THE MTN ’TIDAL' WAVE
Emerging markets are the next frontier for growth in music streaming. Although developed markets such as the US, UK, EU and Australia are…
Emerging markets are the next frontier for growth in music streaming. Although developed markets such as the US, UK, EU and Australia are currently the largest source of subscribers and revenue for the major digital music service providers, growth is flattening in these territories due to near total market penetration and rising content licensing costs.
Thus, the major (US based) service providers have begun to turn their attention to developing markets, focusing first on Latin America (including Brazil), then Asia, and now Africa. It is in this context that Tidal’s recent deal with MTN in Uganda can be better understood.
WHO BENEFITS MORE?
On the face of it, the deal is more beneficial to Tidal than MTN. Tidal, a relatively new streaming service, is struggling with subscriber growth (currently estimated at around 3 million subscribers) and would greatly benefit from securing a significant share of the continent’s estimated 30 million music subscribers (as well an addressable market of over 300 million mobile internet subscribers) to bolster it’s subscription numbers. The platform however does have a strong repertoire of modern US urban music catalogues and the added brand pull of having superstar global artists holding equity.
MTN, on the other hand, is a well established company that is the biggest mobile network provider in Africa. The operator is also the continent’s largest music distributor, generating over $70 million across all it’s African territories in the first six months of 2016 (compared with Tidal’s maximum potential subscription revenues from its current subscriber base — estimated at 30 thousand paying subscribers — being just over $7m per annum).
It already has almost half the market share of the entire telecoms subscriber base on the continent, (with 55% market share in Uganda - up 5.5%), as well as enjoying strong growth in overall service revenues across its territories.
Given Tidal’s difficulties in gaining market share in developed markets it makes sense that it is trying to position itself to corner the next growth frontiers, Africa being the final frontier. Of course it must be noted that Tidal has been available in South Africa since 2014 - at its standard (data exclusive) dollar-denominated monthly price.
However, this new partnership with MTN can rightly be regarded as its first real entry into the continent as evidenced by the subscriptions being denominated in local currency with 1, 3, 7 and 30 day subscription options that are more in line with the economics of digital music distribution on the continent.
WHY UGANDA?
There are 10.8 million MTN subscribers in Uganda. It can be reasonably estimated that of that number 7.5 million are internet subscribers (applying the same internet to network subscriber percentage rate as that of Nigeria, namely 71%). Of that number it can also be estimated that around 11% (or 825,000) will subscribe to the music service (applying the same music to internet subscriber percentage proportion as that of Nigeria).
This level of potential subscribers would not move the needle enough to have any material impact on Tidal’s financials, nor the perception about the company’s prospects.Thus certain questions arise as to why Uganda would be the first point of entry, especially when there are much bigger market opportunities.
The simple answer is that this is almost certainly a testing ground for the parties to observe local market demand for and engagement with Tidal’s rich US urban pop content offering, gather consumption data, and refine business and pricing models before making a play for the bigger territories.
Additionally, MTN’s Ugandan operations have shown slower revenue growth and ARPU compared with other territories, which makes it a less risky environment in which to run an 'experiment' such as the Tidal partnership . It has already been confirmed that this partnership is planned to be rolled out across other African countries in the near future. So better to start small and iron out any kinks before a full multi-territorial roll out.
WHAT’S IN IT FOR MTN?
MTN’s top three markets in Africa are South Africa, Nigeria and Ghana; in that order. With subscriber numbers and service revenues showing steady growth in all these territories, MTN is already successfully monetizing these markets.
The operator has over 50 million active subscribers in Nigeria alone, of which almost 40 million are internet subscribers and an estimated 3.5–5 million are subscribers to the network’s existing music streaming service "Music+". Overall service revenues are up almost 15% driven by an over 60% growth in data access revenues and more modest digital revenues from value added services such as its mobile money service.
Whilst MTN does not 'need' a relationship with Tidal, the attraction of such a partnership lies in MTN’s requirement for as much rich content as possible on its network. Content is the key driver of digital revenues that are becoming increasingly important to bolster margins in an environment where revenues from core (voice, SMS and data) services are gradually flattening and will see decline over the long term, eventually aligning with global trends in this regard.
Yes, data has been, and currently is, a single biggest revenue driver for MTN and trends show a major increase in demand for data over the next few years. However the (continued) investment required to expand network infrastructure to capture said demand makes reliance on data revenues alone a dangerous prospect.
Thus, such a partnership gives MTN an opportunity to evaluate African demand for Tidal’s brand of specialised music (related) content whilst increasing the amount of high quality content available on its network in addition to gaining other potential brand related benefits.
