Unlocking the Real Value of Mobile Music

Unlocking the Real Value of Mobile MusicA joint Research Paper from Informa Telecoms & Media and Spotify

October 2010

Adrian BlairDirector of European Business Development, Spotify

Adrian Blair is Spotify’s Director

of European Business Development. Before Spotify, Adrian taught Economics at Harvard University’s Faculty of Arts and Sciences, and spent 6 years in a variety of senior management roles at Google. He holds an MBA from Harvard Business School and a BA from Oxford [email protected]

Spotify is an innovative digital music platform created with the vision of offering music fans a legal and superior quality user alternative to music piracy. Spotify provides instant access to whatever music you want, whenever and wherever you want it, through a simple, clean and quick to use platform whilst supporting the music industry via ad-supported and paid subscription models. With access to millions of songs in high quality audio through your computer, on your mobile and beyond, Spotify makes it easier than ever to play and share music legally.www.spotify.com

About the Authors

Giles CottleSenior Analyst, Informa Telecoms & Media

Giles is a Senior Analyst for Informa’s Broadband and

Internet Intelligence Centre, and heads up Informa’s coverage of online content. He regularly produces analysis, executive briefings, reports and forecasts on a wide variety of topics, including online TV and video, digital music, games, social media and online advertising. Giles has been covering online content and media since 2005. He began his career at media agency Initiative, where he analysed new media and advertising opportunities and advised clients including Unilever, Johnson & Johnson and General Motors. [email protected]

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Contents

01Introduction

02Context: The failure of download stores

03Potential impact on core business of music streaming

04Best practice

05Illustrative business case

06Executive summary

01Introduction

The real value of music to a mobile operator is its potential to improve the bread and butter metrics that keep every telecoms executive awake at night – market share, ARPU and churn. But when was the last time you chose your mobile provider because you liked the look of their download store? The music download services operators launched prolifically over the last five years are commodities which have almost universally failed to deliver – adding modestly to the value-added services bottom line in the best-case scenario, while having a negligible impact on the numbers that matter most.

TDC and SK Telecom were pioneers in challenging this gloomy state of affairs because they offered services that were radically different from anything else. Music helped TDC reduce churn by up to 60% in the case of broadband and SKT to grow its mobile data revenue by 40% in just two years. Music’s potential as a game-changer for operators was shown – but the prohibitive up-front cost and complexity prevented others from following their example. Some tried, but ended up ploughing millions of euros into services that rapidly failed, leaving operators with little to show from their investments.

The fundamental reason TDC and SKT’s services delivered is that they offered a 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.

In the last year alone, highly differentiated music streaming services like Spotify offering unlimited music via mobile have grown dramatically. By partnering exclusively with such a service, operators can finally compete for customers not on the basis of how cheap their music is, but by offering a cross-device music experience that is uniquely attractive to consumers in their market. Telia in Sweden successfully pioneered this approach in 2010, and we expect others to follow in 2011.

Assuming one such operator in each Western European market partnered with a music service, we believe that the direct core business impact in 2011 would be €1.1 billion (US$1.5 billion), not to mention the numerous other benefits and savings an operator could enjoy from such a service.

This report can be read as a “how-to” guide for operators looking for a share of this €1.1 billion opportunity. First we set the context by describing why many music services to date have failed to deliver for operators. We then examine why streaming services now have potential to improve market share, ARPU and churn in a way that previous generations of music download stores were never able to do. Next, we set out some best practices to realize these gains, before running through an example business case for an operator.

Unlocking the Real Value of Mobile MusicA €1.1 billion opportunity for European operators in 2011

www.informatm.com | www.spotify.com 03

02Context– The failure of download

stores

Music download stores were seen as an 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 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 their own. Foremost among these is Spotify’s tie-up with Telia, the dominant Swedish operator. Others are now following this lead, with Deezer’s tie-in with Orange in France another recent example (see fig. 2).

Music for operators is a value-added service and, as such, will never be a core part of their business or provide a core part of their 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.

Fig. 2Mobile operator/music service provider tie-ups

Source: Informa Telecoms & Media

Country Operator Music service provider

France Orange Deezer

Sweden Telia Spotify

UK Three Spotify

US Comcast Rhapsody

US Sprint Pandora

Fig. 1Global operator non-voice revenues, 2009-2014


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03 Potential impact on core business of music streaming

Music streaming services have several distinct characteristics that give them potential to impact the core business of operators in a way that previous generations of music download services were never able to. To understand why, it is helpful first to consider what lay behind the success of the pioneering efforts of TDC and SK Telecom.

