Market Insight

Beats launches music subscription service and partners AT&T for family plan offer

January 23, 2014

Jack Kent Jack Kent Director, Media and Advertising

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Audio equipment brand Beats Electronics has launched Beats Music an on-demand music service in the US. The service has a heavy emphasis on curation and has been in development since Beats acquired Mog July 2012. The Mog service, which is active in the US and Australia, will close on 15th April 2014.

The new service launches with a $9.99 per month basic tier providing access on up to three devices and drops Mog's ad-supported PC service. Beats has partnered AT&T to offer a $14.99 per month family plan which gives AT&T multiline customers access to the 20m track catalogue for five family members across 10 devices, billed through the customer's AT&T account.

Beats Music is available on iOS, Android, Windows Phone and desktop.


Beats is entering the already competitive US on-demand market with three key features:

  • An emphasis on curation that is intended to make it easier for consumers to find music that they want to listen to.
  • The partnership with AT&T that includes co-promotion and an exclusive family plan.
  • Pre-existing broad recognition as a music brand.

Even with these points of differentiation Beats Music faces an uphill battle gaining widespread adoption.  Several music services including Songza and Vevo tout personalisation and curation as unique to their services but marketing this type of feature is difficult. Convenience is what ultimately matters to consumers; personalisation can provide this, but translating that message to consumers is challenging.

AT&T brings three main elements to the Beats partnership: carrier billing; the family plan; and co-promotion. The first two of these have been tried in the US market with little impact so far. In December 2012 Rhapsody added carrier billing from AT&T (following  Verizon Wireless) but this had little impact on Rhapsody's US subscriber numbers while Spotify grew at the same time. Carrier billing has proved to be an effective way of improving adoption of third party services in markets outside the US where credit card penetration is lower.  A discounted family plan has not helped to drive Rdio subscribers beyond a relatively distant third place in the US on-demand market. It should also be pointed out that Rdio's $17.99 per month for two family members and $22.99 for three appear relatively bad value in comparison to AT&T and Beats.

As a result IHS believes that marketing muscle is the most valuable thing that AT&T brings to Beats as it launches a new, and purely in terms of feature list, fairly undifferentiated service. That marketing, combined with Beats strong, youth-oriented, consumer brand, should help drive family plans where parents are influenced by their children in a way that Rdio would struggle to match.

For AT&T the launch comes during a period of increased competition in the US mobile market. Fourth-placed US operator T-Mobile has innovated by removing barriers for US customers switching from other operators. AT&T will help reduce that churn by tying subscribers into a multiuser content service. This is typical of the shift in operator's content strategies where the aim has shifted from  generating incremental revenue in their own right to driving premium tier subscriptions and data plans (see our recent report Monetising Mobile: Strategic Content Trends and Best Practices and a forthcoming report on operator content strategies)

IHS believes that Beats and AT&T have potentially missed out on a key element that has proved successful for other operator music partnerships; that is bundling the cost of the service inside the wider premium tier mobile subscription and effectively obscuring the cost of the service in the standard monthly bill. This model has proved very successful for both operators and music services in numerous markets.

 In this case it has the potential of both providing a more pronounced value to the AT&T multiline offer and  driving adoption of the Beats Music service which has decided to eschew the freemium model that worked so well for Spotify but which never generated significant traffic for Mog. In a market where consumers have a variety of free services offering both radio and on-demand options, going paid-only avoids a potentially costly customer acquisition strategy but at the price of removing an important way of generating consumer awareness. Offering a fully subsidised family plan would have provided Beats and AT&T with a way to attract customers that is relatively new to the US market, while retaining the more sustainable cost structure of a paid-only model.

The leading on-demand subscriptions (Spotify, Deezer, Rhapsody, Rdio) have all made a concerted play to launch in a wide range of international markets; by contrast Beats Music is presently only available in the USA. It is likely that the company is in talks with Australian telco Telstra, which has had a partnership with Mog for some time, there is a notable lack of international reach. Beats Music may elect to adopt a slower international roll out plan than the more established players as its vaunted curation and personalisation may be difficult to scale to other markets. Emusic found that an editorial-heavy approach to discovery and curation was difficult to scale internationally. This geographic focus may not matter in the near term; launching internationally is expensive and music remains, in many respects, a local business. If nothing else, launching in the US-only allows Beats a way to avoid those additional costs as it refines its service.


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