact on SK Telecom’s data are free for TDC customers is a hugeTDC in Denmark made headlines in April revenues, helping to make it the clear leader incentive for any music-loving customer2008 when it launched Play, allowing almost in South Korea in terms of data revenues. to think twice before letting their contractall of its mobile and broadband customers to Data revenues, as a proportion of SK lapse. The resulting impact on churn wasdownload unlimited, DRM-protected music Telecom’s total mobile revenues, grew from substantial. SKT provides a good illustrationtracks free for as long as they remain a TDC 20.6% at the end of 2004 to 28.5% at the of how differentiation in music streamingcustomer. It has since launched an unlimited end of 2006, putting SK Telecom far ahead of is possible through customer experience.streaming service to broadband subscribers its competitors (see figs. 3 and 4). Although Other music streaming services exist in(which does not extend to mobile handsets). other data services beyond wireless South Korea, but MelOn’s blend of all theThe goal of the service was set out in TDC’s contributed to this increase, as did a general key bits of customer experience – speed,2008 annual report: “TDC is… focusing on increase in interest in the mobile Internet, SK personalization, user interface design –market initiatives that increase customer Telecom specifically pointed to MelOn as a proved by far the most popular with theloyalty, e.g. TDC Play and YouSee Play [an driver of this revenue increase. South Korean consumers.equivalent service for TDC’s other Danishbrand], which offer unlimited downloadsof music to retail broadband and mobilepostpaid customers at no additional charge.” Fig. 3 SK Telecom, total data revenue as percentage of total wireless revenue, 2003-2007Play has had a very positive impact on TDC:Within two years of launch, the service hadhad 150 million downloads, the equivalentof 20 downloads for every man, womanand child in Denmark. More importantly,the company reveals that its churn has alsodramatically reduced as a result of Play;mobile churn was reduced by 30-40%, whilebroadband churn was reduced by 60%.SK Telecom’s MelOnSK Telecom’s MelOn is the world’s mostpopular music subscription service bypremium subscribers. It is also an exampleof what operators can gain from partnering Source: SK Telecom. Excludes Interconnection revenuewith a major service. MelOn is unique www.informatm.com | www.spotify.com 05
  6. 6. So, for operators elsewhere, the formula for Fig. 4 South Korea, mobile operator data revenues as a proportion of total wireless revenues, 2005-2007replicating these successes is easy to state:Launch a music service with a dramaticallybetter blend of customer experience,affordability and music selection than anyof your domestic competitors. Stand out onone of these fronts and you can still do well(as TDC have shown). Excel in all three andthe effect could be dramatic.But while both SK Telecom and MelOnrepresent interesting case studies, they arearguably exceptions. It has been widelyreported that the up-front cost to TDC ofthe Play service was around DKK80 million($US15 million) a year in addition to theongoing costs of operating the service withappropriate content. That would be beyondthe resources of many operators. And MelOnhad partly been able to thrive because of SKTelecom’s ownership of Loen Entertainment. Source: SK Telecom; Merril Lynch; excludes interconnection revenuePartnering with a music service, therefore,gives the operator the opportunity to offera similarly compelling service, but without Fig. 5the hassle of having to manage it, or the Music-streaming services’ availability on selected devicesrisk of spending millions of euros upfrontdeveloping it. Service Smartphones Connected devices/services Deezer Android, Blackberry, iPhone Multiroom music systems: Sonos, Squeezebox. Connected TVs: Samsung, PhillipsCharacteristics of music Last.fm Android, Blackberry, iPhone Multiroom music systems: Sonos, Squeezebox. Games consoles: Xbox Internet radios:streaming services Roberts, Ikon Napster iPhone Multiroom music systems: Sonos, Squeezebox, Terratec. Internet radios: Noxon. Connected TVs: Yahoo (Samsung, Sony, LG and Vizio)A number of characteristics of musicstreaming services give them a powerful Pandora Android, Blackberry, iPhone, Multiroom music systems: Sonos, Squeezebox. Internet radios: Livio, Grace Reciva. Palm Pre, Windows Connected TVs: Mitsubishi, Panasonic, Samsung, LG, Sony, Toshiba. Tablets: Chumby,ability to have an impact on an operator’s iPad. Media streamers: Roku, Popbox. Various other high-end stereo systemskey business metrics. Rhapsody Android, iPhone Multiroom music systems: Sonos, Squeezebox, Linksys Home Audio, Yamaha MusicCast2, Control4 Home Automation System, Russsound Collage System. Connected TVs: Yahoom Vizio DVRs: Tivo, Moxi. Various other high-end stereos Spotify Android, iPhone, Symbian, IPTV: TeliaSonera; Multiroom music systems: SonosDifferentiation WindowsMost crucially of all, a music streaming Source: Informa Telecoms Mediaservice is not a commodity. The averageSpotify Premium user spends over 40hours per month using the product – sothe details of the user experience matter alot to them. With an operator’s download06