TDC’s Play

TDC in Denmark made headlines in April 2008 when it launched Play, allowing almost all of its mobile and broadband customers to download unlimited, DRM-protected music tracks free for as long as they remain a TDC customer. It has since launched an unlimited streaming service to broadband subscribers (which does not extend to mobile handsets). The goal of the service was set out in TDC’s 2008 annual report: “TDC is… focusing on market initiatives that increase customer loyalty, e.g. TDC Play and YouSee Play [an 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.”

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 with a major service. MelOn is unique

because, although it is an SK Telecom service, it is offered by Loen Entertainment, one of South Korea’s largest record labels and a subsidiary of SK Telecom.

Like Spotify, MelOn allows users to access a large monthly catalog of music, via mobile, PC and other devices, for a flat monthly fee of KRW5,000 (US$4.42) per month. A more limited free service is also available.The launch of the service had an immediate and significant impact on SK Telecom’s data revenues, helping to make it the clear leader in South Korea in terms of data revenues. Data revenues, as a proportion of SK Telecom’s total mobile revenues, grew from 20.6% at the end of 2004 to 28.5% at the end of 2006, putting SK Telecom far ahead of its competitors (see figs. 3 and 4). Although other data services beyond wireless contributed to this increase, as did a general increase in interest in the mobile Internet, SK Telecom specifically pointed to MelOn as a driver of this revenue increase.

Why did TDC and SKT succeed?

Fundamentally, consumers of music want easy, affordable access to a wide selection of songs. TDC and SKT succeeded by spectacularly over-delivering on at least one of these fronts relative to their competitors.

In TDC’s case, the fact that all downloads are free for TDC customers is a huge incentive for any music-loving customer to think twice before letting their contract lapse. The resulting impact on churn was substantial. SKT provides a good illustration of how differentiation in music streaming is possible through customer experience. Other music streaming services exist in South Korea, but MelOn’s blend of all the key bits of customer experience – speed, personalization, user interface design – proved by far the most popular with the South Korean consumers.

Fig. 3SK Telecom, total data revenue as percentage of total wireless revenue, 2003-2007

Source: SK Telecom. Excludes Interconnection revenue

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So, for operators elsewhere, the formula for 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.

Partnering with a music service, therefore, gives the operator the opportunity to offer a similarly compelling service, but without the hassle of having to manage it, or the risk of spending millions of euros upfront developing it.

Characteristics of music streaming services

A number of characteristics of music streaming services give them a powerful ability to have an impact on an operator’s key business metrics.

Differentiation

Most crucially of all, a music streaming 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

Service Smartphones Connected devices/services

Deezer Android, Blackberry, iPhone Multiroom music systems: Sonos, Squeezebox. Connected TVs: Samsung, Phillips

Last.fm Android, Blackberry, iPhone Multiroom music systems: Sonos, Squeezebox. Games consoles: Xbox Internet radios: Roberts, Ikon

Napster iPhone Multiroom music systems: Sonos, Squeezebox, Terratec. Internet radios: Noxon. Connected TVs: Yahoo (Samsung, Sony, LG and Vizio)

Pandora Android, Blackberry, iPhone, Palm Pre, Windows

Multiroom music systems: Sonos, Squeezebox. Internet radios: Livio, Grace Reciva. Connected TVs: Mitsubishi, Panasonic, Samsung, LG, Sony, Toshiba. Tablets: Chumby, iPad. Media streamers: Roku, Popbox. Various other high-end stereo systems

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, Windows

IPTV: TeliaSonera; Multiroom music systems: Sonos

Fig. 5Music-streaming services’ availability on selected devices


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Source: SK Telecom; Merril Lynch; excludes interconnection revenue

Fig. 4South Korea, mobile operator data revenues as a proportion of total wireless revenues, 2005-2007

store, by contrast, users might spend a few seconds finding and downloading a track, then experience the music elsewhere via their phone or iPod. Music is inherently emotional – and because users spend so long with streaming services they care deeply about the quality of the experience. If that experience is exceptional, the result is a genuine emotional bond with the service. Some Spotify users have had the logo tattooed onto their bodies, and the query “I love Spotify” returns over 1 million 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 possible to gain share from your competitors if your streaming service is demonstrably better than theirs.

Devices

Mobile streaming services require the user to have a high-end device (in Spotify’s case, iPhone, Android, Symbian or Windows Mobile). This is crucial for operators, as one of their key aims is to convert feature phone customers into more profitable smartphone customers. One of the many Telia store assistants we spoke to in researching this report observed that “almost everyone asks if their phone can support Spotify”. They routinely use Spotify as a tool to persuade wavering customers to opt for a smartphone.

