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Mobile Communications October 2015 Viewpoints

Technology Analyst: Frederick C. Dopfel

Music Streaming on Mobile

Why is this topic significant?

Streaming-music services, rather than song-by-song music sales, now appear to be the dominant choice for buying music, imposing burdens on mobile services but perhaps also creating opportunities for them.

Description

Growth of streaming-music subscriptions in lieu of song-by-song sales has increased in recent years. Popular services include Amazon Prime Music, Apple Music, Google Play Music All Access, Groove Music, iHeartRadio, Milk Music, Pandora, Rhapsody, and Spotify. Stakeholders throughout the value chain are competing for shares of the streaming-music marketplace. For example, smartphone OEM Samsung offers its own service, Milk Music; operating-system providers Apple, Google, and Microsoft run Apple Music, Google Play Music All Access, and Groove Music, respectively; and mobile-service-provider T-Mobile has partnered with Rhapsody to bundle streaming music into some of its music plans. However, heavy use of music-streaming services can place a heavy burden on mobile network carriers and degrade device and battery performance. Therefore, it is odd that so many players in the value chain are encouraging streaming-music services. Paradoxically, T-Mobile is not only encouraging subscriptions to music-streaming services but encouraging heavy use of them by zero-rating data used by certain music-streaming apps—even the ones it hasn't partnered with.

A proposed reason why stakeholders are investing in streaming-music technology is that it is highly lucrative, but reports show that high royalty fees keep streaming services operating on, at best, thin margins. More likely is that stakeholders hope to lock in customers to their own ecosystems or at least create brand loyalty. For example, Apple music works on only Apple products, and Samsung Milk requires an Android phone, Rhapsody subscribers are likely to stay with T-Mobile for a discount, and Amazon Prime Music, Google Play Music All Access, and Groove Music and may help tie users into Amazon's, Google's, and Microsoft's ecosystems, respectively.

Implications

Streaming-music services occupy large amounts of bandwidth that song-by-song music sales didn't require. One remedy for streaming's increased bandwidth demands is Wi-Fi caching of playlists. Wi-Fi caching is an option in virtually all major streaming-music services and allows users to reduce mobile-data requirements substantially by downloading songs or playlists in advance over an unmetered Wi-Fi connection. "Asynchronous Data Use" in the September 2015 Viewpoints outlines Wi-Fi-caching technologies. But Wi-Fi caching only partially satisfies users' desires for discovering new music during extended listening sessions.

Impacts/Disruptions

The growth of music-streaming services has had an effect on how many users choose to purchase music. Indeed, song-by-song sales of digital music have been contracting for some years, whereas music-as-a-service subscriptions have been growing steadily and appear to even be reining in growth of music piracy.

A move to service-based consumption may also substantially change storage requirements for mobile devices. Most subscribers are likely to cache only their favorite or most-played songs offline, and many subscribers—especially those who are heavy users of "radio" features—are unlikely to cache any data at all and thus can reserve the limited storage space on their phones mainly for apps and photos. Previously, many people needed much storage on their smartphones to store copies of their entire libraries locally.

Scale of Impact

  • Low
  • Medium
  • High
The scale of impact for this topic is: Medium

Time of Impact

  • Now
  • 5 Years
  • 10 Years
  • 15 Years
The time of impact for this topic is: Now

Opportunitites in the following industry areas:

Advanced precaching algorithms, music licensing

Relevant to the following Explorer Technology Areas:

Smartphones as a Service

Why is this topic significant?

Wireless services often use subsidies to hide the cost of premium smartphones and keep customers locked into long contracts. In recent months, wireless carriers as well as Apple have introduced monthly plans that allow users to replace their phones quite frequently.

Description

Cellular services have long used subsidies to lock in customers to long contracts. Now, new monthly payment plans let users take home a late-model smartphone with no up-front costs and to upgrade phones once a year or more. The plans further lock in customers to their service providers—because anytime they upgrade they are at least one year away from the completion of their contract or payment plan—and then extend their contract or payment plan to two years in the future. Plans include AT&T Next, Sprint Easy Pay, T-Mobile Jump on Demand, and Verizon Edge. In short, these new plans hide an increased subsidy in an additional monthly charge but allow subscribers to upgrade relatively often.

Service providers have a history of financing handsets, but the cost of upgrading has been somewhat unpredictable. In contrast, at Apple's 9 September 2015 event, Apple announced iPhone Upgrade Program, a service with a flat monthly fee that allows users to trade in their iPhones for new, AppleCare-supported models annually. Apple, like cellular services, likely developed its program to further lock in users to their ecosystem, because users are effectively prepaying for their next iPhone before Apple even announces it. Many plan participants will likely take home more expensive smartphones then they would have otherwise acquired, because the increase in monthly fees hides the true price of the phone. Other smartphone OEMs might emulate Apple's upgrade plan. Such plans will likely help OEMs keep product life cycles short and increase sales and may be a defensive reaction to reports that premium smartphone sales are slowing and replacement times increasing as innovation slows (as "Possible Contraction in Smartphone-Sale Growth" in the March 2013 Viewpoints discusses). Stylistic changes to smartphone exteriors could create social pressure for users to upgrade faster as well, as occurs in the fashion industry today.

Implications

Adoption of monthly payments for guaranteed access to smartphone upgrades, especially plans that require users to trade in a phone to upgrade, transforms the distribution of smartphones from a product business to a service. In developed countries that offer these plans, users will likely upgrade more often than at present and thus run more up-to-date hardware and software, enabling larger audiences for applications that use new features or are very system-resource intensive. An increased base of users who have the latest offerings would increase homogeneity and reduce fragmentation, making it easier for developers to program and optimize apps.

Impacts/Disruptions

Most of these plans require subscribers to trade in their old phones. Presumably, service providers are refurbishing these phones and reselling them for use in emerging economies. These plans may create a glut of used premium phones, which may affect revenues for low-end smartphone manufacturers. Although low-end-smartphone adoption is growing much faster than developed-world replacement rates, these plans may have long-term implications for developing-nation markets as such markets begin to saturate in the next decade.

Scale of Impact

  • Low
  • Medium
  • High
The scale of impact for this topic is: High

Time of Impact

  • Now
  • 5 Years
  • 10 Years
  • 15 Years
The time of impact for this topic is: Now

Opportunitites in the following industry areas:

Existing carriers, premium smartphones, smartphone-planned obsolescence, resource-intensive software, OEM lock-in, cloud storage and sync, data-migration programs

Relevant to the following Explorer Technology Areas: