Digital Europe: Diversity and Opportunity - Let's Go Connected

interactive webcasting may be ad-supported or ad-free in exchange for payment;on-demand streaming is generally subscription-based, but may also offer a‘freemium’ tier to enable the service to be sampled, and the portability option (tothe smartphone) is usually charged at a premium.Partnerships with MNOs have proved a key channel to market. The mostimportant partnership in terms of yield of subscribers has been the one betweenDeezer and Orange in France, which yielded some 1.4 million subscribers betweenlaunch in August 2010 and June 2011. The Deezer service is ‘bundled’ in with anOrange handset and data plan package. Similarly, Deezer has concludedagreements with Everything Everywhere in the UK (under the Orange brand) andrecently with T-Mobile in Austria. Spotify has partnered with Telia in its homemarket of Sweden since 2009, offering a bundled service in Telia’s mobile, fixedlinebroadband and IPTV packages.Footloose business modelsDue to its digital distribution, music services can supply markets from a countrythat offers the most attractive fiscal environment. As noted previously, most ofthe leading multi-territory digital music retailers choose to locate in Luxembourgto take advantage of the super reduced rate of VAT of 3% on digital products.Apple’s iTunes, the leading music service, is based in Luxembourg. As such, alltracks and albums sold attract a 3% VAT rate. This provides a significantadvantage over ‘local’ suppliers established in other member states where VATrates are significantly higher. Due to the single market, iTunes is able to sell a widevariety of content to consumers across Europe from Luxembourg.Looking at the number of services available by country, there are significantdifferences between the top markets and the smaller markets (Figure 32). The UKhas the largest number of digital music services, with 72, whereas smaller marketssuch as Cyprus, Latvia, Lithuania and Malta are served by just four. As was notedabove, in Demand for cultural products, the latter four markets are ‘small’ in termsof the absolute level of expenditure on cultural products. Piracy is a challenge tocommercial supply across the EU5, but in Spain and Italy (as noted in DigitalPiracy) there are fewer licensed digital music services. This is a reflection of anumber of factors, including piracy, domestic market size, local investment,discretionary spend and local demographics.35 | 53 Let’s Go Connected 8 May 2012