Telefonica makes strategic investment in Rhapsody, will bring Napster into LATAM

What: Telefonica is making a strategic investment in Rhapsody, which will also bundle and resell Rhapsody’s Napster music service and catalog to Telefonica mobile and broadband subscribers.
Why is it important: This will be the first time Napster is available in Latin America since Rhapsody acquired it. Telefonica's investment is a milestone in digital music, in terms of customer base-expansion and reach. Says TechCrunch's Ingrid Lunden that, for carriers like Telefonica, partnering with content providers helps them stand apart from their rivals’ offerings, and potentially helps them pick up more traction with existing users, beyond basic voice and data services.

As reported by several sources, Spanish mobile giant Telefonica is taking an undisclosed stake in Rhapsody International, a wholly owned subsidiary of U.S.-based music subscription service Rhapsody. As a result, music streaming website Napster, Rhapsody's brand outside of the United States (which it bought from BestBuy two years ago), will have a better opportunity to grow in European and Latin American markets. The service will be offered in Brazilian Portuguese, Latin American Spanish and English.

With about 200 million customers, Latin America is Telefonica's largest region, where it already offers a music streaming service called Sonora (a subsidiary of Terra), whose customers in Mexico, Brazil, Argentina, Colombia, Chile and Peru will continue to be served by the Napster platform as of November 1. Rhapsody International will most likely expand its global footprint beyond Sonora subscribers and this deal will allow Napster to move into Latin America, an area of rapid smartphone growth, for the first time.

Says CNet's Joan E. Solsman that Rhapsody has more than a million paid subscribers globally. Telefonica had 317.3 million customers as of June, across 24 territories. Its main commercial brands are O2 in northern Europe, Movistar in Spain and Latin America, and Vivo in Brazil.

The idea –reports CNet– is that as more and more people in the region adopt smartphones, the music streaming service could be a top factor in deciding which carrier to choose. Paul Springer, Rhapsody's senior vice resident and global head of product, said that in Latin America, about 70 percent of customers named music as one of the top features they require on a phone, versus about 40 percent or 50 percent in the US.

As reported by Billboard, a Telefonica spokesperson said that this investment took place "after evaluating the options in the marketplace [and finding out that] Napster had the right product, the right focus on locally relevant content, the right label relationships, and the right expertise in working with mobile operators to most effectively meet Telefonica’s needs for digital music worldwide."

Sources: TechCrunch, Billboard, Financial Times, CNet.


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