Though streaming services have been pairing up with telecoms overseas for years -- French telco Orange has been an investor in local music service Deezer since 2010, and Spotify signed its 25th telco deal with Vodafone Ireland in 2013 -- these integrations are relatively new to North America, and present both growth opportunities and risks.
At their worst, telco deals can lead to more inactive, or "zombie," users for streaming companies: those who purchase a bundle and register with the service but don't actually listen to any music. Deezer's Orange partnership led the music service to lose 600,000 subscribers between December 2014 and June 2015, for instance, when many Orange customers gave up their wireless plans. Spotify's new alliance with Samsung could breed even more zombie streamers, according to MIDiA Research managing director Mark Mulligan, because "handset bundles typically have much lower activation rates than carrier bundles, so a handset partnership on a global scale could drive very high inactive [subscriber levels]."
And while Samsung users may now be much more likely to use Spotify than other services, it isn't clear how many will opt to pay for its premium tier as long as they can use the preinstalled app for free, especially in lower-income, under-banked, crowded foreign markets key to Spotify's future.
Streaming subscribers who pay through wireless plans also generally generate less revenue for the streaming company on average than those who pay the streaming service directly, according to analysts, due to the structure of the deals. That's worrying to some music industry executives, who are already fretting over Spotify's declining average revenue per user.
Still, the potential benefits of these pairings for streaming services are huge, as competition for customers continues to heat up. YouTube's new subscription service alone has signed up millions of new subscribers since it launched in June, sources tell Billboard. Spotify's new relationship with Samsung -- which boasts 21.9 percent of the global smartphone market, compared with Apple's 15.2 percent -- is crucial, since Spotify doesn't manufacture its own phones or speakers. Meanwhile, the cost of acquiring a new customer can plummet by as much as 60 percent with support from a mobile services provider, according to comScore Research. Major telcos also have deep experience with subscription products, not to mention tried-and-true tactics to reduce customer churn.
But in addition to demanding minimum-revenue guarantees and marketing commitments from the telcos, record labels are increasingly pushing for deals in which a wireless carrier offers customers a long-term free trial of the streaming service, then requires them to pay full price for the subscription when the trial expires. Says Mulligan: "Labels want to retain control over telco strategy."
A version of this article originally appeared in the Aug. 25 issue of Billboard.