New Report: Building the New Business Case for Bundled Music Services

Today MIDiA Consulting is proud to announce the release of a white paper commissioned by Universal Music entitled “Building the New Business Case for Bundled Music Services”.  The report, written by myself and MIDiA Consulting co-founder Keith Jopling, provides an unprecedented analysis of telco music services, taking a critical look at what has and had not worked to date and a series of models and recommendations for the future.  We interviewed a host of telco music executives to get a deep understanding of what telcos need out of music services to make them a success and combined this insight with data from consumer surveys and music service trials as well as case studies and best practices.  We think it is pretty much the definitive piece of work on the topic (!) and we invite you to download it here: Building the New Business Case for Bundled Music Services – FULL REPORT.  You can also download an executive summary version of the report here: Building the New Business Case for Bundled Music Services – EXECUTIVE SUMMARY.

Here are some of the key findings of the report.

The consumer shift from downloads to streaming is the most important digital music market trend since the advent of the iTunes Music Store.  Before streaming services telcos struggled to find a way in which they could compete in a market dominated by Apple, restricted to selling DRM locked downloads that of course would not play on Apple devices.  Subscription services changed all of that, with the leading streaming services all pursuing robust telco partnership strategies as well as a number of download subscription services.  There are now nearly 50 telco music service partnerships live in six regions across the globe.  With 40% of streaming consumers now paying to stream, generating $1.2 billion in trade revenue in 2012 the opportunity is clear.

However it is clear that many of the hurdles that telcos faced in the last decade continue to pose challenges.  These include music not being a priority for many telcos, internal business casing getting in the way of building compelling services and the wrong success metrics being used.

The new success stories of telco music services are those that make music a strategic priority.  This is not some sop to the record labels, but a reflection of what it takes to make music strategy a success. If a telco just adds music to a long list of Value Added Services (VAS) it will wither on the vine.  But if a telco puts a music service front and centre and positions around it then success is far more likely.  Success stories that have followed this approach include Telia Sonera’s hard bundle with Spotify in Sweden and Cricket Wireless’ Muve Music in the US.

The Role of Promotional Offers

For all the obvious synergies of telco music bundles there is a real danger that hard bundles that make music subscriptions free or feel like free to the end user run the risk of devaluing the proposition.  Yet it is also clear that consumers need to be able to ‘suck it and see’ before subscribing so promotional free trials and limited period bundles present a strong balance of value to the consumer, cost effectiveness to the telco and protecting the integral value of music for artists and labels.  The market data for free trial is compelling: half of one month trialists convert to a paid subscription at the end of the promotional offer period.

Customer Satisfaction, the New Music Service Opportunity

An entirely new aspect to music bundling that we dive into in the report is the role of music subscriptions in driving customer satisfaction across a telco’s wider business.  Even the most edgy, cleverly positioned challenger telco is ultimately a provider of important products but not usually a consumer passion point.  Music though has that brand passion secret sauce and partnering with the right music service can enhance the telco’s own brand and customer sentiment.  Smart integration of music into the customer journey and integration with customer satisfaction measurement tools, particularly Net Promoter Score (NPS) can enable telcos to create a customer satisfaction halo effect.  With music converting satisfied music subscription customers into highly vocal net promoters with satisfaction benefits felt across the full range of a telco’s services.

Bundled music services did not get off to the best of starts, but now their time has come, giving telcos the opportunity to assume centre stage in the digital music marketplace.

For more information on the research please feel free to email us at info AT midiaconsulting DOT COM.

About MIDiA Consulting

MIDiA Consulting is a boutique, media industry focused consultancy that delivers practical, results-driven outcomes.  MIDiA stands for Media Insights & Decisions in Action. Our mission is to help media and technology companies develop purposeful strategies quickly through market understanding, clarity of vision, and workable innovation.

We help media and technology companies make sense of the changes that digital market forces are bringing about. And we help them make profits from digital content.

http://www.midiaconsulting.com

info@midiaconsulting.com

Spotify and Virgin Media Take The Third Way

UK cable broadband and TV provider Virgin Media and Spotify today announced the partnership deal they’ve been working on for some time.  The deal will ensure that Spotify is delivered across the web, mobile and TV to Virgin customers.

On the surface this might not seem like such a big deal, but don’t be fooled, it is potentially huge…just so long as it is executed upon properly….

A Marriage of Supreme Convenience

This is a marriage of supreme convenience: Virgin Media and Spotify really need each other right now.  Virgin Media has been pushing hard at delivering a truly differentiated music service for some time now.  Just over two years ago they announced the holy grail of digital music: an unlimited MP3 subscription service in partnership with Universal Music (you can see my post about the announcement here).  Unfortunately this was too big a step taken too soon for the rest of the majors, and Virgin and Universal were forced to back down. (For the record, the arrival of unlimited MP3 is a matter of ‘when’, not ‘if’, whatever some label execs might think.)

