September 10, 2012
By Glenn Peoples, Nashville
If the smartphone is the gateway to digital music growth, the United States has got a ton of potential. Data from mobile analytics company Flurry show 165 million iOS and Android devices in the U.S. in July. The country’s 78% smartphone penetration rate for adults 15-64 was the fifth highest in the world (behind Singapore, Hong Kong, Sweden and Australia).
Smartphone penetration matters because music subscription services charge more for mobility — $10/ €10 per month compared to $5/ €5 for PC access — and partner with mobile carriers to subsidize the cost of that most expensive tier of service. “Consumers will pay for convenience,” goes the old adage. Mobile music is all about convenience because the smartphone is all about convenience. Muve Music has proved that adage to be correct. Formed by Cricket Wireless in January 2011, the music service is part of an all-in-one prepaid mobile service. Muve Music ended 2011 with 500,000 subscribers and now officially — although the number is a bit outdated — has around 600,000 subscribers.
Japan, the second-largest digital market in the world, is virgin territory for new digital models. The country is filled with music lovers but is stuck on CDs and downloads: 75% of its 2011 revenues came from physical goods and 73% of its digital revenues came from downloads, according to the IFPI. Subscription models will find it tough going through mobile carriers in Japan since the country has only 22 million iOS and Android devices. The country is dominated by feature phones — although that is slowly changing. According to comScore, monthly sales had tipped in favor of smartphones in February. In the three months ending in February, comScore put the Japanese market shares at 23.5% for Sharp, 13.8% for Panasonic, 11.8% for Fujitsu, 9.7% for NEC and 7.5% for Sony. Apple had only a 6.5% share.
The sweet spot are those countries with high numbers of smartphone owners and high digital spending: the U.K., Germany, France, Canada and South Korea. Spain sits next to Brazil on this chart (13 million iOS and Android users, ranks 14 and 15) but Spain is relatively more attractive than Brazil because of its higher per-capita GDP. Spain is home to Spotify and Deezer while Rdio launched in Brazil in November (ad-supported video service Vevo expanded to Brazil in August).
Business models will vary by market. China has a booming smartphone market but a relatively small digital music market (#12 in 2011) of $50.4 million for 1.33 billion people and 126.6 million households with broadband connections. With such low per-capita spending on music, smartphone-based subscription models common elsewhere will be late to China.