Spotify Said in Talks With Vodacom Over Music Deal in Africa

Spotify Ltd. is in talks with Vodacom Group Ltd. (VOD) on a partnership that would mark the music-streaming service’s first foray into the African continent, according to two people familiar with the matter.

Vodacom, a unit of Vodafone Group Plc (VOD), plans to offer its wireless customers subscriptions that include a limited amount of free data to access Spotify’s music library, said one of the people, who asked not to be identified because the matter is private. An agreement with the Johannesburg-based carrier would let Spotify enter Africa after starting in more than 56 countries since it was founded in Sweden in 2006.

The negotiations underscore the race among African telecommunications carriers to link up with content partners as music and movie downloads over the Internet and smartphones surge. MTN Group Ltd. (MTN), Africa’s biggest wireless operator, is in discussions with an Asia-based TV-content provider, people familiar with the talks said in April. Fixed-line carrier Telkom SA SOC Ltd. (TKG) has held talks with media companies including Netflix Inc. and Comcast Corp. about using its network to deliver content.

“It doesn’t mean that 30 million people in South Africa are going to be willing to pay a monthly subscription for a service like Spotify, but entering the market through this kind of partnership exposes the service to that many more people,” said Paul Verna, an anlayst at digital researcher EMarketer Inc.

Music Markets

Vodacom is considering content-sharing deals, spokesman Richard Boorman said in an e-mailed response to questions. He declined to discuss talks with specific partners. Alison Bonny, a Spotify spokeswoman, declined to comment.

The Vodafone unit’s shares fell 0.1 percent to 126.82 rand at 10:39 a.m. in Johannesburg, after rising as much as 0.5 percent earlier. Vodafone slipped 0.1 percent to 208.75 pence on the London exchange.

“There’s a great deal of excitement about the potential for developing the music markets in Africa and a lot of that is to do with the rising broadband penetration rates, but particularly mobile penetration rates,” Adrian Strain, director of communications at record label trade body IFPI, said by phone. “The spread of smartphones is forecast to be very impressive in the next few years.”

Vodacom has 31.5 million customers in South Africa. Spotify, the world’s biggest music-subscription service, has 10 million paying users while a further 30 million listen for free through ad-supported services on computers.

Content Coup

Should an agreement be reached, Spotify would compete in Africa against Finland’s Spinlet, London-based Rara Media Group Ltd. and Paris-based Deezer Inc., according to Steven Ambrose, chief executive officer of telecommunications advisory company Strategy Worx. Oakland, California-based Pandora Media Inc. is only available in the U.S., Australia and New Zealand.

“Spotify would be a big content coup for Vodacom if they are the first to offer it with free data access,” Ambrose said in an e-mail. “A tie-up with the country’s biggest mobile network will tip the scales on music streaming adoption in South Africa.”

In a market with below-average broadband speeds, South Africans spent 90 million rand ($8.4 million) on digital music in 2012, about 7.3 percent of the country’s recorded-music market, according to a report by PricewaterhouseCoopers. While the figure is set to rise to 132 million rand by 2017, or 14 percent of the market, that’s still a fraction of what Americans and western Europeans pay to download songs.

Vodafone, which owns 65 percent of Vodacom, said last month that bundling high-speed Internet access with content is driving higher data usage, a trend that may lead to an increase in monthly bills and help reverse service-revenue declines.

Last month, Vodafone said it would give U.K. users of its high-speed 4G service a six-month subscription to streaming movies and TV shows on Netflix.

To contact the reporters on this story: Christopher Spillane in Johannesburg at cspillane3@bloomberg.net; Amy Thomson in London at athomson6@bloomberg.net

To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net John Bowker

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