Yonder Music Unlocks The Emerging Market Opportunity

One of the high profile digital music casualties of recent years was the failed ‘next generation’ service provider Beyond Oblivion. There were numerous factors behind Beyond Oblivion’s failure but a key one was the fact the market was not yet ready for its telco bundled music offering. Now 5 years on the digital music and telco content markets are very different propositions, with the number of telco music bundles global totaling 105, up from 43 in 2014.  With the proliferation of data plans and smartphones, mobile carriers are now eagerly seeking out streaming music and video services as a means of driving subscriber uptake, ARPU and market differentiation. The 11.5 million telco bundled music subscribers that now exist globally represent a vibrant marketplace that was almost non-existent back in 2011. So why the potted history? Because, as MIDIA reported back in November 2015 Beyond Oblivion’s founder Adam Kidron is back for another bite of the Apple with a new take on the model with his latest venture Yonder. Now, 7 months after its Malaysian launch Yonder has racked up an number of impressive regional metrics that act as further evidence that the telco market is ripe for music bundles.

Yonder’s partnership with a number of Axiata telcos in multiple markets is off to a flying start. Yonder’s music bundle is available across a range of tariffs including both pre-paid and post paid. With an already sizeable 300,000 strong subscriber base Yonder users are using markedly more data than users of other music services on the same tariffs. But of most interest from a telco perspective is the much lower rates of churn for Axiata’s Yonder users, on both pre-paid and paid. Though these numbers must be caveated by the fact that Yonder is available on tariffs that appeal to Axiata’s most valuable and loyal customers – a caveat that applies to most music telco bundles. But even with that considered, Yonder users have a fraction of the churn even of other same tariff users that do not have Yonder.

Axiata has demonstrated its belief in Yonder by both taking a 25% stake in Yonder and by committing to launching in another 9 emerging market territories, with further markets in the pipeline.

Axiata, Celcom’s parent company, has demonstrated its belief in Yonder by both taking a 25% stake in Yonder and by committing to launching in another 9 emerging market territories, with further markets in the pipeline.

Curation And Pre-Pay Are Key 

Yonder has four key assets that that have driven success so far:

1. A curated content offering
2. A telco optimized business model
3. A focus on emerging markets
4. An offering for pre-pay customers

Emerging Markets Are The Next Big Streaming Opportunity

Emerging markets are the next big opportunity for digital music. Western markets dominated the 20^th century music industry because it was built on buying units of pre-recorded media and thus skewed towards countries with high levels of disposable income. Now though, as we move into the streaming era, it is consumption that is monetized and thus it is the markets with the biggest populations (typically emerging markets) that represent the bigger opportunity. This realignment of the music industry’s world order won’t happen overnight, and the big western markets will still dominate, but a realignment is taking place. The obvious way to capitalize on this is ad supported (which is YouTube’s big play) and indeed that is where the big numbers will come. But it is telco bundles that will drive the meaningful revenue in these markets because:

1. telcos have the billing relationships (a crucial asset as credit card penetration is typically low)
2. telcos can shoulder some or all of the cost to drive data plan uptake and make the music feel like free

Crucially, in order to tap this emerging market opportunity, the standard, premium AYCE offering is not enough. Curation and Pay As You Go (PAYG) bundling are the assets needed to unlock this opportunity and right now Yonder and MusicQubed’s MTV Trax are pretty much the only services bringing this combination to market.

2016 is already proving to be a big year for the big streaming services, but with finite remaining growth opportunity remaining in developed markets, the really interesting long term growth lies in PAYG and emerging markets.

The telco music market statistics quoted in this report are featured in the MIDiA report ‘Telco Music Strategy: Ironing Out The Strategic Kinks As Objectives Evolve’ which is available to MIDiA subscribers and can also be bought individually on the MIDiA report store herebought individually on the MIDiA report store here

This post was amended on June 28th

Rdio Goes After The Squeezed Middle

Streaming monetization is polarized between premium subscriptions on one end and free streaming on the other. The middle ground that was the scale heartland of the CD and the download is disappearing and taking with it the mainstream consumer.  It is into this environment Rdio just announced a new $3.99 tier.

Mid priced subscription tiers are thin on the ground.  We have a couple in the UK (MTV Trax and O2 Tracks from MusicQubed, Blinkbox Music, now owned by Guevara) and a number of ad free radio offerings from Pandora, Rhapsody and Slacker.  It is a heavily underserved segment as the slide above shows.  The mainstream streaming subscription market is squeezed between premium and nothing.  The average music spend of a consumer is around $3 a month, so $9.99 subscriptions are far out of reach of most consumers.  $3.99 however is far, far closer to a realistic price point for the mass market.

