It’s been a busy week for Deezer: first came the announcement of an browser-based streaming partnership with niche music publication Artrocker, then came Deezer’s launch in Canada, New Zealand and Australia – the next chapter in Deezer’s world domination plan. Now to complete a hat-trick of announcements the French streaming service has announced a partnership with T-Mobile in Austria, with the possibility of further Central European roll outs. Of the three announcements this is the one with the greatest strategic significance.
The Third Way for Digital Music
Regular readers will know that I’ve been advocating subsidized and bundled music services for many years now. Bundled services square the circle of more people listening to more music than ever but fewer of them paying than ever before. Bundled music services are the ‘Third Way’ for digital music (see figure). Currently the digital music market is polarized between a fight for the top and a fight for the bottom. iTunes, Rhapsody et al have built businesses around the relatively small group of tech-savvy music aficionados who pay for digital music, while We7, Pandora et al are catering for the appetite of free music fans (though still grappling with how to create profitable businesses with such large chunks revenue going on royalty payments). Lost in between are those music fans who are engaged enough to want more than ad supported, PC-tethered music but who don’t want to pay 4.99 upwards for the privilege. For as long as the squeezed middle remains un-catered for, the total market will remain stuck in decline or stodgily slow growth.
But this macro concept is a business-critical problem for companies Deezer and Spotify who target the top tier but rely on the bottom layer for customer acquisition and brand extension. The problem with using free music as your marketing funnel is that you attract lots of music fans who love unlimited streaming but have no interest or ability to pay a monthly subscription fee. Freemium services need something between free and paid – without it half of their marketing efforts are wasted.
Bundled Services More Often Than Not Don’t Add Up for Telcos
The solution for Deezer and Spotify, as well as for the wider market, is to create bundled services where the consumer pays little or no direct fee for the music. (Fighting free with free itself). Instead the cost is hidden within another subscription fee and / or subsidized by a third party looking for gains to their core products. Telcos have long been the best fit, but nearly exactly four years since TDC’s Play service was launched, telco subsidized music services are conspicuously thin on the ground. Spotify’s partnerships with Telia Sonera and 3, along with Deezer’s France Telecom tie-in and Cricket Wireless’ Muve Music are lonely examples.
So if the concept makes so much sense to the music industry and to the music services, why haven’t more bundled services come to market? The simple answer is economics: telcos (ISPs in particular) just can’t make the business case work. Margins are already tight, and in highly competitive marketplaces pricing is often locked into a race to the bottom. It is often just too difficult for a telco to build a consumer pricing package that doesn’t price it out of the mainstream market but at the same time covers the wholesale costs of rights licenses.
Of course music is viewed as a marketing tool rather than an ARPU tool by most telcos, so it is typical for a portion (sometimes all) of the costs are funded out of marketing budgets. But experience shows us that few telcos have been willing to swallow enough of the costs, seeing much better ROI on alternatives such as Apps and Games. A number of European ISPs have told me that they could only build a business case around a cost to the consumer of 2 euros a month, far south of what rights fees for unlimited music services require.
So how have Deezer managed to pull off the T-Mobile partnership? Here’s how:
- Deezer have deep experience of integrating with telcos, knowing how their businesses work and understanding their needs
- Deezer have a track record of making bundled telco offerings work
- T-Mobile have identified the Austrian market as one in which they can achieve differentiation and market advantage through a bundled play. T-Mobile gets to call itself “the first operator in Austria to offer an unlimited music service in its mobile tariffs”, to gain and retain young mobile audiences.
The third factor is the key one. Without having a telco partner willing to go out on a limb, all of experience and assets in the digital music world add up to naught. But even once you’ve got a telco on board, making the project a success is no easy task. I’ve seen up close a number of telco music services nearly but not quite get to market because of complications with commercials and because of conflicting interests among partners. I sincerely hope that the T-Mobile and Deezer partnership is fruitful – the marketplace desperately needs more proofs of concept of the bundled music model. Without the ‘Third Way’ the music market will continue its unhealthy polarization between premium and free, leaving the squeezed middle high and dry.
Great post. One model you can add to your list to watch is Cricket Wireless/Muve Music in the US, which offers low cost cellphone access with unlimited music downloads and Android apps bundled into a $65 a month cost, which also includes the usual voice/text stuff. They’ve built up a rather impressive user base pretty quickly, offering an affordable, “no contract” option for a huge set of folks in the US who are on a budget and/or who don’t have credit cards, another segment of the population that has not been well served up to this point.
Note: I don’t work for Cricket or Muve. I’ve been equally puzzled by the lack of a bundled option with the big providers in the US, so I’m watching this effort with interest.
Thanks for the catch Kristin. I’ve been watching Muve closely since inception and have included them in previous blog posts. They’re a *great* example and I simply forgot to include them. I have now edited the post to include them.
Pingback: Deezer: La alternativa a Spotify « Redes y Redes
Pingback: 7 stories to read this week — Tech News and Analysis
Pingback: 7 stories to read this week | Cleantech Reporter
Pingback: 7 stories to read this week | TechDiem.com
Pingback: GIASTAR – Storie di ordinaria tecnologia » Blog Archive » 7 stories to read this week
Pingback: 7 stories to read this week | Apple Related
Hi there to all, how is the whole thing, I think every one
is getting more from this web page, and your views are fastidious in support of new viewers.
An additional issue is that video gaming has become one of the all-time
most significant forms of fun for people of any
age. Kids participate in video games, and
also adults do, too. Your XBox 360 is amongst the
favorite video games systems for many who love to have a
huge variety of activities available to them, plus who like to learn live with some
others all over the world. Thanks for sharing your ideas.
Do you mind if I quote a few of your posts as long as I provide credit and sources back to your weblog?
My blog is in the very same niche as yours and my users would truly benefit from a
lot of the information you provide here. Please let me know
if this ok with you. Thank you!