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Vodafone Sings Its Own Praises

Vodafone Group plc (NYSE: VOD) claims it has the largest number of paying music subscribers in Europe with a customer base of just 450,000. (See Vodafone Boasts Music Uptake.)

The key words that qualify the operator's position are "paying" and "subscription," as opposed to free or per-track download services. By comparison, Spotify has 250,000 subscribers in Europe for the premium, fee-paying version of its music service. (See 3 UK Teams With Spotify and Spotify Launches App for iPhone, Android.)

Considering that Vodafone has 100 million customers across the eight countries where it offers the music services, less than half a million is, well, not a lot.

But a spokeswoman for the operator explains that the rate of growth is important, since it started the services only last year. In December 2009 alone, Vodafone signed up more than 100,000 music subscribers.

And there's room for further growth: Of Vodafone's 100 million customers in the countries where the music services are available -- Germany, Greece, Ireland, Italy, Netherlands, Portugal, Spain, and the U.K. -- 10 percent are regular data subscribers and 30 percent are data subscribers on a non-regular basis, according to the spokeswoman.

It's all in the bundle
In March 2009, Vodafone signed deals with Universal Music Group , Sony Music, and EMI Group plc (NYSE: EMI) to offer their music DRM-free (that is, without digital rights management) to both mobile phones and PCs.

Then in September 2009, Vodafone added Warner Music Inc. to its catalogue. The operator now has a music library of 2 million tracks and says that will grow to 6 million in 2010.

Vodafone attributes the subscriber growth to the service bundles it offers. Subscribers can get 10 MP3 tracks per month, which they then keep forever on their devices, for around €5 (US$7) per month.

Alternatively, subscribers can opt for the carrier's all-you-can-eat service, which gives unlimited access to the music catalogue as a streaming service, similar to Spotify, so the tracks are not downloaded and retained by the customer. This also retails at about €5 per month, or, when bundled with a broader data services package, can be accessed for as little as €3 ($4) per month.

Vodafone's early efforts at forging a music subscription service may be paying off, according to one analyst. (See Vodafone Grooves to MusicStation.)

"Vodafone has been one of the most aggressive [of all the operators] in bolstering music services on mobile phones," says Paolo Pescatore, director of operator strategy, applications, and content at CCS Insight . "It's very challenging for mobile operators to capture a sizable chunk of the music market, especially when people show that they have a lack of loyalty to their music service."

He adds: "The challenge for any operator is that their share of the revenue is about near to nothing on per-track downloads. This is why they've pushed subscription services -- the margin is higher."

Boosting data revenues
Music subscriptions are important to mobile operators because they contribute data service revenues. Vodafone has healthy data revenue growth, but data services still only generate a small proportion of its overall revenue.

In Vodafone's most recently reported quarter, ended September 2009, data revenues totaled £992 million ($1.6 billion), an increase of 27 percent compared with the year-ago quarter. But those data revenues accounted for just 9 percent of the operator's total quarterly revenues of £11 billion ($17 billion), which shows just how much room Vodafone has to expand these services.

— Michelle Donegan, European Editor, Unstrung

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