Regular readers will know that I have been a long term advocate of lower priced subscriptions and micro-billing / Pay As You Go pricing models to entice the more mainstream user.  The labels have been super cautious because they are scared of cheaper services cannibalizing the premium tier.  The concern is a valid one but ultimately if a bunch of 9.99 users aren’t getting full value from an unlimited service they are going to bail out eventually anyway.  At least with mid priced subscriptions they have somewhere to land instead of disappearing straight to free streaming.

Currently streaming monetization is split between the top and the bottom of the monetization pyramid and this needs to change.  Rdio’s new Select tier gives users ad free radio plus 25 songs of their choice each day. That might not sound like a lot of tracks but for the majority of mass market music listeners that will be more than enough.  In fact in some respects it could almost be too much.  What matters for the mass market listener is less the number of tracks and more how the tracks they like are surfaced to them.  Curation is a much-overused term these days, but expert curation and programming is crucial to engaging the mainstream.  Radio is still so popular because most mainstream consumers are lean back customers that want to be led on a music journey not to have to hack their way through the musical undergrowth themselves.

Monetizing The Revenue No-Man’s Land

The leap from zero to 9.99 is far too big and Rdio Select is an important step towards monetizing the revenue no-man’s land between free and premium.  Of course zero to anything is still a major hurdle but the success of iTunes (250 million global buyers) shows us once you make the first step small enough, consumers will follow.  The simple fact is that the streaming market will not be sustainable without the mainstream engaged as paying customers on the same sort of scale that was achieved with downloads.  An even simpler fact is that 9.99 will not achieve that end.

It Is Time To Think Beyond The Monthly Subscription

Apple’s entry into the subscription market later this year will fire a broadside across the freemium model.  But there are not many companies that can do what Apple can.  Every product and service needs to acquire customers and usually that entails advertising and marketing.  If what you are selling is a relatively nuanced proposition, and music subscriptions are exactly that, then you are going to need to spend a lot of time and money building the awareness and understanding of the product.  That typically either means a big ad budget or having a captive audience to talk to directly without the marketing middleman. For freemium services that is the free tier.  For Apple that is the installed base of device owners.  It is all well and good for Apple to crusade against free in its entirety because that also happens to make it increasingly difficult for anyone else to make the subscription model work.  As I argued in my previous post there is a need for a rethink of free, to ensure that it acts as an acquisition funnel for subscriptions not as a replacement for them.  But there is another part of the puzzle that needs solving too: the subscription model itself. If freemium is on borrowed time, a solution is needed that the entire market can work with, not just Apple.  Pay As You Go (PAYG) is part of the answer.

Music Subscriptions Cap ARPU

Currently the music industry is trying to migrate all of its paying customers to subscriptions.  The theory is that this should increase the Average Spend Per User (ARPU) to 9.99 but as MIDiA’s research revealed, thus far it appears to be doing a better job of reducing the ARPU of the most valuable. Thus we have a worst of both worlds scenario in which the ARPU of the most valuable customers is capped (something no other media industry does) and the lower value customers aren’t offered enough options to get on the spending ladder.

When I wrote back in October that it was time for a pricing reset I pointed to three things that need to happen:

1. More price tier differentiation
2. Reduce the main $9.99 price point to $7.99
3. Introduce PAYG / Top Ups

The good news is that we’re beginning to see some movement on all three counts, including Apple poised to tick off the second item later this year when it launches its subscription offering.

The Return Of The Day Pass

Last week Pandora announced that it was introducing a $0.99 day pass to its ad free subscription offering.  The idea isn’t new, Spotify had a day pass in its earlier days, but the timing is now right for a reassessment of the tactic.   Most people are not in the habit of paying for music on a monthly basis and most do not spend anything close to 9.99 a month.  Little surprise then that only 10% of consumers are interested in a 9.99 subscription.  But PAYG pricing interest, while still relatively modest, is the clearly the pricing that has strongest appeal (see figure).  PAYG pricing allows consumers to ‘suck it and see’ to try out.  It is what the mobile phone business needed to kick start cellular subscriptions and it is what the music industry needs too.  And done right PAYG can even uncap ARPU by allowing customers to spend more than they would on a monthly plan, something that happens frequently among pre-pay mobile phone customers.

