Beats Music has begun to lift the curtain on its streaming music service, which it says will go live later this month. In a New York Times story this weekend, the company made its case for how it will stand out in an increasingly crowded digital music market that includes the likes of Spotify and Pandora (P), as well as such Silicon Valley powerhouses as Apple (AAPL) and Google (GOOG).
Music streaming services in the U.S. have struggled to find a workable business model. Beats is marketing itself as a tastemaker, but its success may ride on a partnership with the squarest of companies: AT&T (T), the country’s second-largest wireless provider. Starting Jan. 21, Beats customers can pay $10 a month for the service either directly or via their monthly smartphone bill from AT&T.
For AT&T customers with a family plan, the carrier will subsidize subscriptions significantly: As many as five customers can access Beats for $15 per month, total, compared with the combined $50 they’d pay individually. AT&T customers will also get free trials of the service for 30 to 90 days, depending on their plans.
For Beats, this is a mainline to millions of AT&T subscribers, plus a payment model that piggybacks on a monthly bill they’re already paying. That’s important because paid streaming services have had trouble convincing American users to buy in, and Beats isn’t offering a free version. A subscription to Pandora’s premium ad-free service, Pandora One, costs just $4 per month, but the company still says it doesn’t expect many people to pay. Rather, it hopes to make most of its money from ads on its free service.
Hitching a music service to a wireless carrier has worked in places like Sweden, where Spotify subscriptions can be included in smartphone plans. There, the percentage of people using paid streaming services is four times as high as in the U.S., according to industry analyst Mark Mulligan.
Streaming services have reached several similar deals in the U.S., but not with both the subsidies and the scale. Spotify has agreements with American carriers to allow people to charge their subscription fees to their wireless accounts, and Sprint (S) markets the service. But the main benefit there is convenience. MetroPCS (TMUS) has offered discounted Rhapsody subscriptions to its customers, and Cricket Communications (LEAP) included its own streaming service, Muve, into its wireless plans. Verizon was reportedly in negotiations with Google this summer to bundle its music streaming service into its plans, but nothing has come of it.
Mulligan thinks such alliances are the best chance for streaming music in the U.S. He’s skeptical that the AT&T-Beats deal will make a huge difference, he says, because it’s not discounted deeply enough, though it’s better than anything its competitors can offer. “On the surface of it, this is a good high-profile partnership for Beats,” Mulligan says. “These deals are really a shot of adrenaline to the streaming services.”
Of course, it also has to give customers a reason to stay. Like its competitors, Beats will use an algorithm to create playlists. The most novel feature may be Right Now, in which users build playlists by telling the service things such as where they are, what they’re doing, and what genre they’re in the mood for. At the same time, the company is playing up the high-profile musicians in its DJ booth. In part, this consists of a timeless pitch in the music business: deriding your competitors’ tastes. If you’re going to allow an algorithm pick your music, wouldn’t you want it to be Dr. Dre’s?