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

1. Unlocking the Real
Value of Mobile Music
A joint Research Paper from Informa Telecoms
& Media and Spotify
October 2010

2. About the Authors
Contents Giles Cottle Adrian Blair
Senior Analyst, Director of
Informa Telecoms & European Business
01 Media Development,
Introduction Spotify
Giles is a Senior
Analyst for Informa’s Adrian Blair is
02 Broadband and Spotify’s Director
Internet Intelligence Centre, and heads of European Business Development. Before
Context: The failure of up Informa’s coverage of online content. Spotify, Adrian taught Economics at Harvard
download 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 an
03 video, digital music, games, social media MBA from Harvard Business School and a BA
Potential impact on core and online advertising. Giles has been from Oxford University.
covering online content and media since adrian@spofity.com
business of music streaming 2005. He began his career at media agency
Initiative, where he analysed new media
04 and advertising opportunities and advised
clients including Unilever, Johnson &
Best practice Johnson and General Motors.
giles.cottle@informa.com
05
Illustrative business case
06
Executive 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/linkedin
02

3. Unlocking the Real Value of
Mobile Music
A €1.1 billion opportunity for European operators in 2011
01
Introduction
The real value of music to a mobile operator In the last year alone, highly differentiated
is its potential to improve the bread and music streaming services like Spotify
butter metrics that keep every telecoms offering unlimited music via mobile
executive awake at night – market share, have grown dramatically. By partnering
ARPU and churn. But when was the last time exclusively with such a service, operators
you chose your mobile provider because can finally compete for customers not on
you liked the look of their download store? the basis of how cheap their music is, but
The music download services operators by offering a cross-device music experience
launched prolifically over the last five that is uniquely attractive to consumers in
years are commodities which have almost their market. Telia in Sweden successfully
universally failed to deliver – adding pioneered this approach in 2010, and we
modestly to the value-added services expect others to follow in 2011.
bottom line in the best-case scenario, while
having a negligible impact on the numbers Assuming one such operator in each
that matter most. Western European market partnered with
a music service, we believe that the direct
TDC and SK Telecom were pioneers in core business impact in 2011 would be €1.1
challenging this gloomy state of affairs billion (US$1.5 billion), not to mention the
because they offered services that were numerous other benefits and savings an
radically different from anything else. operator could enjoy from such a service.
Music helped TDC reduce churn by up to
60% in the case of broadband and SKT This report can be read as a “how-to” guide
to grow its mobile data revenue by 40% for operators looking for a share of this €1.1
in just two years. Music’s potential as a billion opportunity. First we set the context
game-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. We
complexity prevented others from following then examine why streaming services now
their 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 previous
that rapidly failed, leaving operators with generations of music download stores were
little to show from their investments. never able to do. Next, we set out some
best practices to realize these gains, before
The fundamental reason TDC and SKT’s running through an example business case
services delivered is that they offered a for an operator.
customer proposition their competitors
simply could not match. We believe that now,
for the first time, the ingredients are in place
for fast-moving operators to realize similar
gains quickly, and at a reasonable cost.
www.informatm.com | www.spotify.com 03

4. 02
Context
– The failure of download
stores
Music download stores were seen as an Fig. 1
Global operator non-voice revenues, 2009-2014
attractive incremental revenue stream
for operators, but have largely failed to
meet expectations. The IFPI claimed that
revenues for mobile single track downloads
remained stable in 2009. As well as the cost
of licensing tracks, operators have struggled
to compete with Apple. Some users were
also put off because the music consumption
and listening experience was inferior on
many handsets to the iPod, although a new
generation of smartphones is altering that
perception.
Of more significance is the fact that mobile
music as a whole, not just streaming, will
still only contribute a tiny proportion of
mobile operator’s non-voice revenues. Total
non-voice revenues for mobile operators will
be US$365 billion in 2013, of which mobile
music – including ringtones and ringback Source: Informa Telecoms Media
tones – will contribute just 5% (see fig. 1).
It’s no surprise, therefore, that operators
are starting to consider partnering with
existing music services, instead of creating Fig. 2
Mobile operator/music service provider tie-ups
their own. Foremost among these is Spotify’s
tie-up with Telia, the dominant Swedish
Country Operator Music service provider
operator. Others are now following this lead,
France Orange Deezer
with Deezer’s tie-in with Orange in France
Sweden Telia Spotify
another recent example (see fig. 2).
UK Three Spotify
US Comcast Rhapsody
Music for operators is a value-added service
US Sprint Pandora
and, as such, will never be a core part of
their business or provide a core part of their
Source: Informa Telecoms Media
revenues. The logic in partnering with an
existing provider is that greater benefit,
theoretically, should lie in using music to
gain market share, up sell smartphones and
data plans, and reduce churn.
04

