Research Report
Aapo Markkanen
Industry Analyst, Consumer Mobility
Neil Strother
Practice Director,
Mobile Marketing Strategies and Mobile Services
These improvements in usability and accessibility lower the threshold for consumers to sign up
for paid-for subscriptions that enable mobile usage. The other main advantage that premium
subscriptions have over free offerings is the lack of advertising, but for users, this incentive is
seldom great enough to justify the upgrade.
Meanwhile, Pandora and other internet radio providers are also benefiting from smartphone
growth. In their business models, paid-for subscriptions are likely to remain a relatively minor
source of revenue, but at the same time, mobile usage can increase the total time consumers
spend listening to their content. Furthermore, mobile listening makes it possible for internet
radio stations to add location-based and personalized features to their campaigns, thus
making them more relevant to advertisers.
Besides transforming the actual listening experience, the addition of this new social layer will also
increase the stickiness of the subscriptions since many users may grow attached to the
communities they are involved in. Leaving these communities and “falling out of the loop” would
then be regarded as a social transaction cost of ceasing the underlying subscription. At the same
time, the social layer is impacting the creative side of the music industry by providing previously
unknown artists with a whole new way to bring their content to the market. Emerging artists can
distribute their songs to a global audience on a very minimal investment and without many of the
traditional middlemen, such as labels and producers.
SoundCloud, a German start-up, has taken the idea of combining music and social networking
perhaps the farthest. Not dissimilar to what Flickr has done in photography, the site’s model is to
act as a platform for users to store and collaborate on audio, as well as to explore and comment
on the content made accessible by others. Typical users are artists collaborating on songs and
releasing them to audiences. At the same time, SoundCloud has also attracted more casual
Globally speaking, the copyright system is very fragmented; each country has its own royalty
regime. There are typically different rates for physical music sales, download sales,
broadcast radio, interactive radio, and on-demand streaming. In many cases, the rates for
interactive radio or on-demand streaming are too high to allow subscription prices that would
be appealing to the mass market. Similarly, even if service providers would have the
commercial scope to set their subscription fees lower, copyright holders often require them to
keep prices at a certain level on the grounds that reduction would undermine the sales
delivered through other distribution channels.
The current standard for royalty payments is pay-per-stream, which requires the service provider
to pay the labels and collecting societies a set amount for every stream delivered. This means
that the cost of operating a streaming service will grow in direct relation to the number of
customers. Hence, from the service providers’ point of view, a revenue-sharing model – under
which royalty fees are calculated as a percentage of the generated subscription revenue – is
preferable. Going forward, ABI Research expects that the negotiating power of streaming service
providers versus copyright-holders will increase as streaming services become more of a mass-
market offering and traditional music sales continue declining.
encoding patent liabilities altogether. The technology’s legal standing against other encoding
formats has simply not been tested in court yet, presumably because so far no major firm (unless
Spotify counts as one) has taken the risk of building software on it, and Xiph.Org itself is a not-for-
profit player and thus an unattractive target for damage claims.
Section 7.
COMPANY DIRECTORY
Apple Inc Pandora
www.apple.com www.pandora.com
Aspiro Rdio
www.aspiro.com www.rdio.com
Deezer Shazam
www.deezer.com/en www.shazam.com
Dropbox SoundCloud
www.dropbox.com/ www.soundcloud.com
eMusic Spotify
www.emusic.com www.spotify.com
SugarSync
Groovershark www.maestro.fm
www.grooveshark.com/about
TDC
Last.fm www.tdc.com
www.last.fm
Telenor Group (HC)
Microsoft Corporation www.telenor.com
www.microsoft.com
TeliaSonera
MOG www.teliasonera.com
www.mog.com
Thumbplay, Inc
MP3tunes www.thumbplay.com
www.mp3tunes.com/cb/about
Universal Music Group
mSpot new.umusic.com
www.mspot.com
Vodafone Group Public Ltd Company (HC)
MySpace www.vodafone.com
www.myspace.com
we7
Napster www.we7.com
www.napster.com
YouTube
Nokia www.youtube.com/t/about
www.nokia.com
ALL RIGHTS RESERVED. No part of this document may be reproduced, recorded, photocopied,
entered into a spreadsheet or information storage and/or retrieval system of any kind by any
means, electronic, mechanical, or otherwise without the expressed written permission of the
publisher.
Exceptions: Government data and other data obtained from public sources found in this report
are not protected by copyright or intellectual property claims. The owners of this data may or may
not be so noted where this data appears.
Electronic intellectual property licenses are available for site use. Please call ABI Research to
find out about a site license.