  7. 7. store, by contrast, users might spend a few Fig. 6 Impact on operators of key differences between download and streaming servicesseconds finding and downloading a track,then experience the music elsewhere via Characteristic Download stores Streaming services Impact on Operator of Streamingtheir phone or iPod. Music is inherently vs. Downloadsemotional – and because users spend so Differentiation A commodity; need to wait to Highly differentiated, unlimited Gain share, if you have the bestlong with streaming services they care download every track; price-based access, instant access streaming service in your market competitiondeeply about the quality of the experience. Billing Monthly bill, but one-off payment Monthly bill Reduces churn, because you loseIf that experience is exceptional, the result for tracks rather than fixed amount access to the service when you stop being a customeris a genuine emotional bond with the Devices Most phones iPhone / Android / Symbian / Increase ARPU - use streamingservice. Some Spotify users have had the Windows only service to drive smartphone and dataplan adoptionlogo tattooed onto their bodies, and the Platforms Music stored on a single device Instant music on any platform Use streaming offer to promotequery “I love Spotify” returns over 1 million cross-platform servicesresults on Google. We are not aware of anycomparable feelings being aroused by amobile operator’s download store, becausethese stores are commodities that competeon price alone. All this means that it is churn, the music service becomes an extra streaming services affect a mobile operator’spossible to gain share from your competitors incentive to stay for customers who might core business metrics.if your streaming service is demonstrably otherwise have left.better than theirs. Impact on Telia Cross-platformDevices We have observed the factors above playing Because they are about access to music out over the last year in Spotify’s partnershipMobile streaming services require the user rather than ownership, streaming services with Telia in Sweden. The partnership wasto have a high-end device (in Spotify’s case, are inherently well-suited to functioning cited by Telia in its earnings announcementiPhone, Android, Symbian or Windows smoothly across platforms. All music service for 2009 as one of the key reasons for theirMobile). This is crucial for operators, as one providers are looking to get onto as many strong performance that year (see fig. 7).of their key aims is to convert feature phone different devices and services as possiblecustomers into more profitable smartphone (see fig. 5), including operator TV services. On an earnings call, Eric Hallberg, CEOcustomers. One of the many Telia store Spotify’s partnership with Telia, for example, of Mobility Services in Sweden, said:assistants we spoke to in researching this includes music via IPTV. “Customers who are attracted to us by thereport observed that “almost everyone Spotify offer showed a higher propensityasks if their phone can support Spotify”. So tracks and playlists are available to to upgrade devices.” On a more operationalThey routinely use Spotify as a tool to users instantly on whatever device they level, Lars Roth, Director of Mobilepersuade wavering customers to opt for a want to use – PC, smartphone or TV. Consumer Products, said: “Spotify has hadsmartphone. With a download service, your tracks are a big impact on smartphone sales and data stored in one place and only exist across plans… it also helps us to sell higher value platforms with time, hassle and cables. By data plans to existing customers.”Billing exploiting this fact, operators can drive These comments from Telia’s management customers towards more profitable product were borne out by our conversations withStreaming services, unlike downloads, are combinations – e.g., by offering unlimited numerous store assistants, and by a surveypaid for via repeat billing cycles. Hence music streaming to customers who take we conducted of over 500 Telia / Spotifythey lend themselves naturally to bundling both mobile and TV services. customers. In around half of all cases, thewith other monthly-billed services. Because Spotify offer had been a factor in both theircustomers paying via their operator bill lose Figure 6 summarizes how the key choice of Telia as a provider and their choiceaccess to the streaming service when they differences between download stores and of phone / tariff. www.informatm.com | www.spotify.com 07
  8. 8. To summarize – partnering with leading Fig. 7 TeliaSonera Investor Presentation, 2009mobile music streaming services brings theextraordinary core business impact achievedby SKT and TDC within the reach of otheroperators. The key reason is that musicstreaming is not a commodity, so operatorscan differentiate themselves by linking withthe right service. By entering a long-term,exclusive partnership with Spotify, Teliamanaged to achieve outstanding resultswithout needing to build its own musicproduct. But there was nothing inevitableabout this success. Execution was at least asimportant as strategy.08
