Weekly Update

Can Carriers Finally Move the Needle in Mobile Music?

As my colleague Kevin Tofel wrote in December, 2011 may be shaping up to be the year of streaming music, with Apple and Google joining the mix. But the mobile music space looks bleaker than ever. Nokia is abandoning its doomed Comes With Music service in all but a handful of markets, record labels are watching mobile revenues shrivel and according to new comScore data, fewer people are listening to music on their phones than are using mobile instant messaging. Mobile instant messaging!

Why has the space failed to gain a real grip on the mass market? There’s no shortage of reasons, but the most important was revealed in a survey of European smartphone users released by Strategy Analytics last week. Asked to allocate the value of a monthly mobile subscription, respondents said web browsing is their most prized activity (worth $6.94 a month), while listening to online music was valued at a mere $3.62 a month — again ranking behind mobile instant messaging. (Reasons for the valuations weren’t cited.)

Despite all that evidence against a viable market, though, there’s no shortage of players trying to make a go of it. Spotify continues to inch toward a U.S. launch (or so it says), Last.fm is experimenting with a new premium offering (presumably because ads weren’t paying the rent) and mSpot recently expanded across the pond to launch a cloud-based service in Europe. Even Pandora, which is widely cited as a success story, has spent an enormous amount of money but is only just beginning to become profitable.

But with their massive user bases and huge revenues, carriers have the luxury of viewing music services as an added perk, not a fundamental source of revenue. They don’t have to profit from it; break-even would be just fine if services are leveraged in the right ways. So a savvy carrier (if such a beast exists) could operate a compelling service that generates money for others in the value chain and generates customers for itself.

OK, I’ll wait for you to stop laughing. I know that carriers have failed dismally in their efforts to compete with iTunes. I’m aware that laughable pricing models, horrendous DRM strategies and painful user experiences have all shackled a market that had previously fueled irrationally optimistic forecasts. And those early full-track download business models may have been doomed from the start anyway, considering the razor-thin margins music sales generate and the relatively high cost of delivering tunes over mobile networks.

But mobile music is a strategy that seems to be succeeding for the French carrier Orange, which four years ago launched a free streaming service called Deezer. Orange began charging for the service six months ago and last month said it had reached 500,000 paying customers. So how can carriers leverage music to lure users even as Apple, Google and countless smaller players join the space? Here are a few thoughts:

1) Carrier services must leverage the cloud. To finally move the needle in music, carriers must enable users to easily upload their own tunes and listen to them on the go in addition to accessing streamed content they don’t own. So carriers would be wise to offer several different types of services at varying price points — from streaming radio for a few dollars a month (and which, like Pandora, could be ad-subsidized) to a more expensive, Rhapsody-like service with vast libraries that enables users to listen to just about whatever they want to.

2) Services must move beyond simple radio-streaming offerings. I love my Pandora, but for carriers to attract attention in the space they must also offer mobile-only content such as ringtones (taken from original tunes, not awful knock-offs) and ringback tones. Those offerings could be based on a user’s tastes, and could be presented and downloaded within the app. Music services could be packaged with voice, data and messaging plans — like Cricket’s new Muve — and operators could combine full-track downloads with streaming services. Finally, carriers and their content partners could boost revenues by providing valuable information such as concert dates and new-music alerts —but only to users who want to receive them.

3) They must be affordable. A low monthly price point isn’t enough in mobile — consumers must also be sure they’re not racking up extra data charges by tuning in. Streaming just a couple of hours of music a day can put you near some data caps, as AT&T’s data calculator demonstrates, so as we enter the era of metered data billing, carriers must let users know when they’re approaching their data caps. And users should be able to easily cache tunes and use Wi-Fi and other non-cellular channels so they can access music without taxing the networks.

Question of the week

Can carriers ever leverage on-the-go music services?