Jimmy Iovine and Dr. Dre convinced a generation and their parents to buy $300 headphones they didn’t know they needed, bringing premium audio gear to millions of mainstream listeners for the first time.
The multibillion-dollar question is whether they can do the same with streaming music as Beats Music prepares to launch on Jan. 21.
As the momentum slows for digital downloads, the $16.5 billion global recorded-music industry is increasingly looking to paid music services like Beats Music to fuel growth.
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So far, subscription on-demand services have stayed stubbornly in the realm of music aficionados, despite being available to consumers since December 2001, when Rhapsody launched its “all you can eat” service. Today, only about 5% of adults in the United States and Europe pay for on-demand streaming, according to MIDiA Consulting.
The potential upside is that the small percentage already accounts for 20%-25% of overall digital music revenue, according to various industry sources.
“The challenge for Beats, and the industry, will be in reaching totally new customers, rather than continuing to super-serve the same set of hardcore music fans,” MIDiA principal analyst Mark Mulligan says.
Beats Music is betting it can break into the mainstream with a formula based on design and marketing — a combination that has worked for Beats Electronics, the Santa Monica, Calif.-based headphone and speaker company that spun off Beats Music a year ago as a separate company.
While Beats Music has yet to unveil its full marketing plan, CEO Ian Rogers says the company is taking a broad approach to getting the word out about its service.
Beats Music is expected to launch with about 30 partners, including Rolling Stone, Mojo and XXL magazines, all of which have contributed playlists to the service and will be driving their audiences to Beats Music.
Rogers says the company will add more partners in time, but that the initial batch were chosen to serve genres that listeners are clustered around. “We found that this is where audiences aggregate,” he says. “Then we sought out the most trusted curators for each of these genres and asked them to be our partners.”
A second component of Beats Music’s marketing plan involves promotions with retail and distribution partners, including AT&T, Target and Hewlett-Packard. AT&T, for example, will offer customers a seven-day free trial of the service. Afterward, Beats Music would cost $9.99 per month. For customers who sign up for AT&T’s family bundle, the service would come with a 90-day free trial, then cost $14.99 per month for up to five people and 10 devices. The agreement with Target calls for the retailer to give away 30-day free trials to customers who make a purchase from the chain’s electronics department. Beats Music has also started tucking free-trial vouchers into Beats Electronics’ packaged audio gear.
Beats Music also plans a slate of TV and digital ads, primarily video, display and social, says Rogers, who declined to say how much the company will spend on advertising. The most visible spot will air during the Super Bowl, ads for which cost some $4 million for each 30-second slot during the Feb. 2 game.
It will be that type of full-court-press, ubiquitous marketing and advertising that could very well push music subscriptions into the popular consciousness, Mulligan says. “If Beats can do the same kind of mainstream marketing that companies like Apple did with iTunes, then it will absolutely have a chance at popularizing music subscriptions,” he says.
Drawing an analogy with how Beats Electronics managed to persuade average consumers to splurge on a pair of headphones that cost $300, Rogers says, “Six years ago, people said that couldn’t be done. They said music players already came with headphones. Today, people are saying that phones already come with music-why would people want a premium service? It’s a similar situation.”