The secret to the music subscription market may have been cracked by a wireless carrier that's targeting low-income consumers.
That's the conclusion of Bernstein analyst Craig Moffett, who detailed Muve, a music service offered by Leap Wireless. The wireless carrier owns Cricket, a prepaid phone service that is aimed at the folks that don't own an iPod and can't afford the infrastructure---PC, broadband connection, credit card---needed to pay 99 cents per song. Moffett quipped that a collection of 5,000 songs is enough to swap for a used car.
Enter Muve. Muve now has 100,000 subscribers over five months. That's not Apple growth, but not too shabby when you consider that Muve is only available on one handset on its Cricket network. Muve has been available in all Cricket markets for 2 months.
So what's the model?
The Muve service is "free." Actually, Muve is just bundled in a $55 a month cost of service with unlimited talk and data.
By integrating Muve with basic telecom service, Leap doesn't have to get credit cards and other details. Half of Leap's customers pay bills with cash. The majority of Leap customers are under 35 and make less than $35,000 a year.
Songs can be kept indefinitely and downloaded at no incremental charge. Muve customers take advantage by downloading 400 songs a month.
Leap gets to lower churn and make out as customers buy ringtones based on music.
The recording industry is happy since Leap has access to more than 50 label libraries, including the big dogs.
Overall, the service makes a ton of sense. Leap gets to keep its customers. Moffett noted:
The lock in value for churn reduction is obvious. With more than 100 million songs downloaded in the few months since the service's inception, the average customer's library is also around 1,000 songs at this point. To switch providers would mean abandonment of a library with a notional value of $1,000, not to mention the investment in time and effort to have assembled the library in the first place.
Leap's Muve Music is one of the clearest strategies we've seen in the media/telecom space for addressing the affordability issues we've raised in our Poverty Problem