Billing

Streaming services, unlike downloads, are paid for via repeat billing cycles. Hence they lend themselves naturally to bundling with other monthly-billed services. Because customers paying via their operator bill lose access to the streaming service when they

churn, the music service becomes an extra incentive to stay for customers who might otherwise have left.

Cross-platform

Because they are about access to music rather than ownership, streaming services are inherently well-suited to functioning smoothly across platforms. All music service providers are looking to get onto as many different devices and services as possible (see fig. 5), including operator TV services. Spotify’s partnership with Telia, for example, includes music via IPTV.

So tracks and playlists are available to users instantly on whatever device they want to use – PC, smartphone or TV. With a download service, your tracks are stored in one place and only exist across platforms with time, hassle and cables. By exploiting this fact, operators can drive customers towards more profitable product combinations – e.g., by offering unlimited music streaming to customers who take both mobile and TV services.

Figure 6 summarizes how the key differences between download stores and

streaming services affect a mobile operator’s core business metrics.

Impact on Telia

We have observed the factors above playing out over the last year in Spotify’s partnership with Telia in Sweden. The partnership was cited by Telia in its earnings announcement for 2009 as one of the key reasons for their strong performance that year (see fig. 7).

On an earnings call, Eric Hallberg, CEO of Mobility Services in Sweden, said: “Customers who are attracted to us by the Spotify offer showed a higher propensity to upgrade devices.” On a more operational level, Lars Roth, Director of Mobile Consumer Products, said: “Spotify has had a big impact on smartphone sales and data plans… it also helps us to sell higher value data plans to existing customers.”These comments from Telia’s management were borne out by our conversations with numerous store assistants, and by a survey we conducted of over 500 Telia / Spotify customers. In around half of all cases, the Spotify offer had been a factor in both their choice of Telia as a provider and their choice of phone / tariff.


Fig. 6Impact on operators of key differences between download and streaming services

Characteristic Download stores Streaming services Impact on Operator of Streaming vs. Downloads

Differentiation A commodity; need to wait to download every track; price-based competition

Highly differentiated, unlimited access, instant access

Gain share, if you have the best streaming service in your market

Billing Monthly bill, but one-off payment for tracks rather than fixed amount

Monthly bill Reduces churn, because you lose access to the service when you stop being a customer

Devices Most phones iPhone / Android / Symbian / Windows only

Increase ARPU - use streaming service to drive smartphone and dataplan adoption

Platforms Music stored on a single device Instant music on any platform Use streaming offer to promote cross-platform services

To summarize – partnering with leading 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.

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Fig. 7TeliaSonera Investor Presentation, 2009

04Best practice

Churn reductions and potential gains in market share and ARPU resulting from mobile streaming will not materialize without a clear strategy and focused execution. A high-quality streaming product and the right offer (for both operator and consumer) needs to be combined with effective marketing, a motivated sales force, and deep billing integration.

Quality product

As we observed in section 3 above, music streaming services – unlike download stores – are not commodities. The details of the customer experience yield huge variation in customer satisfaction between services. So building or partnering with a high-quality product is the cornerstone of any successful music streaming strategy.

Figure 8 sets out the critical characteristics of a successful streaming product.

The right offer for the customer

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 Spotify Premium, for example, costs around €120. A compelling customer offer for must therefore deliver the same perceived value (unlimited music anywhere) at a much lower price – ideally “free”.

For example, Telia offers Spotify Premium for just SEK29 per month – a 71% reduction on the regular price – when they take out a new mobile subscription. In France, Orange includes Deezer Premium in their €29.95 “Surf Music” broadband tariff at no extra cost to the customer. TDC offers Play free to

all mobile and broadband subscribers. The logic is straightforward: Make customers an offer so attractive they cannot refuse. Reap the rewards over one or two years through the impact on the core business.

Here, the strength of the offer is crucial. Customers of other operators will still be able to access the music service directly and pay the regular price. While offering the service free for two or three months will create headlines, and may cause a short-term

uplift in customer numbers, it will not have a profound impact on the long-term health of the operator. Ideally operators should create a long-term, compelling offer in order to attract customers from other providers, or indeed to upsell their own customers.

The right offer for the operator

There is no point giving customers what

Factor Why it matters What to look for

1. Funding and scale Deep investment in product required to maintain edge in a competitive field

Deep funding from leading investors; operating on a global scale

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)

3. User experience Users are impatient; need to discover and enable features intuitively

Songs play fast (comparable speed to iTunes). Social features integrated with Facebook. Local (hard-drive) music integration.