Currently there is only a handful of companies pioneering this approach, including the MusicQubed powered MTV Trax’s ‘Play As You Go’ model and Psonar’s ‘Pay Per Play’ offering.  It should only be a matter of time before the big streaming services start experimenting with a la carte pricing but they will have to tread carefully to ensure they do not cannibalize the spending of their 9.99 customers.  At an industry level though the case is clear and it is one that other media industries are already heeding.  In the TV industry services like Netflix are empowering cable and satellite TV subscribers to cancel or reduce their subscriptions.  Consequently TV companies are busy experimenting with unbundling their subscription offerings to meet the needs of their newly empowered customers.  The most interesting example for the music industry is Sky’s Now TV in the UK which offers its core programming with no monthly contract and enables users to simply add on extra content such as and ‘entertainment pass’ or a ‘sports pass’ as one off payments.

The future of music consumption is clearly going to be on demand but 9.99 subscriptions are just one part of the mix. PAYG pricing will be crucial to ensuring that streaming can break out of its early adopter beachhead.

MTV Trax And Fixing The Tyranny Of Choice

The subscription pricing debate is gaining momentum with serious dialogue occurring at high levels across the industry. Every consideration though occurs against the backdrop of fear, fear of disrupting the solid start subscriptions have made so far. It is clear that although the 9.99 price point has significant additional market opportunity, that potential has a finite scope. Once the ceiling of adoption has been reached the market will stagnate unless new price points are introduced.

One option for reducing risk is to tailor services at discreet segments that are not prospects for 9.99 services. By building highly distinct, curated services that deliver users curated, lean back experiences rather than bewildering them with the Tyranny of Choice of 30 million tracks. Music Aficionados are the driving force of current digital music, are less than a fifth of all consumers yet are the core target of every 9.99 subscription service.   By contrast Forgotten Fans – super engaged music fans who don’t yet spend much money on music – are hugely underserved. A handful of companies have been trying to unlock this segment, including Blinkbox Music, Mix Radio (formerly Nokia Mix Radio), Bloom.fm (RIP), Psonar (PAYG streams), MusicQubed (O2 Tracks, Vodafone Tracks), Zvook, as well as ‘Pandora One’, ‘Slacker Radio Plus’ and Rhapsody’s ‘unRadio’. Even Spotify is having a go. Now MusicQubed have upped the ante in the pursuit of the Forgotten Fan powering a new MTV music service: MTV Trax.

MTV: Digital Music’s Sleeping Giant

MTV is something of a sleeping giant in the digital music space. It is the sort of brand the marketplace has been waiting for. Spotify has done a fantastic job at creating a brand from scratch but outside of digital music circles it has minimal brand recognition. What MTV brings is immediate brand equity, the sort of instant familiarity that can help pull mainstream consumers into the digital fold.

Up to now, besides a couple of ill fated early efforts (remember MTV Urge anyone?) MTV has never seriously tried to convert its massive brand and reach. MTV has been biding its time. It is a mainstream brand for the masses so it has been waiting for the market to reach sufficient scale and for the right product for it to enter. MTV knows there is little point in trying to push its youthful, mass market audience towards Aficionado services that they are unlikely to be able to afford or have interest in.

MTV Needs To Put Mobile At The Heart Of Its Channel Strategy

There is an additional reason the time is now right for MTV, whether they realise it or not: their business model is stuck firmly in the confines of old, traditional media i.e. Pay TV. Though Pay TV is hardly in crisis, yet, the first cracks are beginning to appear with disruptive Over The Top (OTT) services like Netflix and Amazon Prime and cord cutting.  Of most concern for MTV is the new generation of ‘cord never’ consumers that may never take a Pay TV subscription, instead relying solely on the likes of Netlix, Hulu and iPlayer for their video needs. MTV is a youth brand yet ironically its current business model is rooted in an older world – the average age of a network TV viewer is 59. MTV needs a new channel for engaging with the next generation of audiences, and that channel is mobile. MTV Trax looks like it may be the first plank of that strategy.

MTV Trax itself is a visually rich mobile only app that delivers 8 curated playlists, branded around genres, charts and MTV shows. An Aficionado would probably find the selection too narrow and mainstream, but that’s entirely point, this isn’t built for them, it’s built for the mainstream. The app is being launched with MTV’s European Music Awards. Now it’s time to sit back and wait to see whether MTV’s brand can unlock the Forgotten Fan and take digital music to the mainstream.