Looking to find a partner that can turbo charge sales of its soon-to-be-launched music streaming service, Beats Electronics has been quietly looking for a carrier partner that will bundle its upcoming subscription service with cell phone or data plans.
Beats has started discussions with a number of carriers, including AT&T, to bundle Beats music with their mobile services, according to several people knowledgable with the talks. No deals have been struck and negotiations are still in their exploratory stage, sources said.
Beats declined to comment.
For Beats, the primary advantage of partnering with a carrier is the ability to piggyback monthly fees on top of carrier bills, making it easier for consumers to pay for the music service and also less likely to cancel the service once payments are automatically integrated with an existing bill. Carriers such as AT&T can also leverage their existing relationships with millions of customers to sell them a music service on their new mobile devices.
For AT&T and other carriers, a music service has the potential to reduce customer churn, a costly phenomenon in the cell phone business. Telecommunications companies have looked to Cricket Communications' popular Muve Music Service as an example of how music can generate additional revenue and create an incentive for subscribers to remain with Cricket.
Beats' partnership with a carrier could function similarly to how SiriusXM Radio currently works with auto dealers. Car buyers are usually able to access Sirius' satellite radio service for free during a trial period. At the end of the trial period, they would be billed for the monthly service. Dealers are compensated for every listener they turn on to Sirius. Such an arrangement could also apply to a deal between Beats and a carrier.
AT&T is a natural first stop for Beats, which has an ongoing retail relationship with the carrier to sell the company's headphones and audio gear in AT&T's stores. Beats even created an exclusive version of its portable Pill speaker -- a Pink number endorsed by Nicki Minaj -- released just for AT&T stores this spring.
But the discussions to distribute Beats' music service, code-named "Daisy," is occuring with other carriers as well, sources told Billboard.
The music service hasn't even launched, yet it already has the involvement of some of the industry's most high-profile names. Trent Reznor last year joined Beats as creative chief. In January, Beats hired Ian Rogers, former head of Topspin and Yahoo Music chief, as chief executive. And in March, Daisy was on the receiving end of a $60 million group investment led by billionaire Len Blavatnik's Access Industries, which also owns Warner Music Group.
Beats isn't the only music company calling up carriers to talk about distribution. Spotify, Rhapsody, Slacker and Rdio also have telecom companies on speed-dial in the hopes that a partnership can help bring to mainstream audiences a music model that has so far captured an estimated 20 million subscribers worldwide. That compares with more than 6.8 billion cell phone subscribers globally, according to the International Telecommunications Union. Looked at another way, if Beats and other music services can capture even 1% of cell phone customers, music subscriptions would more than triple its current penetration.