Rarely do small start-ups overtake established players in the market. But only seven months after its launch, Omnifone’s MusicStation is the UK’s largest unlimited download service in terms of subscribers, surpassing longstanding players like Napster.
But the subscription-based music market is still very much in its infancy in the UK. Mobile understands that Omnifone has a subscriber base of around 45,000, many of whom are on a free trial period.
MusicStation is currently available only on Vodafone, which limits its customer reach to less than a quarter of the total market. Neither Omnifone nor Vodafone are willing to comment on figures.
In terms of revenue, Omnifone is unlikely to be making a killing, but the company’s achievement in bringing the rental model to mobile, persuading one of the biggest operators to push it and getting all the major record labels on board, has nevertheless been a significant achievement. In addition to the UK, MusicStation has launched in South Africa, Hong Kong and Sweden.
The Omnifone story
This is not the first time that Rob Lewis, CEO and co-founder of Omnifone, has been at the forefront of new technology and business innovation. Lewis co-founded his previous company, Cromwell Media, together with Omnifone’s COO, Phil Saint, and sold it to InterX for £850m in 2000. Omnifone’s chief architect, Mark Knight, was also involved in the Cromwell Media venture.
Lewis (pictured) was also behind one of the first internet-based news sites, Silicon.com, which was later sold to NASDAQ-listed publishing company Cnet.
After the successful internet ventures, the founders turned their heads to mobile. ‘We recognised that mobile would become the biggest connected network,’ says Lewis.
Initially the focus was not on music, as the company set out to find and solve one of the biggest barriers to mobile internet services. Lewis says: ‘Before we even thought about which sector in mobile, we set about addressing the most obvious question in mobile applications - how do you make an application work on every phone?’
For any service to become mass market, it needs to be able to run on all handsets, Lewis explains. So the Omnifone executives set aside the next two years for developing a technology that would allow an application to run on a wide range of handsets.
‘We realised that you have to provide a service that works not only on 3G, but also 2.5G and prepay – a mass-market service,’ Lewis says. The MusicStation service is compatible with 75% of all music-capable handsets.
The next step was to find an optimal model for selling music on mobile. Lewis says: ‘We wanted to create a music service on mobile that mirrors how people were consuming digital music in the real world.
‘At that time it was mostly a la carte music sales. Tracks were quite expensive compared with what was available on the internet, and it was difficult buying music on mobile. We looked at how people were already consuming music on mobile. They were getting tracks from file-sharing sites, transferring them to their phones and Bluetoothing them to each other.’
Omnifone wanted to offer customers the ability to listen to whatever they wanted and share it with their friends.
Lewis and his team spent the next two years coming up with the concept and negotiating commercial terms with the record labels and operators. Although the rental model is now believed to be viable for labels, many were initially wary of it, explains Lewis.
‘We spent an extensive period of time convincing labels that it was an environment where digital would thrive. We had to convince them that we weren’t accidentally creating an environment where illegal file sharing would flourish,’ he says.
The music industry has been paranoid about piracy since the dawn of digital music. And for a good reason; every legal download is matched by 20 illegal downloads, according to record labels.
Both the music and mobile industries had an influence on how the final product turned out. ‘We built the service based on conversations that we had with operators and labels,’ Lewis says.
MusicStation launched exclusively with Vodafone in the UK in November 2007, offering users unlimited music downloads for £1.99 per week. The tracks are not sold for users to own, but rather to rent, so if they stop subscribing to the service, they lose all the music they have downloaded.
The service initially launched with a one million-track library, but has built it up to 1.8 million since then. It offers content from all the major record
labels as well as some independent labels.
Vodafone’s Arun Sarin recently revealed that half a million tracks were downloaded on the service within the first 10 days since launch.
Omnifone’s aim is to get the MusicStation application preloaded on as many handsets as possible, and to eventually have as many operators distributing the service as possible, but it is tied to an agreement with Vodafone for a ‘substantial period of time’.
Vodafone offers a one-week free trial to MusicStation, and Lewis reveals that 75% of those who try the service for free stay on as paying customers, and 67% are still using the service after three weeks. ‘After a user gets to 15 weeks, they stay forever,’ says Lewis.
To increase the ‘stickiness’ of MusicStation, the service also has community elements that allow users to interact with each other, share playlists and send tracks to each other. The majority of subscribers use the community services, Lewis reveals.
The service impressed the mobile industry enough for Omnifone to win the best internet service title at the Mobile Industry Awards.
The LG deal
To increase MusicStation’s distribution, Omnifone has teamed up with LG to launch a proposition similar to Nokia’s ‘Comes With Music’, called MusicStation Max. Omnifone aims to get to market ahead of Nokia, launching the product this summer.
Buyers of the LG handset will get unlimited downloads for one year. The handset will only be offered with tariffs that cover the data costs of downloading the tracks to avoid consumers getting ‘bill shock’, Lewis explains.
Omnifone is in talks with other handset manufacturers to get additional devices for the MusicStation Max service.
Omnifone’s next plan is to take its unlimited download service onto PCs, enabling customers to synchronise playlist and community features between their mobile and desktop. ‘We want to get MusicSation on as many platforms as possible,’ Lewis says.
Launching a PC proposition will be stepping on the toes of Napster, which has so far dominated unlimited downloads on the internet. However, Omnifone has an advantage entering this space, because it already has a subscriber base in mobile.
Meanwhile, Napster also says it is looking into the possibility of bringing its unlimited download service from the desktop to mobile. Napster’s UK senior marketing director, Dan Nash, told Mobile: ‘It is something we are keen to do and plan in the future. Now is not the right time. At the moment it involves downloading a client, too few compatible handsets and a proprietary system