Deezer buys mobile-focused Muve Music from Cricket / AT&T

Paris-based music streaming service Deezer has acquired Muve Music, the mobile-focused music service from Leap Wireless. Leap is a virtual mobile operator better known for its Cricket service, which was itself acquired by AT&T early last year. Details of the acquisition weren’t disclosed, but Deezer North America CEO Tyler Goldman told me during an interview at CES in Las Vegas this week that the acquisition was “material” for his company.

Muve Music has been a bit of an enigma for the industry; the music service was a huge success amongst Cricket users, and reached more than two million paying subscribers by the end of 2013. This made Muve one of the most popular subscription music services in the U.S., second only to Spotify. But part of Muve’s success was due to its close tie-in with Cricket, which at one point bundled the music service with all of its Android data plans.

Muve was also very much unlike Spotify and any of its better-known competitors in that it focused solely on music downloads as opposed to streaming, in part due to the lower data speeds for its customers. And Cricket operates as a prepaid business, which led some in the industry to wonder how much those Muve subscribers were really worth. I’ve talked to some industry insiders over the past few months who told me that AT&T asked for too much per subscriber, which may be one of the reason why the sale took so long: The operator had reportedly been looking for a buyer for Muve since at least May of last year.

However, Goldman argued during our conversation that the industry has been ignoring the typical Cricket customer, who tends to be lower-income and is more likely to be hispanic. He argued that catering to this audience is consistent with Deezer’s approach to online music, which is about segmenting the market. The company launched a subscription tier for HD audio aficionados last year, and has been looking to target other audiences with more fine-tuned tiers as well. “Almost every segment is underserved today,” he told me, adding that other services have been trying to sell the same product to very different groups of consumers. “That silver bullet strategy doesn’t work,” he said.

Deezer will offer Muve users a free trial, and afterwards only charge $6 per month, which is significantly cheaper than the typical $10 fee that competing music services are charging. It’s also a lot cheaper than Deezer’s high-definition audio service, which charges consumers up to $20 per month. Goldman said that the company plans to add tiers for additional segments over time, but also launch a bundle of multiple service components later this year.

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Cricket is Muving the mobile music needle

Mobile music has historically been a money pit for carriers. Delivering tunes over the network is a costly endeavor, and consumers are unwilling to pay a premium for accessing music on the go. So high-priced services have languished while users have turned to online streaming offerings like Pandora for their mobile music fix. But Leap Wireless’ prepaid carrier Cricket has a hit on its hands with Muve, which recently notched 200,000 users. Other carriers should be taking notes.

Muve’s fast-growing audience makes Cricket’s offering the second-largest subscription music service in the market, according to the Associated Press, behind Rhapsody. Rather than a stand-alone service, though, Muve is included in Leap’s $55-per-month all-you-can-eat plan for feature phone users, which also includes voice, data and messaging. Cricket recently rolled out a similar plan for Android phones for $65 per month.

The uptake has been dramatic. Muve’s audience has doubled in the past two months, and the average user downloads more than 400 songs per month and listens to music for two to three hours a day, according to Cricket. That success could be duplicated by other carriers if they focus on a few key factors.

Bundling music with voice, data and messaging

Operators have typically tried to mimic Apple’s iTunes by offering songs on an à la carte basis, but they can’t match Apple’s pricing model. Muve is not only packaged with voice, data and messaging but also includes ringtones and ringback tones. (Cricket claims to be second only to Verizon Wireless in ringback tone sales.) The French carrier Orange has taken a similar tack with its Deezer service, which earlier this year passed the half-million-user milestone. The strategy enables carriers to position their offerings as all-inclusive, music-centric mobile services rather than an iTunes or Rhapsody wannabe. And those services will become crucial for carriers looking to compete with Pandora, Rhapsody and others.

Minimizing traffic on the network

Cricket doesn’t cap its mobile data usage, so Muve users can enjoy as much music as they like for the flat rate. That won’t fly at AT&T or Verizon Wireless, though, where overages incur hefty charges. Downloading 400 songs a month eats up more than 1.5 GB, according to AT&T’s data usage calculator, which is three-fourths of that carrier’s biggest smartphone data plan. So postpaid carriers looking to tap the music market will have to find ways to deliver the goods while minimizing traffic on the network. Wi-Fi is an obvious solution, but carriers could also delay downloads and deliver them overnight, when traffic is much lighter, just as GoldSpot Media does with video ads.

Offering protected, subscription-based music

Muve songs are permanently tethered to the handset. Users can’t share them, can’t side-load them to a computer or other device, and the tunes are inaccessible when the subscription lapses. That strategy is not much of a hurdle for Cricket’s base of young music lovers who are drawn to prepaid services and who aren’t married to the idea of owning songs forever. More importantly, wrapping the tunes in DRM (digital rights management software) enables Leap Wireless to pay royalties based on an undisclosed percentage of the subscription fee rather than on a per-song basis. And that can make a huge difference in the music business, where per-song margins are razor thin.

Muve is the first U.S. service that makes unlimited music the centerpiece of a comprehensive mobile service, though fellow prepaid provider MetroPCS recently teamed with Rhapsody on a similar initiative. Those are still niche services that are targeted at younger music lovers, so they’re not much of a threat to tier-one operators. But Cricket has demonstrated that there’s money to be made in mobile music for carriers who can develop an innovative, attractive service. Operators like Sprint and T-Mobile USA should be paying attention.

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Can other network operators build a mobile music business?

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