  9. 9. 04Best practiceChurn reductions and potential gains in all mobile and broadband subscribers. The uplift in customer numbers, it will not havemarket share and ARPU resulting from logic is straightforward: Make customers an a profound impact on the long-term healthmobile streaming will not materialize offer so attractive they cannot refuse. Reap of the operator. Ideally operators shouldwithout a clear strategy and focused the rewards over one or two years through create a long-term, compelling offer in orderexecution. A high-quality streaming product the impact on the core business. to attract customers from other providers, orand the right offer (for both operator and indeed to upsell their own customers.consumer) needs to be combined with Here, the strength of the offer is crucial.effective marketing, a motivated sales force, Customers of other operators will still beand deep billing integration. able to access the music service directly The right offer for the and pay the regular price. While offering operator the service free for two or three months willQuality product create headlines, and may cause a short-term There is no point giving customers whatAs we observed in section 3 above, musicstreaming services – unlike download stores– are not commodities. The details of the Fig. 8 Characteristics of a successful streaming servicecustomer experience yield huge variation incustomer satisfaction between services. So Factor Why it matters What to look forbuilding or partnering with a high-quality 1. Funding and scale Deep investment in product required to maintain Deep funding from leading investors; operatingproduct is the cornerstone of any successful edge in a competitive field on a global scalemusic streaming strategy. 2. Size of catalogue Users need to find what they want Large number of songs and labels covered (ie. long-tail indie labels in addition to majors)Figure 8 sets out the critical characteristics of 3. User experience Users are impatient; need to discover and enable Songs play fast (comparable speed toa successful streaming product. features intuitively iTunes).  Social features integrated with Facebook.  Local (hard-drive) music integration. 4. Developer eco-system Third-party developers augment the value of the Large eco-system of supporting developers core service services (eg. ShareMyPlaylists.com)The right offer for thecustomer 5. Cross-platform services New platforms enhance the value of a premium subscription and entice customers into additional Available on multiple platforms (eg. TV, stereos, PC, Mac, Linux, Android, iPhone, Symbian) operator servicesA Premium Streaming music service bought“off-the-shelf”, enabling unlimited streamingto a mobile device, is an expensiveproposition for the average budget-constrained consumer. A year’s access to Fig. 9 Designing a music offer to match strategic objectiveSpotify Premium, for example, costs around Primary strategic objective Music streaming offer to deliver objective€120. A compelling customer offer for must Gain market share Offer streaming music free to most customers (eg. TDC / Play)therefore deliver the same perceived value(unlimited music anywhere) at a much lower Increase ARPU Restrict offer only to high-ARPU devicesprice – ideally “free”. Reduce churn Make offer available only to users on extended-duration tariffs (eg. 24 mths).  Or offer musicFor example, Telia offers Spotify Premium streaming package to users coming to the end of their existing contract if they renew.for just SEK29 per month – a 71% reduction Get customers to adopt new Offer streaming service free to all customers who take multiple packages (eg. TV + broadband)on the regular price – when they take out a packagesnew mobile subscription. In France, Orangeincludes Deezer Premium in their €29.95 Source: Informa Telecoms Media“Surf Music” broadband tariff at no extracost to the customer. TDC offers Play free to www.informatm.com | www.spotify.com 09
  10. 10. they want (unlimited music at a great price) through Telia is a good deal. Whenever a Billing integration creates a powerful barrierunless doing so helps an operator achieve its compatible handset is sold to a consumer, to churn, because leaving the operator thenstrategic objectives. These need to be stated sales people are given an automatic prompt means losing access to the premium musicclearly before an appropriate offer can be to offer Spotify to the user. One sales person service. To regain access, a customer faces thedesigned. Figure 9 sets out how different in Stockholm told us that he successfully inconvenience of having to go directly to thestrategic objectives might translate into a up-sold Spotify to six out of every 10 users music service provider’s website and enteringspecial music offer. he discussed it with. their credit card number (in addition, of course, to having to pay more for the service,Once the right proposition is developed, the This is also a good opportunity at which because they have lost whatever special offeroffer needs to be communicated in a way data plans can be upsold. Salespeople can was available through the operator).that makes sense to consumers who may explain not only explain the benefits of anever have used a music streaming product. music service, but also educate consumers Billing integration also drives up adoption on how much data listening to that service of the product – the easier it is to sign up for for a certain amount of time will use. premium music streaming, the