Sprint (S), which needs help convincing its customers not to abandon it, is getting what could be a major lift through a partnership announced on Tuesday with Spotify, the streaming music service. In a deal that Spotify’s chief executive officer called the biggest deal in his company’s history, Sprint will offer customers of its “Framily” group plans heavily discounted subscriptions to Spotify’s premium service, with the discounts increasing as more people link their accounts to one another. Sprint also said it will begin selling a version of a new HTC (2498:TT) smartphone that has been souped-up to provide better sound quality.
The announcement comes at a delicate time for Sprint. The company said on Tuesday that it lost 231,000 monthly subscribers during the last quarter—not great, though better than what analysts were expecting. But that number obscures a much steeper fall in smartphones. Sprint added 516,000 tablet subscriptions and also added connected devices and phone subscribers from US Cellular (USM) and from Clearwire, which the company owns. All told, Sprint lost 895,000 phone subscribers, according to industry analyst Craig Moffett.
At the same time, people seem to like Sprint’s Framily Plan, its new friends-and-family group service. The company says almost 3 million people have signed onto the plans, which offer customers lower rates as more people sign on. Sprint Chief Executive Officer Dan Hesse says the Spotify deal is a sign of more to come. “Framily has a lot of legs, and today will just be the beginning of what you’re seeing,” he said during Sprint’s earnings call.
The Spotify deal is structured to reward consumers for linking their accounts through Sprint, which the company hopes will inspire customers to poach their friends and family—or at least pressure them to stay with Sprint if they’re wavering. People on Framily plans will get a six-month free trial of Spotify’s ad-free premium service, which usually costs $9.99. Once the trial period ends, a monthly subscription will cost Sprint customers $7.99 (if their group plan has fewer than five people in it) and $4.99 (if it has six to 10 customers). Sprint customers without Framily plans will get three months free and then pay the normal rate.
It seemed inevitable that Spotify would eventually sign such a deal with a U.S. carrier; it has forged similar deals with more than two dozen carriers worldwide. Many who follow the digital streaming industry think that bundling streaming music subscriptions into phone bills is the best path toward profitability for companies such as Spotify and Beats Music. When Beats launched earlier this year, it teamed with AT&T (T) to offer free trials and discounted service to subscribers of the wireless carrier’s group plans.
Ken Parks, Spotify’s chief content officer, says his company has been shopping for a partner in the United States for some time, and Sprint offered the broadest deal. With Sprint pressing Spotify on its customers and offering lower rates, the partnership could broaden Spotify’s reach in the U.S. “This is going to help us gain traction in areas of the country where we haven’t caught on,” says Parks. “They’re putting a lot of marketing muscle behind this.”
While neither company would discuss the deal’s terms, Parks says Spotify is making a long-term commitment to Sprint and won’t be seeking deals with other carriers.
In addition to access to music, Sprint is offering what it says is superior music quality. On Tuesday the company also said it would begin selling a new version of the HTC One (M8) that will convert MP3s into high-resolution audio files, using software developed by Harman (HAR), the audio company. Sprint is the latest tech company to push hi-res audio, which offers better sound quality than mp3s. The most prominent promoter of high-resolution audio has become Neil Young, whose startup, Pono Music, recently raised $6.2 million on Kickstarter.
A major issue with hi-res audio is that the file sizes are enormous—too big for streaming services such as Spotify. Harman says it has solved this by creating software that converts standard MP3s back into something approximating the larger tracks. It recently began commercializing the technology, focusing primarily on audio systems in standalone speakers and luxury cars. For the HTC phone, which costs $30 more than the standard model, Harman has installed its software and designed a set of headphones.
By focusing on music products that could cost its customers more than they’re paying now, Sprint is bucking the idea that the best way to lure people is by reducing their bills. T-Mobile’s (TMUS) aggressiveness over the last year has inspired a lot of talk of a price war, but the perception has seemed to outpace reality—the amount people spend on phone bills is increasing.
The ability to make plans appear cheaper gives Sprint more freedom to distinguish itself in other ways, according to Hesse. “The rate plans look a little more aggressive than they are,” he says.
