Mobile operators should ditch their music download stores and opt for partnerships with music streaming services if they want to generate more revenue and make customers stick, a study found.
A typical Western European operator -- with 20 million customers - could achieve revenue benefits of €77.7 million ($109 million) per year from new users, a rise in mobile data and smartphone sales according to a market research study released on Monday (Oct. 18).
Revenue saved thanks to a decline in churn would also contribute to that figure, research firm Informa Telecoms & Media said.
"Our research shows a large Western European operator could generate millions of revenue per year by partnering with a third-party music service -- significantly more than they would gain from offering their own service," Informa's analyst Giles Cottle said.
Mobile operators and handset makers, such as Nokia, have offered music download services in a bid to increase customer loyalty and grow revenues in their struggle to compete with Apple Inc's popular iTunes.
"The music download services operators launched prolifically over the last five years are commodities which have almost universally failed to deliver," said Adrian Blair, head of European business development at Stockholm-based music streaming service Spotify.
Unlike music download services where tracks are stored in one place, streaming services are suited to work on several platforms.
The study cites successful examples of operators such as Denmark's TDC, South Korea's SK Telecom and Swedish TeliaSonera who offer their own streaming services or, in the case of TeliaSonera, partnered with Spotify.
The companies managed to reduce churn and increase mobile data revenue by offering music streams that work on a range of devices, the study said.
While music as a whole is expected to account for only a small portion of non-voice revenue it is seen as a value-added service that can help operators to gain market share and sell more high-end smartphones. Mobile streaming services require the user to have a high-end device, crucial for operators as one of their key aims is to convert feature phone customers into users with more profitable smartphone customers.
Partnering with mobile operators also benefits streaming services such as Spotify or U.S. sites such as Pandora and Rhapsody which have generated millions of users but few sites are profitable.
Most sites are free for users and they have tried to build a big audience so they can earn money by selling display ads. That business model has largely failed because of the high license fees the sites must pay to music labels, so now most streaming services, notably Spotify and Deezer, are trying to shift users to paying for subscriptions.
Deezer recently inked a deal with France Telecom, which will help it boost subscriptions.