Cricket Wireless' Muve Music targets underserved mobile consumers in its quest to become the No. 1 U.S. subscription service.
In the past, music was primary sold to people through brick-and-mortar stores. Then it helped technology companies sell handheld gadgets and computers. At some point, it also enabled unscrupulous website operators to make money selling display advertising. Now music is helping mobile carriers, cable TV companies and Internet service providers (ISP) to acquire and retain customers.
On Sept. 2, Cricket Wireless began putting digital music into the hands of its new subscribers. Muve Music, previously an opt-in service, become a standard feature on all new Android smartphones. "In a few months, we expect Muve to become the No. 1 subscription music service in the U.S.," Muve senior VP Jeff Toig says.
That's a bold statement, but it looks like a safe bet. Muve had become a breakaway success as a feature in its $55-per-month mobile service with unlimited music, voice, messaging and data. Launched in January 2011, the service had 500,000 subscribers by the end of the year and today has around 600,000.
Now Muve is seeking even more growth. Cricket, a subsidiary of publicly traded Leap Wireless, is now offering three plans-$50, $60 and $70-all with unlimited national talk and text, but various data limits-and all with unlimited music.
The genius of Muve is its ability to change the digital music math. A typical subscription service attracts the type of early adopter already likely to spend on digital music. The effect is like a proposed football stadium that politicians predict will create new jobs and spending, but ends up shifting the same amount of money between cities or counties.
Muve does more than shift around dollars -- it serves a demographic less likely to own digital music, credit cards or computers. When digital music is typically paid for by credit card on a PC, Cricket's prepaid customers are a group of consumers waiting to be tapped. Economists call this a latent market while others call it found money. Rhapsody VP of business development Brian McGarvey calls it a familiar path. His company has a deal with prepaid mobile provider MetroPCS that serves a group of similarly underserved consumers.
The mobile business is a cutthroat industry with companies all offering nearly identical services. Major networks Verizon Wireless, AT&T, Sprint Nextel and T-Mobile all sell unlimited services. Cricket also faces pay-as-you-go competition from Sprint Nextel, under the Boost Unlimited and Virgin Mobile brands, as well as mobile virtual network operators like TracFone, a prepaid service available at Walmart.
The way mobile carriers spend on music is just as serious. Virgin Mobile has sponsored Lady Gaga's 2011 Monster Ball tour and Britney Spears' 2009 Circus tour. Virgin Mobile Festival, a U.S. event, is a spinoff of the long-running, Virgin-sponsored V Festival in the United Kingdom. Verizon has sponsored Taylor Swift's 2009-10 Fearless tour, and earlier tours by Pearl Jam and Justin Timberlake. Tours sponsored by handset manufacturers is a long and separate list.
Music can help mobile and other telecommunications companies improve their bottom lines. In the second half of 2010, not long before the launch of Muve, Cricket was giving away the first month of service and offering discounts on handsets. As a result, according to Leap Wireless' 2011 annual report, many customers activated a new line only to receive a discount and free month of service. Net customer additions declined from 1.1 million in 2009 to 242,000 in 2010.
The introduction of Muve in early 2011, along with the ending of the deep discounts, helped reduce churn. Gross customer additions dropped from 3.2 million in 2010 to 3 million in 2011 because people were choosing to stay with Cricket and upgrade to new plans with better phones. The most important metric, net customer additions, grew to 415,834 in 2011 from 241,546 in 2010.
Using music as the basis for higher-value plans has worked. Cricket ended 2011 with more Muve subscribers (500,000) than net customer additions (415,834). And it has helped Cricket increase its average revenue per user, or ARPU, to $41.64 in second-quarter 2012 from $40.15 a year earlier.
Muve should be the country's largest subscription service by early 2013. Toig says 60% of new Cricket subscribers are Android users, and now all Android phones will come with the service. If Cricket matches its 2011 gross customer acquisitions (3 million), Muve would take on about 450,000 subscribers by the end of 2012, and add subscribers at a rate of 1.8 million per 12 months. It will lose some subscribers-mobile companies must deal with churn-and would need to double its current 600,000 subscribers to become the largest music subscription service in the United States.
With more subscribers comes more leverage. Toig says that Muve renegotiated deals with labels to include more favorable royalties based on expectations to deliver higher volumes of subscribers. Rhapsody's McGarvey says "hard-bundling" music with a mobile service, as Rhapsody has done with MetroPCS, merits lower royalties to rights owners. "There is wholesale pricing we can get to help make it more attractive because of the way it's bundled," McGarvey says.
Cricket is helping popularize and refine a concept that exists all over the world. Deezer has partnered with mobile carrier Orange in France. Spotify has teamed with mobile carrier/ISP Telia in Sweden. Rdio has paired with mobile carrier Oi in Brazil. MOG has partnered with mobile carrier Telstra in Australia. There are many other examples, but each represents ways to offer better bundles of services and improved billing options.
Music is valuable for keeping existing customers, too. Aspiro Music partners with major telecommunications companies in Sweden, Norway and Denmark to offer its WiMP music subscription service with mobile carriers, in addition to TV and Internet services. One partnership with Canal Digital in Norway makes WiMP available to 700,000 households through cable and satellite TV subscriptions.
The concept of music as a basic feature will eventually sink in stateside. "In my mind, music is becoming essential to the mobile experience, like voice mail and long distance was many years ago," says Michael Paull, executive VP of global digital business for Sony Music Entertainment. "Now they're generally included with all mobile carrier tariffs. We see a trend that consumers are demanding these services, they're engaged, they're enjoying them and, from what we're seeing-at least with Muve in the United States-it looks like they could be on the same trajectory."
In the future, look for competing services to partner with carriers, while Cricket exports its business model and adds to its already impressive subscriber numbers. "We are active in discussions with carriers outside the U.S. on international opportunities pertaining to the Muve platform," Toig says, "and work with others around the world on similar things Cricket has done in the U.S."