So now Virgin have turned to Spotify for plan B, and Spotify need Virgin just as much as they need Spotify.  Spotify’s struggle to make the economics of free add up are well documented and their struggle towards profitability has raised some difficult questions about the Freemium model.  Having  Virgin deliver paying customers to Spotify’s door will be a major boost for the Swedish streaming service.

Digital Music’s Third Way

For years now I have been advocating a Third Way for monetizing digital music and Spotify and Virgin look like they’re about to take this very route.

Right now digital music has two options: Paid (iTunes, Rhapsody etc) and Free (YouTube, Pandora etc).  Paid generates high average spend but only appeals to a minority of customers.  Free appeals to the mass market but doesn’t generate enough income for rights owners nor enough profit for services.

Like it or loathe it, the Internet has made most people expect music to be free, whether that be from YouTube or BitTorrent etc.  Free is of course the only way to truly fight free, but if free doesn’t pay the solution is to make music ‘feel like free’ by getting a third party to subsidize some or all of the cost.  This is the Third Way of Digital Music (see graphic).

Go Big Or Go Home

Spotify have already experimented with this approach with mobile operator 3 and ISP Telia Sonera.  This is potentially Spotify’s most important deal yet. But for this deal to realize its potential, Spotify and Virgin will have to hit upon heavily subsidized prices, ideally with the cost to consumer hidden entirely in some bundles.  Simply offering a couple of £ discount won’t fly.

Spotify and Virgin Media have the opportunity here to set the gold standard for subsidized subscription models.  Here’s hoping they seize that opportunity with both hands and kick start digital music’s most viable route to the mass market.

Virgin and Universal Announce Unlimited MP3 Subscription: First Take

Today Universal Music and UK ISP Virgin Media announced the launch of an unlimited MP3 subscription service.  Yes, you read correctly, ‘unlimited MP3’.  And, perhaps even more significantly this goes hand in hand with Virgin committing to a graduated response (i.e. Three Strikes and You’re Out) policy for music file sharers.    Universal and Virgin have come to the negotiating table with their highest stakes and in doing so each has got their respective Holy Grail.    And don’t underestimate how high those stakes are for each party – basically Universal and Virgin have each delivered as much as they have to offer and conceded as much as they can give: they’ve both played their Aces.  Once again Universal put themselves in the position of digital trailblazers, leaving the other majors to follow in their slipstream.

Also, there’s no coincidence about the timing of the announcement i.e. the day before the final Digital Britain report is published.  The graduated response approach runs counter to the more modest ‘technical solutions’ that the then Culture Minister Andy Burnham suggested the Digital Britain report will propose.  He even went as far as to say that the graduated response approach wasn’t workable.

But he also told the music industry and the ISP’s to fix their own problems rather than wait for the ‘heavy hand of legislation’.  Given that this is exactly what has happened, it will be interesting to see how the government responds.  Its also worth noting that the release is at pains to stress that disconnections will be temporary and that Virgin will not use its own traffic management technology to enforce the action.  Thus the ISP’s arguments that their traffic management technology isn’t well suited to dealing with individual accounts remain in play.

The service itself will come in two tiers: a premium tier which is the unlimited MP3 offering, in return for a 1 year broadband bundle subscription commitment, and a second lower tier that has limited MP3s.  Unlimited streaming is available on both also.  The 12 month MP3 model is what I’ve been advocating should happen with music subscriptions for some time now, and leaves Napster’s UK offering looking even more in need of fundamental revision.

The pricing of course will be key.  UK consumers have historically shown little appetite for premium subscription services: HMV and Virgin Megastores both tried and failed – though HMV is back for a second stab, Napster has failed to break out of a small niche, Wippit closed shop and Yahoo and Rhapsody didn’t ever bother to launch here.  Of course, none of those were as compelling an offering as this, and this is smartly targeted at households not individuals.  But pricing will be key.  Price it too highly and you’ll miss the disengaged music households this and just switch over already high spending ones.  Price it too low and CD sales will be cannibalized.

It will also be interesting to see whether this announcement means that the UK’s other major label backed unlimited MP3 offering Datz will be breathed new life.

Whatever the political fall out of this announcement, there is no doubting that this is a massive step forward and shows that where there’s a will there’s a way.  If the other majors come on board Virgin Media will have a market leading digital music service that will bring real value to their subscribers.  At the same time the labels will get a major ISP implementing a twist on their preferred anti-piracy measures without needing the government to do it for them.