5. 03
Potential impact on
core business of music
streaming
Music streaming services have several because, although it is an SK Telecom Why did TDC and SKT
distinct 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 labels
operators in a way that previous generations and a subsidiary of SK Telecom. Fundamentally, consumers of music
of music download services were never able want easy, affordable access to a wide
to. To understand why, it is helpful first to Like Spotify, MelOn allows users to access a selection of songs. TDC and SKT succeeded
consider what lay behind the success of the large monthly catalog of music, via mobile, by spectacularly over-delivering on at
pioneering 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 huge
TDC in Denmark made headlines in April revenues, helping to make it the clear leader incentive for any music-loving customer
2008 when it launched Play, allowing almost in South Korea in terms of data revenues. to think twice before letting their contract
all of its mobile and broadband customers to Data revenues, as a proportion of SK lapse. The resulting impact on churn was
download unlimited, DRM-protected music Telecom’s total mobile revenues, grew from substantial. SKT provides a good illustration
tracks 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 streaming
customer. 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 the
The 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 the
loyalty, e.g. TDC Play and YouSee Play [an driver of this revenue increase. South Korean consumers.
equivalent service for TDC’s other Danish
brand], which offer unlimited downloads
of music to retail broadband and mobile
postpaid customers at no additional charge.” Fig. 3
SK Telecom, total data revenue as percentage of total wireless revenue, 2003-2007
Play has had a very positive impact on TDC:
Within two years of launch, the service had
had 150 million downloads, the equivalent
of 20 downloads for every man, woman
and child in Denmark. More importantly,
the company reveals that its churn has also
dramatically reduced as a result of Play;
mobile churn was reduced by 30-40%, while
broadband churn was reduced by 60%.
SK Telecom’s MelOn
SK Telecom’s MelOn is the world’s most
popular music subscription service by
premium subscribers. It is also an example
of what operators can gain from partnering Source: SK Telecom. Excludes Interconnection revenue
with a major service. MelOn is unique
www.informatm.com | www.spotify.com 05

6. So, for operators elsewhere, the formula for Fig. 4
South Korea, mobile operator data revenues as a proportion of total wireless revenues, 2005-2007
replicating these successes is easy to state:
Launch a music service with a dramatically
better blend of customer experience,
affordability and music selection than any
of your domestic competitors. Stand out on
one of these fronts and you can still do well
(as TDC have shown). Excel in all three and
the effect could be dramatic.
But while both SK Telecom and MelOn
represent interesting case studies, they are
arguably exceptions. It has been widely
reported that the up-front cost to TDC of
the Play service was around DKK80 million
($US15 million) a year in addition to the
ongoing costs of operating the service with
appropriate content. That would be beyond
the resources of many operators. And MelOn
had partly been able to thrive because of SK
Telecom’s ownership of Loen Entertainment. Source: SK Telecom; Merril Lynch; excludes interconnection revenue
Partnering with a music service, therefore,
gives the operator the opportunity to offer
a similarly compelling service, but without Fig. 5
the hassle of having to manage it, or the Music-streaming services’ availability on selected devices
risk of spending millions of euros upfront
developing it. Service Smartphones Connected devices/services
Deezer Android, Blackberry, iPhone Multiroom music systems: Sonos, Squeezebox. Connected TVs: Samsung, Phillips
Characteristics 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 music
streaming 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 systems
key 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: Sonos
Differentiation Windows
Most crucially of all, a music streaming Source: Informa Telecoms Media
service is not a commodity. The average
Spotify Premium user spends over 40
hours per month using the product – so
the details of the user experience matter a
lot to them. With an operator’s download
06