4. Developer eco-system Third-party developers augment the value of the core service

Large eco-system of supporting developers & services (eg. ShareMyPlaylists.com)

5. Cross-platform services New platforms enhance the value of a premium subscription and entice customers into additional operator services

Available on multiple platforms (eg. TV, stereos, PC, Mac, Linux, Android, iPhone, Symbian)

Fig. 8Characteristics of a successful streaming service

Fig. 9Designing a music offer to match strategic objective

Primary strategic objective Music streaming offer to deliver objective

Gain market share Offer streaming music free to most customers (eg. TDC / Play)

Increase ARPU Restrict offer only to high-ARPU devices

Reduce churn Make offer available only to users on extended-duration tariffs (eg. 24 mths). Or offer music streaming package to users coming to the end of their existing contract if they renew.

Get customers to adopt new packages

Offer streaming service free to all customers who take multiple packages (eg. TV + broadband)



they want (unlimited music at a great price) unless doing so helps an operator achieve its strategic objectives. These need to be stated clearly before an appropriate offer can be designed. Figure 9 sets out how different strategic objectives might translate into a special music offer.

Once the right proposition is developed, the offer needs to be communicated in a way that makes sense to consumers who may never have used a music streaming product.

Effective marketing

Mobile streaming is a new phenomenon. Choosing from millions of tracks on a mobile device quickly and easily (without any excess data charges) only reached mass-market potential with the arrival of streaming apps for iPhone and Android in 2009. At first, being able to listen to any track you want to on the move without wires, downloading or syncing feels like magic – and many consumers are still unaware that it is possible.

So marketing has a critical role to play in bringing the proposition to life and showing customers the real value of what they are getting. While consumers may indeed want it cheap or for free, simply saying “it’s cheap” or “it’s free” means little to people with no real conception of what “it” entails.

Sales force

Customers will not value a service they don’t understand. An operator’s in-store sales force are the most effective tool for communicating this value to customers.

Members of Telia’s sales force, for example, are all able to demonstrate Spotify to customers, and explain why getting Spotify

through Telia is a good deal. Whenever a compatible handset is sold to a consumer, sales people are given an automatic prompt to offer Spotify to the user. One sales person in Stockholm told us that he successfully up-sold Spotify to six out of every 10 users he discussed it with.

This is also a good opportunity at which data plans can be upsold. Salespeople can explain not only explain the benefits of a music service, but also educate consumers on how much data listening to that service for a certain amount of time will use.

In order to communicate the value to customers, the operator’s sales force must:

>Understand how to use the music service and be able to demonstrate its salient features in a way that impresses customers;

>Know in detail which packages the music service is available in;

>Be ready to explain why taking the product through the operator is a better deal than going directly to the provider;

>Know which devices the service works with, and use the service as part of a sales pitch to get users to take those devices.

To make all of this possible, the operator needs to invest in training its sales force, and ensure that demonstration accounts and supporting materials are available inside stores (see fig. 10)

Billing integration

A streaming music service can contribute further to churn reduction if the customer pays for the service via the operator’s monthly bill.

Billing integration creates a powerful barrier to churn, because leaving the operator then means losing access to the premium music service. To regain access, a customer faces the inconvenience of having to go directly to the music service provider’s website and entering their credit card number (in addition, of course, to having to pay more for the service, because they have lost whatever special offer was available through the operator).

Billing integration also drives up adoption of the product – the easier it is to sign up for premium music streaming, the more people will do so. Operators are ideally placed to make it easy, because they already have the customer’s payment information and can add the service directly to their monthly bill.

Compare the convenience of this to the experience of going directly to a mobile music provider. Users must find the provider’s website on their PC, navigate to the relevant section, create an account, and enter their credit card details (it is generally not possible to sign up for the mobile subscription products directly via a mobile device). Nokia claimed that in certain Ovi markets, customers were 13 times more likely to pay to download content when operator billing was in place than when it was not.

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Fig. 10Telia In-store Spotify demonstration, Stockholm

05Illustrative business case

We have demonstrated some of the benefits that partnering with a streaming service could bring to an operator. But what could all of these benefits do to the operator’s bottom line?

We have attempted to model the direct revenue benefits that a typical large Western European operator – one with 20 million customers – could gain in a year by partnering with a successful music streaming service.

Based on information and data from both Spotify and Telia, other operators and music service providers and existing Informa research, we believe that such an operator could achieve revenue benefits of €77.7 million in the first year. There would of course be costs for the operator in the shape of partially subsidizing the service, but these costs will be substantially lower than the gains an operator would make from the service.

