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Digital Music Services Could Earn UK ISPs £100m By 2013 March 10, 2010

Posted by David W. King in Uncategorized.
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Digital music services could generate more than £100m of potential direct revenue for UK ISPs by 2013 according to a new study1 conducted by global industry analyst Ovum, commissioned on behalf of the BPI has found.

Ovum found that if all the Tier 1 UK ISPs2 launched bundled digital music services in 2010, this market could be worth £103m by 2013 in a medium adoption scenario, equivalent to 41% of the total retail value of the UK digital music market in 2009. Ovum also calculates that an accelerated service-adoption scenario could push the bundled digital music services market to as much as £203m in 2013.

Additionally, Ovum found that bundled music services would help reduce the cost of ISP subscriber churn. A big ISP with around 3.5m customers would generate indirect value of more than £20m per year if its bundled music service cuts churn by just 10%.

Ovum interviewed several digital music service providers, content platform producers and ISPs offering digital music services today to examine the economic case for the provision of on-demand digital services by ISPs. Their report concluded that ISPs are a critical channel for the provision of future digital music services.

The revenue prospects for bundled ISP music services would be substantially increased if services were offered to consumers in tandem with meaningful action to tackle illegal music downloading.

Geoff Taylor, BPI Chief Executive, welcomed the report: “It’s increasingly clear that it isn’t smart to be a ‘dumb pipe’. This report shows that the revenue potential of digital music services alone makes sound economic sense for ISPs.”

“UK music companies want to innovate and develop exciting new digital offerings. ISPs such as Virgin Media have recognised that legal digital music services offer a more exciting and profitable future than continued widespread piracy.”

UK broadband access services are reaching saturation and the market is maturing, according to Ovum. At the same time, competition and service bundling are driving down broadband retail prices and consumer demand for rich internet content such as video is increasing wholesale network costs.

Against this challenging backdrop, legislative changes and the growth of connected rich-media devices alongside new licensing frameworks present a strong case for ISPs to leverage their brand and billing relationships to deliver digital music services.

Ovum considers the blueprint for success is for ISPs to pursue a strategy based around a subscription streaming service incorporating bundled download-to-own tracks and additional recommendation-driven retail. This would fulfil a strategic objective for ISPs – implementing value-added services to their product portfolios, creating a sustainable way to participate in the demand for rich digital media.

Adrian Drury, the report’s co-author and Ovum’s principal analyst, said: “With the right service platform, user experience and merchandising strategy, ISPs have an opportunity to reach a green-field digital music market that mainstream download-to-own services such as iTunes do not reach today.”

“The opportunity in revenue terms for the leading UK ISPs is compelling, and in a crowded, increasingly mature broadband market, ISPs can differentiate their value-added offerings with innovative music services.”


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