7. store, by contrast, users might spend a few Fig. 6
Impact on operators of key differences between download and streaming services
seconds finding and downloading a track,
then experience the music elsewhere via
Characteristic Download stores Streaming services Impact on Operator of Streaming
their phone or iPod. Music is inherently vs. Downloads
emotional – and because users spend so
Differentiation A commodity; need to wait to Highly differentiated, unlimited Gain share, if you have the best
long with streaming services they care download every track; price-based access, instant access streaming service in your market
competition
deeply about the quality of the experience.
Billing Monthly bill, but one-off payment Monthly bill Reduces churn, because you lose
If that experience is exceptional, the result for tracks rather than fixed amount access to the service when you stop
being a customer
is a genuine emotional bond with the
Devices Most phones iPhone / Android / Symbian / Increase ARPU - use streaming
service. Some Spotify users have had the Windows only service to drive smartphone and
dataplan adoption
logo tattooed onto their bodies, and the
Platforms Music stored on a single device Instant music on any platform Use streaming offer to promote
query “I love Spotify” returns over 1 million cross-platform services
results on Google. We are not aware of any
comparable feelings being aroused by a
mobile operator’s download store, because
these stores are commodities that compete
on price alone. All this means that it is churn, the music service becomes an extra streaming services affect a mobile operator’s
possible 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-platform
Devices We have observed the factors above playing
Because they are about access to music out over the last year in Spotify’s partnership
Mobile streaming services require the user rather than ownership, streaming services with Telia in Sweden. The partnership was
to have a high-end device (in Spotify’s case, are inherently well-suited to functioning cited by Telia in its earnings announcement
iPhone, Android, Symbian or Windows smoothly across platforms. All music service for 2009 as one of the key reasons for their
Mobile). 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 possible
customers into more profitable smartphone (see fig. 5), including operator TV services. On an earnings call, Eric Hallberg, CEO
customers. 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 the
report observed that “almost everyone Spotify offer showed a higher propensity
asks if their phone can support Spotify”. So tracks and playlists are available to to upgrade devices.” On a more operational
They routinely use Spotify as a tool to users instantly on whatever device they level, Lars Roth, Director of Mobile
persuade wavering customers to opt for a want to use – PC, smartphone or TV. Consumer Products, said: “Spotify has had
smartphone. 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 with
Streaming services, unlike downloads, are combinations – e.g., by offering unlimited numerous store assistants, and by a survey
paid for via repeat billing cycles. Hence music streaming to customers who take we conducted of over 500 Telia / Spotify
they lend themselves naturally to bundling both mobile and TV services. customers. In around half of all cases, the
with other monthly-billed services. Because Spotify offer had been a factor in both their
customers paying via their operator bill lose Figure 6 summarizes how the key choice of Telia as a provider and their choice
access to the streaming service when they differences between download stores and of phone / tariff.
www.informatm.com | www.spotify.com 07

8. To summarize – partnering with leading Fig. 7
TeliaSonera Investor Presentation, 2009
mobile music streaming services brings the
extraordinary core business impact achieved
by SKT and TDC within the reach of other
operators. The key reason is that music
streaming is not a commodity, so operators
can differentiate themselves by linking with
the right service. By entering a long-term,
exclusive partnership with Spotify, Telia
managed to achieve outstanding results
without needing to build its own music
product. But there was nothing inevitable
about this success. Execution was at least as
important as strategy.
08

9. 04
Best practice
Churn reductions and potential gains in all mobile and broadband subscribers. The uplift in customer numbers, it will not have
market share and ARPU resulting from logic is straightforward: Make customers an a profound impact on the long-term health
mobile streaming will not materialize offer so attractive they cannot refuse. Reap of the operator. Ideally operators should
without a clear strategy and focused the rewards over one or two years through create a long-term, compelling offer in order
execution. A high-quality streaming product the impact on the core business. to attract customers from other providers, or
and 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 be
and 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 will
Quality product create headlines, and may cause a short-term There is no point giving customers what
As we observed in section 3 above, music
streaming services – unlike download stores
– are not commodities. The details of the Fig. 8
Characteristics of a successful streaming service
customer experience yield huge variation in
customer satisfaction between services. So
Factor Why it matters What to look for
building or partnering with a high-quality
1. Funding and scale Deep investment in product required to maintain Deep funding from leading investors; operating
product is the cornerstone of any successful edge in a competitive field on a global scale
music 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 to
a 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 the
customer 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 services
A Premium Streaming music service bought
“off-the-shelf”, enabling unlimited streaming
to a mobile device, is an expensive
proposition for the average budget-
constrained consumer. A year’s access to Fig. 9
Designing a music offer to match strategic objective
Spotify 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 devices
price – ideally “free”.
Reduce churn Make offer available only to users on extended-duration tariffs (eg. 24 mths). Or offer music
For 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 packages
new mobile subscription. In France, Orange
includes Deezer Premium in their €29.95
Source: Informa Telecoms Media
“Surf Music” broadband tariff at no extra
cost to the customer. TDC offers Play free to
www.informatm.com | www.spotify.com 09