more peopleEffective marketing will do so. Operators are ideally placed to In order to communicate the value to make it easy, because they already have theMobile streaming is a new phenomenon. customers, the operator’s sales force must: customer’s payment information and canChoosing from millions of tracks on a add the service directly to their monthly bill.mobile device quickly and easily (without nderstand how to use the music service Uany excess data charges) only reached and be able to demonstrate its salient Compare the convenience of this to themass-market potential with the arrival of features in a way that impresses customers; experience of going directly to a mobilestreaming apps for iPhone and Android in music provider. Users must find the provider’s2009. At first, being able to listen to any track now in detail which packages the music K website on their PC, navigate to the relevantyou want to on the move without wires, service is available in; section, create an account, and enter theirdownloading or syncing feels like magic – credit card details (it is generally not possibleand many consumers are still unaware that e ready to explain why taking the product B to sign up for the mobile subscriptionit is possible. through the operator is a better deal than products directly via a mobile device). going directly to the provider; Nokia claimed that in certain Ovi markets,So marketing has a critical role to play in customers were 13 times more likely to pay tobringing the proposition to life and showing now which devices the service works with, K download content when operator billing wascustomers the real value of what they are and use the service as part of a sales pitch in place than when it was not.getting. While consumers may indeed want to get users to take those devices.it cheap or for free, simply saying “it’s cheap”or “it’s free” means little to people with no To make all of this possible, the operator Fig. 10 Telia In-store Spotify demonstration, Stockholmreal conception of what “it” entails. needs to invest in training its sales force, and ensure that demonstration accounts and supporting materials are available insideSales force stores (see fig. 10)Customers will not value a service theydon’t understand. An operator’s in-store Billing integrationsales force are the most effective tool forcommunicating this value to customers. A streaming music service can contribute further to churn reduction if the customerMembers of Telia’s sales force, for example, pays for the service via the operator’sare all able to demonstrate Spotify to monthly bill.customers, and explain why getting Spotify10
  11. 11. 05Illustrative businesscaseWe have demonstrated some of the benefits These figures are based on the following The size of the opportunity really becomesthat partnering with a streaming service assumptions: clear when comparing this figure to currentcould bring to an operator. But what could mobile operator streaming revenue.all of these benefits do to the operator’s large Western European mobile operator A Informa estimates that all Western Europeanbottom line? with at least 20 million customers. We have operators, not just the market leaders, will applied average Western European rates earn only €134 million from streaming inWe have attempted to model the direct for KPIs such as churn, net additions, and 2011. This represents only a fraction of therevenue benefits that a typical large ARPU to this case. revenue potential of partnering with anWestern European operator – one with 20 existing provider.million customers – could gain in a year market in which smartphones, and Aby partnering with a successful music mobile data plans, are both growing instreaming service. popularity. Non-direct revenue benefitsBased on information and data from both he operator offering a deal similar to TSpotify and Telia, other operators and music the one that Telia offered – partially Even these figures undervalue theservice providers and existing Informa subsidizing a music service for part of the opportunity for the operator as, beyond theresearch, we believe that such an operator length of a customer’s contract. revenue impact described above, there arecould achieve revenue benefits of €77.7 other clear benefits:million in the first year. There would of market where music streaming is Acourse be costs for the operator in the shape popular educed churn for other services: TDC Rof partially subsidizing the service, but these reported that its broadband churn reducedcosts will be substantially lower than the by 60% as a result of its Play service,gains an operator would make from the The potential European so other services offered by the mobileservice. opportunity operator can also benefit from a deal with a music streaming provider. AndThe €77.7m figure breaks down into three We have also modeled a scenario in which as mentioned in section 3, Telia is alsodistinct elements: Revenue earned from one leading operator in each Western integrating Spotify into its IPTV services insigning up new users; revenue from up European market partners with a leading Sweden and Finland.selling data plans and smartphones; and music service in 2011. We assume that somerevenue saved from users that do not churn operators partly subsidize the