Business Matters: Mobile Phone Study Brings Both Good and Bad News for Digital Music Services

By Glenn Peoples, Nashville
October 22, 2012

Nearly half of the world’s population has a mobile-phone subscription, according to a new study. The bad news? Just a fraction of those people can subscribe to the music services of Western markets.

The world’s mobile phone population is often reported in a way that overstates the number of people with mobile phones. A World Bank press release from July, for example, implies the 6 billion mobile subscriptions worldwide reach about three-quarters of the world’s population. That implies there are 8 billion people on the planet — too high by around 1 billion people.

If the numbers aren’t overstated, the addressable market is overstated. If there are 5 billion or 6 billion mobile subscriptions worldwide, not every one of them is a potential subscriber to music or other media services. What sells in developed countries doesn’t necessarily sell in the rest of the world.

study by the GSMA should put to rest the subscription-versus-subscriber issue. It found 45% of the world’s population has a mobile-phone subscription in 2012, and forecasts that 53% of the population will have a mobile subscription in 2017. The organization, which represents mobile operators worldwide, studied not just the number of mobile devices in the geographic areas of the world but also the number of individual number of subscribers in these regions.

The GSMA found high subscriber penetration in developed countries. Denmark, Finland, Germany and the U.K. already have close to 90% subscriber penetration. Subscriber penetration is highest in Europe, where it will grow from 75% in 2012 to 80% in 2017. North America’s penetration will grow from 69% in 2012 to 70% in 2017.

Future subscriber growth will be driven mostly by demand from the 1.8 billion currently-unconnected people in developing countries. The GSMA’s report shows only 33% of Africans and 39% of people in developing countries are mobile subscribers in 2012. Mobile subscription penetration in Asia will grow from 40% in 2012 to 49% in 2017. China, the world’s largest mobile market, will see its mobile penetration grow from 43% in 2012 to 52% in 2017.

The GSMA report does not cover mobile Internet access or type of mobile phone used. These factors vary by country and are important for the diffusion of music and other media services.

Fortunately, a recent United Nations report sheds some light on mobile broadband penetration. The “Measuring the Information Society” report includes the ICT Development Index (IDI), a tool the U.N. uses to rank I.T. performance and affordability of services.

South Korea topped the IDI in 2011 with 84% of the country online and “very high” penetration rates of both mobile broadband and fixed broadband. Sweden ranked second. Its mobile broadband penetration of 92% is the highest in Europe. Denmark ranked third. The United States ranked 15th.

The IDI turns out to be a pretty good measure for market preparedness for digital music services. Countries with a high IDI tend to have a mature digital music market. South Korea’s recorded music market was 54% digital in 2011. Sweden’s recorded music market was 44% digital and 45% physical in 2011.

Developing countries, in spite of their economic heft and large populations, rank well below developed countries in this report. Brazil — where Vevo and Rdio have launched — is No. 60 in the IDI. Its mobile broadband penetration rate doubled to 21%, the highest in Latin America.

Another developing country with great expectations lately is India, but it ranks in the bottom quartile in the IDI (No. 119 out of 155 countries). Although the country has over 1.2 billion people and a large middle class, it has enough unconnected people within its borders to rank among Cambodia, Gambia, Myanmar and Nepal at the bottom of the list.

The bad news for mobile growth prospects should be obvious. Since much of the mobile growth will come from developing countries, growth will primarily come from countries with high costs and low income. According to the U.N. report, the countries with the most expensive cellular service are all low-income, developing countries and 24 out of 25 are in Africa.

As a result, a music service can’t simply plant its flag in any country in the world and expect a result as good as the one before. Every country has unique infrastructure, per-capita incomes and regulations that will determine how successful a music service will be there. In other words, not every country can be a Sweden or South Korea.

Crosby, Stills and Nash Release iPad App
Crosby, Stills and Nash have released an iPad app developed by Contendis that allows fans to subscribe to exclusive content, updates and premium fan features. Think online fan club without access to concert tickets. The band is calling it the first subscription-based iPad app for a recording artist to be approved for sale in the Apple App Store.

The app is free to download. A subscription costs $3.99 per month or $39.99 per year and can be purchased within the app. Because Apple takes a 30% cut of all in-app subscription revenue, in-app payments are not seen in subscription services such as Spotify or Rhapsody. They don’t have 30% margin to lose. But in-app subscriptions aren’t uncommon when margins aren’t so tight. For example, Blue Note’s new iPad app developed by Groovebug also uses Apple’s in-app subscription.

Contendris uses its Artist2Fan web-based content management platform for its artist apps (Crosby, Stills and Nash is first out of the gate). The platform allows artists to create flash sales, sell merchandise, upload exclusive content for fans and integrate the artist’s music catalog that’s already for sale in the iTunes Music Store.