Could Beats Music Become The Industry Standard For Digital Downloads?

Can Beats Music become the new industry standard subscription model for a music service?

Find out more on Beats Music from Billboard

"Beats Music, the premium streaming service developed by Trent Reznor, Ian Rogers and the creators of Beats By Dre headphones, is launching on Jan. 21, with AT&T as the exclusive carrier partner, the company said. 

Santa Monica-based Beats will join a parade of competitors, including Rhapsody, Slacker, Xbox Music, Rdio and Sony Music Unlimited -- all vying to become the dominant subscription service in the U.S., the world's largest market for music. The stakes are even higher as the market for digital downloads showed signs of waning, declining in 2013 for the first time, according to Nielsen SoundScan. The field is likely to become even more crowded this year, with Google Inc.'s YouTube and France's Deezer expected to launch their U.S. services in the next several months.

User's Guide: How Beats Music Works

Beats Music, which was built partly from technology acquired in 2012 from the former Mog music service, aims to set itself apart with stylish design and human curation. The company a year ago hired Reznor, of Nine Inch Nails, as its chief creative officer to design the service's look and feel of the service, with the goal of making it easy and fun to use. It also recruited Rogers, former Chief Executive of Topspin Media who also once ran Yahoo's music service, as CEO of Beats Music. And last summer, Beats tapped Julie Pilat, former Clear Channel veteran, to head up Beats' efforts to distinguish itself from the pack with a heavy emphasis on curation via radio-style programming. 

Many other companies have tried similar approaches with much success, most notably Sirius XM and Slacker. Sirius, for example, has cultivated dozens of radio personalities with ardent fan followings, the best example of which is Howard Stern. Its curated approach is partly what makes Sirius XM the country's biggest paid music service, with more than 26 million subscribers. Slacker years ago pioneered the practice of having DJ's program its many genre stations. 

"Our curated stations perform incredibly well, even when listeners have the ability to choose on-demand music," said Slacker's CEO Jim Cady. "Our premium subscribers spend more than 80% of their time listening to our curated stations, rather than creating their own playlists or listening to tracks on demand. We’ve also seen that heavily-curated experiences, like deejay hosted countdown stations, keep people listening up to three times longer than genre stations. Even the simple act of adding a deejay to a station can increase average listening time by nearly 20%." 

With all eyes on streaming music services as a source of future growth for the industry, Beats has ambitious plans to pour on the glamour, as it did with great success for the premium headphones market more than six years ago, leveraging deep relationships cultivated over the years by Beats' co-founder, Jimmy Iovine, the chairman of Interscope Geffen A&M at Universal Music Group. In 2008, Iovine and Dr. Dre launched Beats Electronics. Its instantly recognizeable headphones were soon spotted on dozens of celebrities and rap artists, who extolled the headsets' ability to reproduce the heavy bass sound prevalent in hip hop music. "We built something that works for us, for me, our friends, Dr. Dre," Iovine said in an interview with Billboard. "We enjoy using it. It’s what we would like to have, and we built it to where we felt it could help others."

While Iovine and his executives work to add star power to Beats Music, AT&T Corp. will provide the corporate marketing and distribution muscle. The carrier has agreed to distribute Beats Music, offering AT&T customers a 7-day free trial of the service. Afterwards, the service would cost $9.99 a month. For customers who opt to sign up for AT&T's family bundle, the service would come with a 90-day free trial. Once the trial period runs out, Beats would charge $14.99 a month, but allow up to 5 people and 10 devices full, on-demand access to the service. 

Beats would not disclose the terms of its arrangement with AT&T, including how the cost of licensing music during the free trials would be subsidized. 

For music services, carrier partnerships can be vital. Telecommunications companies such as AT&T have direct billing relationships with millions of subscribers and can tack on the cost of a music service directly on to their customers' cell phone bills. They also have extensive marketing resources that they can use to help push ancillary services, such as music. For AT&T, the benefit is in offering a product that would draw in users who will pay extra for a data plan to accommodate streaming music. 

In addition, Beats has partnered with Target Stores for a promotion that would give away 30-day free trials to customer who buys anything from the store's electronics department. The company has also started tucking vouchers for free trials into Beats Electronics' packaged audio gear. 

What Beats will not be doing anytime soon, however, is offer a free, slimmed-down version of its service -- something that Spotify, Rdio and services have started to do in order to get listeners to try their products in the hopes that they will convert into paying customers. So-called access models, where listeners pay to access large catalogs of music rather than purchase copies of music, is still a small, but growing portion of the industry's revenue. In 2012, it represented 15% of the revenue for music in the U.S., up from 9% in 2011, according to the Recording Industry Association of America, which is set to update this figure in the coming weeks. 

While streaming music is expanding, digital downloads declined on an annual basis for the first time in 2013. Sales of digital tracks fell 5.7% from 1.34 billion units to 1.26 billion units, while digital album sales fell 0.1% to 117.6 million units from 117.7 million a year earlier, according to Nielsen SoundScan."