Is there a commercial argument for ISP music services?

ISPs are missing out on a share in the revenues earned by digital content providers, which are delivering everything from music to video and e-books over the top (OTT) of the Internet access provided by ISP networks. With the commoditization of broadband access, value-added services (VASs) – including music services – have become a key potential contributor to ISPs’ revenue growth. With ISPs’ need for VASs in mind, Universal Music commissioned Ovum to produce the following white paper that attempts to answer the question “is there a commercial argument for ISP music services?”



Report Highlights

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Executive summary
In a nutshell
Ovum view
Key messages
There is a case for ISP digital music services
Digital music services can also reduce churn
A defined execution framework is required
ISPs are a new distribution channel for subscription-based music services
Challenges facing the ISP industry in the UK
Broadband access is a mature market
Complex relationships with media owners
ISPs hold some strategic high ground
ISPs should try to grab a share of digital entertainment revenues
The digital music market landscape
New consumption choices for the consumer
Digital retail: download-to-own
Ad-supported and subscription web streaming
Illegal file-sharing
The future? DRM-free, high-volume MP3 download services
Multi-platform music: unified services on the TV, phone, and PC
Strategic opportunity and challenges
Catalysts for examining digital music
Challenges
iTunes dominates retail
Disruptive application service providers are providing low-cost streaming music services for digital natives
ISPs are regionally focused in a business that rewards scale
The opportunity
The ISP digital music business case
A model for the cost base of ISP digital music
Assumptions for the commercial model
Service adoption assumptions
Platform and operational cost assumptions
Direct and indirect revenue assumptions
Service strategies for ISP digital music services
Strategy 1: unlimited streaming with a high-volume download allowance
Strategy 2: low-cost unlimited streaming with additional retail
The future case for ISP music services
DRM-free, high-volume, download-to-own subscription services
Commercial model simulation assumes best practice
Six best practices for digital music services
1. Offset operating margin risk
2. Strong user experience and a robust service platform is vital
3. Differentiate the music service experience
4. Exploit multiple sources of direct and indirect value
5. Target both service user and bill-payer
6. Explore partnerships with branded music service providers
The potential size of the ISP digital music market in the UK
ISP digital music market could top £100 million by 2013
Potential value of music services for a tier-1 ISP
Reduction in churn
Implications for ISP music services
Digital music services can generate revenues for ISPs





List of Figures
Figure 1: Cumulative net earnings analysis – premium ISP digital music subscription services
Figure 2: Cumulative net earnings analysis – premium hybrid ISP digital music subscription and retail services
Figure 3: Potential UK ISP digital music market size: low, medium and high scenarios


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