Mobile Giant Telefónica Takes Stake in Rhapsody International

In a deal that has the potential to rapidly expand its global footprint, mobile giant Telefónica will take an undisclosed stake in Rhapsody International, a wholly owned subsidiary of U.S.-based music subscription service Rhapsody.  As a result, Napster, Rhapsody's brand outside of the United States, has an opportunity to grow in Europe and Latin America.

Telefónica is using the partnership to help differentiate itself from competitors and offer its customers an improved digital experience, a Telefónica spokesperson tells Billboard. "After evaluating the options in the marketplace, Napster had the right product, the right focus on locally relevant content, the right label relationships, and the right expertise in working with mobile operators to most effectively meet Telefónica’s needs for digital music worldwide." The service will be offered in Brazilian Portuguese, Latin American Spanish and English.

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The move comes a month after Rhapsody, plagued by stagnant subscriber levels, announced a new investor, Columbus Nova Technology Partners, and a restructuring that impacted 15% of its staff, including president Jon Irwin.

Rhapsody International gets quick access to a large number of customers. Telefónica has over 200 million users in Latin America and another 100 million in Europe.

Napster should get immediate gains in Latin America. Sonora, the music subscription service of Telefónica subsidiary Terra, will offer its "hundreds of thousands" of subscribers the ability to transfer to Napster on November 1st. Sonora is available in Brazil, Argentina, Colombia, Chile, Peru and Mexico. Rhapsody has established an office in Sao Paulo, Brazil to help facilitate this deal and future operations in the region.

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The deal also presents Rhapsody International with the potential to expand its global footprint beyond Sonora subscribers. Telefónica operates mobile carriers in Europe, North America, South America and Central America. O2 operates in the United Kingdom, Germany, the Czech Republic, Ireland and Slovakia. Telefónica's Moviestar operates in Spain -- where it has a 39% market share -- and numerous Spanish-speaking countries in Central and South America. Telefónica operates under the Vivo brand in Brazil and has a market-leading share of 28.7%, although its lead is slipping to TIM.

Telecommunication partners are widely considered to be important growth drivers for music subscription services. Rhapsody and Rhapsody International already have a number of partnerships. In the United States, Rhapsody is available for $5 a month to subscribers of the prepaid mobile carrier MetroPCS. Prior to the deal with Telefónica, Rhapsody International's mobile partners included Vodafone in Greece and SFR in France.

But partnerships are relatively few, and no other partnership between music service and mobile conglomerate covers as much ground as the Rhapsody-Telefónica deal. With over 300 million customers, Telefónica is the world's fifth-largest mobile company, ranking behind China Mobile, Vodafone, Bharti Airtel and America Movil.

More such partnerships may occur as music subscription services become more mainstream and mobile companies look for competitive advantages. Subscription services are "a fast-growing trend" that is not a core competency of a mobile company, says the Telefónica spokesperson. "And as more customers adopt smartphones, the content they can have access to becomes even more important. This is why we are doing deals with the likes of Rhapsody so that we can bring compelling content offers to our customers."