"Wireless Wednesday"–6 reasons the mobile music industry is changing

weBoost | April 10, 2013

Welcome back to our weekly installment of “Wireless Wednesday” blog posts! This week we’re talking about mobile music and where it’s headed. @FierceWireless came out with a fantastic article that discusses this very topic. Take a look at the excerpt included below–

 The digital music industry, which relies heavily on the mobile channel, is already a fractured and intensely competitive market. There are established players like Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN), which provide devices and music libraries; streaming music services from Pandora, Spotify and Rdio; operator-run initiatives like Leap Wireless (NASDAQ:LEAP)subsidiary Cricket’s Muve Music; and device-specific initiatives such as Samsung Hub and Nokia Music. The current frontrunners in the streaming mobile music segment are Pandora with over 67 million reported listeners in the U.S. and Spotify with over 24 million listeners worldwide. Both services are available on the desktops as well as multiple mobile platforms. While a majority of listeners use their ad-supported service, Spotify claims to have over 6 million paying subscribers for its ad-free streaming music service.

And it appears the market is set for even more upheaval: Rumors continue to hint at a wide variety of companies planning to enter the digital music market or existing players poised to expand their offerings.

As the market continues to grow, it’s worth taking a look at the key issues that are hounding the development of the market and the dynamics that could affect both existing players and new entrants:

Is Google too big to succeed in mobile music? Google (NASDAQ:GOOGhas been rumored to be expanding its presence in the mobile music scene. The company already offers Google Music, which allows users to upload up to 20,000 songs from their own music libraries and stream them via compatible devices for free. Now there is talk of Google expanding its foray in music to include a subscription streaming service.

Mark Little, consumer analyst at Ovum, believes that Google’s new music streaming service will launch this autumn and dent the growth of Spotify and Apple’s iTunes by taking a significant slice of the $5.6 billion digital music market. However, he sees a number of obstacles in Google’s path. For one, he noted record labels’ concerns about Google: “They won’t want another Apple with significant market power and negotiating advantage.” Secondly, he said that consumer privacy concerns about a Google-branded subscription service handling users’ personal data could be on an issue.

Reflecting on these issues, Little hedges his bets: “Given the length of past negotiations with Apple and Spotify, the launch of a fully thought through Google music streaming proposition in September might be a little optimistic.”

Will users favor subscription or radio models? Ben Arnold, director of industry analysis at The NPD Group, said Pandora has established itself as the leader to beat in the mobile music space. Its large installed base and the popularity of its app make Pandora almost as ubiquitous as Netflix is for video at this point. Indeed, according to NPD, the free version of Pandora led all streaming music services in during the fourth quarter, representing 39 percent of usage among Americans 13 to 35. However, Arnold sees people moving towards Spotify and points to the success of Spotify’s subscription model (Spotify has 6 million customers paying $10 per month, whereas Pandora’s customers predominantly use its ad-supported service). In Arnold’s opinion, consumers no longer need to own the music they listen to. “The model has gone from own to rent.”

Arnold added that an Internet radio service on its own is not enough to satisfy users’ music appetites–audio enthusiasts want to listen to an artist’s entire album, not just hit singles.

Nokia’s head of music, Michael Bebel, disagreed. Bebel explained that in Nokia’s research, “the highest use case out there was in radio,” which is why the company’s Nokia Music platform concentrates on curated playlists.

Arnold said that, although Spotify really started the music-to-rent trend, it’s not clear which vendor will ultimately dominate the space. Further, he said pricing for the service could evolve. For example, users might be willing to pay more for high-fidelity streaming music (256 kbps encoding) and less for a lower-quality stream. But, as with any streaming service, the quality of the sound would be dependent on carrier networks.

Will social media influence user preferences? Patrick McMullen, Senior Analyst at Fizziology, an analysis firm that focuses on evaluating social media to predict trends, felt that Spotify’s success was, in part, due to its deep Facebook (NASDAQ:FB) integration. Spotify enables the listener to share music and play lists with one’s Facebook friends and see what they are listening to in real-time. This whole process enhances the music experience.

Both Spotify and Rdio offer Facebook integration, allowing users to see what their friends are listening to in real-time. But McMullen said the social capabilities associated with Rdio weren’t up to the same standard as Spotify’s, which could be a disadvantage for Rdio going forward.

Of course, the intersection of social media and music isn’t for the faint of heart. For example, Apple last year shuttered its Ping social-networking service, which was built around the music available in Apple’s iTunes program. Apple’s failed Ping adventure remains a key signpost on the road between music and social networking.

Nonetheless, it’s clear that the integration of social media into the music experience will be a key element in the market in the future. Indeed, Netflix is already working to integrate Facebook into its video service.

Will preinstalled music apps have a leg up? While companies like Spotify and Pandora work to urge users to download their apps, others will be able to simply push their streaming music services directly into users’ lives. Apple is reportedly planning to launch its own streaming music service that the company could install directly onto iPhones and iPads via a software update.

Similarly, Amazon, with its Kindle devices and music catalog, could also give a streaming music service a preferential position on its own platform, thus locking in its customers right away. But both Apple and Amazon would need to provide a good product and not rest on their past reputations. Apple’s advantage would be its large mobile user base, while Amazon’s advantage would be that its users don’t install as many apps and would be more likely to use a built-in streaming music app, noted McMullen.

Will competition give rise to partnerships? Abel Nevarez, a research analyst with IHS Screen Digest’s Mobile Intelligence group, said that carriers, music service providers and platform/device manufacturers could look to form alliances in order to break into the global mobile music market. Such partnerships could also allow carriers to retain a position in a market increasingly driven by over-the-top (OTT) providers like Google.

Nevarez cited a number of current partnerships as possible examples of the future to come. He pointed to Microsoft’s partnership with Pandora for Windows Phone and Samsung’s deal with Universal Music for the carrier O2. Another key example in the partnership department is the teaming between Spotify and Deutsche Telekom–under the agreement, DT will bundle Spotify’s Premium service into users’ bills, and Spotify traffic won’t count against a user’s data allotment.

Indeed, some carriers are using streaming music as a way to set themselves apart. Leap Wireless launched its Muve Music service in 2011 in order to tap into subscribers’ desire for a simple and inexpensive music service–today the service counts more than 1 million subscribers. Now Leap plans to license Muve to other carriers. Nevarez said Muve Music could be particularly successful in emerging markets where prepaid services are popular.

Will Apple’s alleged price negotiations hurt it in the long run? Like Google, Apple is reportedly in negotiations with record labels to license music for its forthcoming ad-based music streaming service. The New York Post reported that Apple wants a rock bottom price of 6 cents per 100 songs streamed–half of what Pandora negotiated several years ago. Spotify is reported to be paying 35 cents per 100 songs, while the lowest rate set by the Copyright Royalty Board’s is 21 cents per 100 songs streamed.

Apple’s launch of an ad-based service would have a ready market in its large installed base of iOS devices and on its iTunes desktop applications. Moreover, listeners on those devices and applications would be well-positioned to purchase and download a song after listening to it on the ad-based streaming service–the extra revenue would be music to the ears of Apple’s shareholders.

But Apple could be stymied if it continues to push for inexpensive licensing terms.

What do you think of the points made in the article? Let us know on Facebook/Twitter.

To see this article in its original format, click here.