Just over a week ago, US telco Sprint purchased a 33% stake in TIDAL for $200 million.
So why was SoftBank-owned Sprint willing to pay such a premium?
Now we know: because Sprint Corporation CEO Raul Marcelo Claure (pictured) is using TIDAL as a “test case” to see if exclusive content can help close the gap on rivals like AT&T.
Claure told investors in Sprint’s Q3 earnings call yesterday (Jan 31): “There’s a hypothesis in the industry that content is an important differentiator in wireless; this [acquisition] allows us to test the effect of exclusive content on customer acquisition and retention without us spending billions like our bigger competitors.”
He added: “Digital consumption of music has overtaken physical forms and TIDAL’s artists, owners, exclusives and focus on videos and events will help us differentiate it from the competition.”
Claure went on to explain that there were three reasons behind the nine-figure transaction – and all of them are about acquiring and retaining customers…
Reason 1: Become more ‘culturally relevant’
Claure admitted that he hoped TIDAL would “help us make our brand be more culturally relevant”.
Sprint has 45m customers, while rivals such as AT&T and Verizon have comfortably over 100m apiece – so if Sprint believes cultural relevance can help it catch up, no wonder Claure’s all for it.
“I think the next [audience] growth that we see is the Millennials, and we see what [TIDAL] has done is amazing in terms of putting together a great group of artists and being able to deliver exclusive experiences, exclusive content,” he added.
Reason 2: Exclusive content
According to research firm Strategy Analytics, Sprint was the fourth biggest US wireless carrier in Q3 2016, behind T-Mobile, AT&T and Verizon.
One of those telcos, AT&T, splashed an incredible $85.4bn in October on an as-yet-unapproved acquisition of Time Warner – owner of CNN and HBO amongst others, and the world’s third largest entertainment company.
This, undoubtedly, is what Claure was referring to when he mentions “testing the effect of exclusive content on customer acquisition and retention without us spending billions like our bigger competitors”.
“There’s a hypothesis in the industry that content is an important differentiator in wireless, and this allows us to test the effect of exclusive content on customer acquisition and retention without us spending billions like our bigger competitors.”
marcelo claure, sprint corporation
AT&T has already ventured into music content by partnering with Taylor Swift for her own video channel on its streaming service, and last year acquired satellite TV player DirecTV for $48.5bn.
Many believe it wants to use a swathe of Time Warner content exclusively to draw in customers to DirecTV.
Added Claure of Sprint’s plans with TIDAL: “We want to test a concept whether when you have exclusive content – in this case, music, videos, access to tickets – whether that can help us add more customers; so we use that as an acquisition machine and then, secondly, [are] able to provide this unique experience to our customers and let it use as a retention mechanism.”
Reason 3: Growing TIDAL
TIDAL, which is available in more than 52 countries and has a 42.5m+ song catalog and 140,000 high quality videos, could use Sprint’s help.
According to Midia Research, the streaming service finished 2016 with 1.0m paying customers worldwide – far smaller than the subscriber figure we’d been led to believe it had procured.
Competitors Spotify and Apple Music boast 40m and 20m paid subscribers respectively.
Claure isn’t worried.
“We think that if we put our 45 million customers, we work together and [use] our assets, we believe that we can make TIDAL grow substantially.”
marcelo claure, sprint corporation
“We think that if we put our 45 million customers and we work together and we put our assets behind it, we believe that we can make TIDAL grow substantially,” he said yesterday.
He concluded: “Again, it’s making our brand more culture relevant, being able to acquire and retain customers by utilizing exclusive experiences, and then helping TIDAL grow. So, this is our test.
“We’re going to push TIDAL very hard within our customers in the next few months. And I think it’s an inexpensive way to get into the exclusive content [game] and see if it’s able to drive the behavior that we think it might. It’s our first entry into content and we’re going to see where this takes us.”
Sprint posted a loss of $479 million in its fiscal third quarter – an improvement compared with the prior year’s $836 million deficit.
Its revenue in the three months rose 5.5% year-on-year to $8.6 billion.
Albums from Beyonce, Kanye West and Rihanna first arrived as TIDAL exclusives last year – the latter two of which were distributed via Universal.
Since then, UMG boss Lucian Grainge has reportedly banned streaming exclusives amongst his labels.
Will that tamper with Sprint’s ambitions?
The tension continues to mount.
Music Business Worldwide