The €77.7m figure breaks down into three distinct elements: Revenue earned from signing up new users; revenue from up selling data plans and smartphones; and revenue saved from users that do not churn to another operator because of the music service. (see fig. 11)

These figures are based on the following assumptions:

> A large Western European mobile operator with at least 20 million customers. We have applied average Western European rates for KPIs such as churn, net additions, and ARPU to this case.

>A market in which smartphones, and mobile data plans, are both growing in popularity.

>The operator offering a deal similar to the one that Telia offered – partially subsidizing a music service for part of the length of a customer’s contract.

>A market where music streaming is popular

The potential European opportunity

We have also modeled a scenario in which one leading operator in each Western European market partners with a leading music service in 2011. We assume that some operators partly subsidize the service, and that a few will fully subsidize it to some or all smartphone subscribers.

Again drawing on data from Spotify, Telia and Informa, we believe that in this scenario, the direct size of the opportunity for the leading Western European operators would be €1.1 billion in 2011.

Of course, the experiences of different mobile operators in different markets will vary greatly, depending on a country’s competitive mobile landscape, the penetration of smartphones and mobile broadband and, crucially, the maturity of the digital music landscape

The size of the opportunity really becomes clear when comparing this figure to current mobile operator streaming revenue. Informa estimates that all Western European operators, not just the market leaders, will earn only €134 million from streaming in 2011. This represents only a fraction of the revenue potential of partnering with an existing provider.

Non-direct revenue benefits

Even these figures undervalue the opportunity for the operator as, beyond the revenue impact described above, there are other clear benefits:

>Reduced churn for other services: TDC reported that its broadband churn reduced by 60% as a result of its Play service, so other services offered by the mobile operator can also benefit from a deal with a music streaming provider. And as mentioned in section 3, Telia is also integrating Spotify into its IPTV services in Sweden and Finland.

>Branding: Telia argues that one of the most important reasons for offering Spotify is to reposition its brand. As a traditional, formerly state-owned incumbent, being able to offer a service like Spotify is a very effective way for Telia to reposition its brand and to address a wider audience. “Apart perhaps from the iPhone, the brand value that Spotify gives Telia is the most value that we have ever got from a partner”, says Telia’s Roth.

>Longer contracts: Telia is only offering Spotify to customers that sign up for a 24 month contract, making it a very effective way to increase the lifetime value of a customer.

Fig. 11Potential direct revenue benefits of a mobile operator with 20 million customers partially subsidizing a music service

Metric Year 1 revenue (€ m)

New customers 47.2

Reduced churn 25.0

Upselling dataplans/handsets 5.5

Total 77.7


Source: Telenor; TeliaSonera*TeliaSonera data is from May 2009 and May 2010

Fig. 12Sweden, Telenor and Telia smartphone share of total subscriptions, 2Q09 and 2Q10

Telia

Sone

ra*

Teleno

r

� 2Q09 � 2Q10

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>Network efficiency: Doing a deal with a music service potentially allows the 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.

>Maintaining capped data: While some operators in Sweden are offering unlimited smartphone data, Telia has managed 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)

>Subscriber acquisition costs: Smartphone subscriber acquisition costs (SAC) can easily be as high as US$200-300. 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.


06Executive summary

Pioneering operators like TDC and SK Telecom successfully used mobile music to improve their core business metrics (market share, ARPU and churn), by launching services which were radically different from others in their markets (either in terms of price point or customer experience).

Over the last year, the availability on mobile and immense consumer popularity of streaming services like Spotify has created an opportunity for other operators to achieve similar gains without the hassle of building, marketing and maintaining new services.

Unlike download stores, streaming services are highly differentiated from one another, only work on high-ARPU devices, lend themselves to monthly billing cycles and work well across platforms. By partnering

exclusively with such a service, fast-moving operators like Telia have managed to claim the core business benefits for themselves quickly and with relative ease, while shutting out competitors.

However, churn reductions and potential gains in market share and ARPU resulting from mobile music streaming will not materialize without a clear strategy and focused execution. A high-quality streaming product and the right offer (for both operator and consumer) needs to be combined with effective marketing, a motivated sales force and deep billing integration.

The prize for any operator that gets these things right is substantial. Our model, based on real data from Telia, Spotify, Informa and other operators and service providers,

shows that a large operator could generate around €78 million revenue a year by partnering with the right music streaming service – significantly more than they would gain from offering their own services. Add in other benefits, such as network efficiency, brand awareness and increased lifetime customer value, and the case for moving fast looks very compelling indeed.

“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 NewmanChief Research Officer

Informa Telecoms & Media

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Unlocking the Real Value of Mobile Music

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