service, and randing: Telia argues that one of the Bto another operator because of the music that a few will fully subsidize it to some or all most important reasons for offering Spotifyservice. (see fig. 11) smartphone subscribers. is to reposition its brand. As a traditional, formerly state-owned incumbent, being Again drawing on data from Spotify, Telia able to offer a service like Spotify is a very and Informa, we believe that in this scenario, effective way for Telia to reposition its the direct size of the opportunity for the brand and to address a wider audience.Fig. 11 leading Western European operators would “Apart perhaps from the iPhone, thePotential direct revenue benefits of a mobile operatorwith 20 million customers partially subsidizing a music be €1.1 billion in 2011. brand value that Spotify gives Telia is theservice most value that we have ever got from a Of course, the experiences of different partner”, says Telia’s Roth. Metric Year 1 revenue (€ m) mobile operators in different markets will New customers 47.2 vary greatly, depending on a country’s onger contracts: Telia is only offering L Reduced churn 25.0 competitive mobile landscape, the Spotify to customers that sign up for a 24 Upselling dataplans/handsets 5.5 penetration of smartphones and mobile month contract, making it a very effective Total 77.7 broadband and, crucially, the maturity of way to increase the lifetime value of a the digital music landscape customer. www.informatm.com | www.spotify.com 11
  12. 12. etwork efficiency: Doing a deal with N Fig. 12 Sweden, Telenor and Telia smartphone share of total a music service potentially allows the subscriptions, 2Q09 and 2Q10 operator to keep the traffic created by the music service on its own network, significantly reducing the cost for the operator of carrying this traffic. Telenor aintaining capped data: While some M operators in Sweden are offering unlimited smartphone data, Telia has managed TeliaSonera* to combat this using Spotify, while still maintaining its own data caps. Despite the fact that it doesn’t offer unlimited data plans, its smartphone user base, as a share of its total, is increasing faster than its rivals, largely due to Spotify. (see fig. 12) ubscriber acquisition costs: Smartphone S � 2Q09 � 2Q10 subscriber acquisition costs (SAC) can easily be as high as US$200-300. Source: Telenor; TeliaSonera *TeliaSonera data is from May 2009 and May 2010 Partnering with a popular music service can reduce this as news of any operator offer often spreads via word-of-mouth. And, of course, if customers do not churn from an operator due to a music service, the operator does not have that cost to reacquire the subscriber in the future.12
  13. 13. 06Executive summaryPioneering operators like TDC and SK exclusively with such a service, fast-moving shows that a large operator could generateTelecom successfully used mobile music to operators like Telia have managed to claim around €78 million revenue a year byimprove their core business metrics (market the core business benefits for themselves partnering with the right music streamingshare, ARPU and churn), by launching quickly and with relative ease, while service – significantly more than they wouldservices which were radically different from shutting out competitors. gain from offering their own services. Addothers in their markets (either in terms of in other benefits, such as network efficiency,price point or customer experience). However, churn reductions and potential brand awareness and increased lifetime gains in market share and ARPU resulting customer value, and the case for moving fastOver the last year, the availability on mobile from mobile music streaming will not looks very compelling indeed.and immense consumer popularity of materialize without a clear strategy andstreaming services like Spotify has created an focused execution. A high-quality streamingopportunity for other operators to achieve product and the right offer (for both operatorsimilar gains without the hassle of building, and consumer) needs to be combined withmarketing and maintaining new services. effective marketing, a motivated sales force and deep billing integration.Unlike download stores, streaming servicesare highly differentiated from one another, The prize for any operator that gets theseonly work on high-ARPU devices, lend things right is substantial. Our model, basedthemselves to monthly billing cycles and on real data from Telia, Spotify, Informawork well across platforms. By partnering and other operators and service providers, BO OK NO W Join: Informa Telecoms Media’s Analysts, Spotify, Yahoo!, See Saw, Orange, Vodafone, 3 UK, BT, Arm, Alcatel-Lucent, Chellomedia, Digital TV Group and more... “The paralysing fear of competition is passing and, in the converging world of telecoms, TV and the Internet, the role of partnership is emerging as key.” Mark Newman Chief Research Officer Informa Telecoms Media www.industry-outlook.com • +44 (0)20 7017 5506 • itmevents@informa.com www.informatm.com | www.spotify.com 13
  14. 14. www.informatm.comwww.spotify.comJoin us on LinkedIn: Follow us on Twitter: Email us: Subscribe to our Connect emailwww.informatm.com/linkedin www.twitter.com/informatm marketing.enquiries@informa.com www.informatm.com/connect