Cricket Wireless has the music industry feeling chirpy

The cellphone carrier’s MuveMusic service has helped labels tap a vast underserved audience: people who can’t afford computers. Muve users can download songs directly to their phones. In less than a year it has grown to more than 500,000 subscribers.

Cricket's MuveMusic service

Cricket Communications’ MuveMusic service is doing so well that music labels are using Cricket as a platform for introducing up-and-coming artists. Above, pop singer Jason Derulo gives Muve subscribers a free concert in Chicago. (Joel Wintermantle, Chicago Tribune / December 10, 2011)

By Alex Pham, Los Angeles Times February 7, 2012

Reporting from San Diego—

For the embattled music industry, hope lies inside a small corner store in the City Heights section of San Diego.

In a neighborhood chock-full of Mexican, Vietnamese and Somalian restaurants, Larry Woelfel, a 40-year-old unemployed lab technician, waited with two dozen customers to buy cellphones and service from a San Diego company called Cricket Wireless.

By also signing up for Cricket’s MuveMusic digital music service, Woelfel illustrates Cricket’s emergence as one of the music industry’s best hopes for tapping a vast underserved audience.

Ravaged by piracy, plummeting sales of CDs and a proliferation of free, legal alternatives such as YouTube, the music industry’s sales have fallen from $29.4 billion in 2005 to $17.3 billion last year, according to Enders Analysis. Now record companies are scrambling to find new sources of revenue.

Cricket customers like Woelfel, who pay as little as $45 a month for unlimited text, talk and data, are plunking down $10 more for unlimited music.

Although the music industry’s piece of that monthly fee is minuscule, more than 500,000 people have signed up for Muve since the service launched in May, placing Muve among the three largest premium, on-demand digital music services in the country. Rhapsody is No. 1, with 1 million paying customers, and Muve and Spotify are neck and neck for No. 2.

What’s more, Cricket’s customers come from a slice of society largely ignored by companies peddling cutting-edge technology and digital media. More than half of the service’s subscribers are African American or Latino and earn less than $50,000 a year. Fewer than 35% own laptops. Cellphones are the center of their digital lives.

Cricket started in 1998 as an international phone company serving Latin America, selling an all-you-can-talk deal to customers without credit cards. Later Cricket brought the same offer to the U.S. The company learned its customers were obsessive about ring tones.

“We realized that music was very important to our customers,” said Jeff Toig, Cricket’s general manager for MuveMusic. “Most of them didn’t have computers. They didn’t have iTunes. They weren’t subscribing to Rhapsody. They told us about the trouble they went through to get music on to their phones. For them, it was a point of pain.”

So Toig and other Muve executives spent two years developing the service and a hack-resistant memory card that would hold thousands of songs and deliver incremental profits to music companies. When Cricket introduced a test version of the service a year ago in Las Vegas, lines formed out the door and down the block.

A typical customer is Pamela Mitchell, 39-year-old founder of the Washington., D.C., nonprofit group Hip Hop Scholars, which promotes educational achievement through urban music. Mitchell signed up with Cricket in August for a package that costs 5% less than her old Sprint service.

What sold her was the all-you-can-download music, which has transformed her habits as a music consumer. Before she got Muve, neither Mitchell nor her teenage son were active music buyers. She listened to old CDs; her son listened to YouTube.

Now she spends three to four hours a day listening to music on her phone. At work, she uses the service to play songs for her music appreciation and history class.

So far, Cricket has gone largely unnoticed by the musical digerati. The tiny cellphone carrier has just 5.9 million customers, or less than 2% of the U.S. cellphone market. Since its 1998 start, Cricket has offered service in 65 cities nationwide. In September, the company announced its presence in Los Angeles with bus bench ads and billboards.

Cricket’s growth partly stems from its business model. Unlike giants AT&T Inc. and Verizon Communications Inc., the company requires no annual contract. And unlike competitors Rhapsody and BlackBerry Music, Cricket does not send its customers a separate bill for music. The cost is included in a single monthly bill.

Music labels are thrilled with the arrangement, which gives Cricket’s label partners — Universal Music Group, Warner Music Group, Sony Music Entertainment, EMI Music and independent labels represented by Merlin Network and INgrooves — a steady stream of revenue.

“The engagement we’re seeing on the service is incredible,” said Stephen Bryan, senior vice president of digital strategy at Warner Music Group in New York.

The partnership is going so well that labels are using Cricket as a platform for introducing up-and-coming artists, such as Jason Derulo, a pop singer signed with Warner Music Group who recently gave Muve subscribers a free concert in Chicago.

Other digital music services — such as Pandora, Sirius XM and YouTube — have millions more users. Cricket’s Muve, however, sits in the paid premium category. Record companies receive a higher royalty rate than with other types of music services — a fixed amount for every Muve subscriber. The amount, which is undisclosed, is divided among record companies according to how often songs in their catalogs are played.

Each month the average Muve customer listens to music on his or her Cricket phone about 40 hours and downloads 300 new songs, drawing from a catalog of 5 million songs, a number expected to grow to 10 million titles by the end of this year.

That translates to only a fraction of a penny per song played on the Muve service, but those pennies can add up. With 500,000 subscribers paying $10 a month for music, Cricket collects $60 million a year in added revenue. Although the companies don’t disclose what portion goes to music labels, executives knowledgeable about the figures say the labels combined get 20% to 50%.

“These are brand-new customers who previously spent little or no money on music,” said Rob Wells, president of Universal Music’s global digital business. “It’s a demographic that the music industry has had tremendous trouble reaching. For us, being able to tap into a new segment of consumers has been invaluable.”