It can be safe to presume that not only is Tidal keen on the partnership, the platform would like it expanded as soon as possible into Nigeria, MTN’s biggest market (by subscriber numbers), to enable the streaming service gain first mover advantage over its competitors — none of whom have made any direct entry into the territory.
However, an MTN Tidal partnership in Nigeria would raise questions regarding the future of Music+ as well as MTN’s overall relationship with Huawei.
EXISTING RELATIONSHIPS & CONTENT OFFERINGS
Huawei and MTN entered into a five year partnership back in 2014 to jointly provide an entertainment triangle of platforms to house video, music, and games content; and Huawei’s technology powers these platforms, Music+ included. Huawei has a wider (managed services) agreement with the MTN Group, but its Music+ partnership may likely be a separate agreement.
The possible expiry of Huawei’s current arrangement with MTN may also explain the timing of the launch of this new Tidal partnership.
It is unclear whether MTN has the technical capabilities to run its own internally powered music service should it part ways with Huawei. Assuming it does not, a partnership with a third party streaming service — that would also take on all the local content at MTN’s disposal and handle delivery of same through its platform — makes a lot of sense.
Such an arrangement would also help Tidal address its lack of local music content. Music consumption on the continent is heavily tilted towards local music - which is strongly in demand in African territories. MTN, through its Music+ licence agreements with local artists/labels/aggregators, does have a strong library of high quality, popular local audio and video content; not to mention a network of relationships with the biggest music stars across all the territories in which it operates.
Assuming, on the other hand, that MTN continued to run its own music service and Tidal still desired to penetrate the larger markets (such as Nigeria), Tidal would simply be another aggregator in MTN’s ecosystem, albeit a relatively powerful one. MTN would accordingly treat any commercial relationship it may have with Tidal in the same manner it does with other foreign aggregators in the territory, like Sony for example.
This structure would better suit MTN given it would allow it to retain a huge chunk of the revenues generated from subscriptions (up to 70% in some instances) after first taking a share from the initial gross amount on account of 'technical costs and charges’.
The other option, namely for Tidal to be offered with standard bundled data packages included, would significantly reduce MTN’s share of subscription revenues and effectively restrict it to only data access revenues, which, although significant, are lower margin revenues due to the heavy network investment costs required to generate same. Although facilitating payment for subscriptions — through its own mobile money services —could be another means for MTN to tap into digital service revenues under this structure (as is the case in the Uganda deal).
EXCLUSIVITY
Another important factor would be the issue of exclusivity; namely, whether Tidal would be free to enter similar deals with the other network operators within each respective territory. It would be in the platform’s interests to strike as many deals as possible to make its service - data inclusive - available as widely as possible. Inclusive data is key to the business model of every content streaming service in Africa, but even more so for Tidal given that it’s unique selling point is "high fidelity audio and video" content.
Tidal's partnership with Sprint in the US last year involved the platform delivering exclusive content to the network operator, although that deal also involved a more permanent relationship structure given that Sprint purchased a 30%+ stake in the company and was granted the Chair seat on its Board of Directors.
Whilst it is unclear whether the Uganda deal (and its planned expansion to other African territories) will be an exclusive partnership, if it is then Tidal will certainly favour the two companies delivering a combined offering through one channel to ensure it captures subscribers in markets where, as mentioned above, the overwhelming proportion of music consumption (around 80%) is of local music.
Finding a way to make local content available as part of its offerings — even by limiting its ability to provide a network agnostic service and tying itself to exclusivity —is key to Tidal achieving its objective of growing subscribers by leveraging on the infrastructure and exisitng customer base of laregst African mobile network provider, who’s 200 million network subscription base is four times that of Sprint’s.
The Ugandan partnership between MTN and Tidal is indeed the first significant step by another major music streaming service to enter Africa directly, but both parties will be hoping it becomes a spingboard towards capitalizing on the larger, more lucrative markets on the continent, in a mutually beneficial manner.
Territories like the Nigerian market, provide Tidal with the opportunity of immediately capturing millions of exisitng MTN music subscribers, as well as access to a further pool of tens of millions more internet subscribers on the network that are yet to sign up to the operator’s music service.
With heavy marketing campaigns, and robust promotional offers (free trials/discounted offers etc), significant inroads could be made in a short amount of time.
Key considerations that would have to be resolved before such a strategy can be implemented include the status of MTN’s existing (and competing) music service vis-a-vis Tidal’s entry into the marketplace; how Tidal can quickly build up enough popular local content to ensure its music offerings attract significant numbers of subscribers in as short a time as possible; and the extent of the exclusivity of the partnership.
This deal should nonetheless hopefully provide a significant channel for Ugandan artists, composers, music companies and music publishers to monetize their creative works in their domestic market; and for other African artists as the partnership expands further afield.