10. they want (unlimited music at a great price) through Telia is a good deal. Whenever a Billing integration creates a powerful barrier
unless doing so helps an operator achieve its compatible handset is sold to a consumer, to churn, because leaving the operator then
strategic objectives. These need to be stated sales people are given an automatic prompt means losing access to the premium music
clearly before an appropriate offer can be to offer Spotify to the user. One sales person service. To regain access, a customer faces the
designed. Figure 9 sets out how different in Stockholm told us that he successfully inconvenience of having to go directly to the
strategic objectives might translate into a up-sold Spotify to six out of every 10 users music service provider’s website and entering
special 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 offer
offer 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 a
never 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 people
Effective marketing will do so. Operators are ideally placed to
In order to communicate the value to make it easy, because they already have the
Mobile streaming is a new phenomenon. customers, the operator’s sales force must: customer’s payment information and can
Choosing 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
U
any excess data charges) only reached and be able to demonstrate its salient Compare the convenience of this to the
mass-market potential with the arrival of features in a way that impresses customers; experience of going directly to a mobile
streaming apps for iPhone and Android in music provider. Users must find the provider’s
2009. At first, being able to listen to any track now in detail which packages the music
K website on their PC, navigate to the relevant
you want to on the move without wires, service is available in; section, create an account, and enter their
downloading or syncing feels like magic – credit card details (it is generally not possible
and many consumers are still unaware that e ready to explain why taking the product
B to sign up for the mobile subscription
it 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 to
bringing the proposition to life and showing now which devices the service works with,
K download content when operator billing was
customers 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, Stockholm
real conception of what “it” entails. needs to invest in training its sales force, and
ensure that demonstration accounts and
supporting materials are available inside
Sales force stores (see fig. 10)
Customers will not value a service they
don’t understand. An operator’s in-store Billing integration
sales force are the most effective tool for
communicating this value to customers. A streaming music service can contribute
further to churn reduction if the customer
Members of Telia’s sales force, for example, pays for the service via the operator’s
are all able to demonstrate Spotify to monthly bill.
customers, and explain why getting Spotify
10

11. 05
Illustrative business
case
We have demonstrated some of the benefits These figures are based on the following The size of the opportunity really becomes
that partnering with a streaming service assumptions: clear when comparing this figure to current
could 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 European
bottom 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 in
We have attempted to model the direct for KPIs such as churn, net additions, and 2011. This represents only a fraction of the
revenue benefits that a typical large ARPU to this case. revenue potential of partnering with an
Western European operator – one with 20 existing provider.
million customers – could gain in a year market in which smartphones, and
A
by partnering with a successful music mobile data plans, are both growing in
streaming service. popularity. Non-direct revenue
benefits
Based on information and data from both he operator offering a deal similar to
T
Spotify and Telia, other operators and music the one that Telia offered – partially Even these figures undervalue the
service providers and existing Informa subsidizing a music service for part of the opportunity for the operator as, beyond the
research, we believe that such an operator length of a customer’s contract. revenue impact described above, there are
could achieve revenue benefits of €77.7 other clear benefits:
million in the first year. There would of market where music streaming is
A
course be costs for the operator in the shape popular educed churn for other services: TDC
R
of partially subsidizing the service, but these reported that its broadband churn reduced
costs 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 mobile
service. opportunity operator can also benefit from a deal
with a music streaming provider. And
The €77.7m figure breaks down into three We have also modeled a scenario in which as mentioned in section 3, Telia is also
distinct elements: Revenue earned from one leading operator in each Western integrating Spotify into its IPTV services in
signing 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 some
revenue saved from users that do not churn operators partly subsidize the service, and randing: Telia argues that one of the
B
to another operator because of the music that a few will fully subsidize it to some or all most important reasons for offering Spotify
service. (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, the
Potential direct revenue benefits of a mobile operator
with 20 million customers partially subsidizing a music
be €1.1 billion in 2011. brand value that Spotify gives Telia is the
service 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. 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. 06
Executive summary
Pioneering operators like TDC and SK exclusively with such a service, fast-moving shows that a large operator could generate
Telecom successfully used mobile music to operators like Telia have managed to claim around €78 million revenue a year by
improve their core business metrics (market the core business benefits for themselves partnering with the right music streaming
share, ARPU and churn), by launching quickly and with relative ease, while service – significantly more than they would
services which were radically different from shutting out competitors. gain from offering their own services. Add
others 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 fast
Over 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 and
streaming services like Spotify has created an focused execution. A high-quality streaming
opportunity for other operators to achieve product and the right offer (for both operator
similar gains without the hassle of building, and consumer) needs to be combined with
marketing and maintaining new services. effective marketing, a motivated sales force
and deep billing integration.
Unlike download stores, streaming services
are highly differentiated from one another, The prize for any operator that gets these
only work on high-ARPU devices, lend things right is substantial. Our model, based
themselves to monthly billing cycles and on real data from Telia, Spotify, Informa
work well across platforms. By partnering and other operators and service providers,
BO
OK
NO
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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
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