TIME Media

Why Investors Are So in Love With Netflix Right Now

The Netflix company logo is seen at Netf
Ryan Anson—AFP/Getty Images The Netflix company logo is seen at Netflix headquarters in Los Gatos, CA on April 13, 2011.

Nothing is ever straightforward about Netflix earnings–and last quarter was no exception: Netflix shares surged 12% in after-hours trading Tuesday after it reported earnings per share of 38 cents, a long way from the 63 cents a share that analysts had been expecting.

To explain that disconnect, you either have to conclude that Netflix investors have lost their minds or that there’s something else they saw and liked in the numbers. With Netflix, it can be both at once.

Because it’s as if there are multiple companies being analyzed here: the one poised to take over the world, or the one that is breaking the bank to get there. The stock that’s risen 4,000% over the past decade, or the speculative stock with the PE ratio above 160. In the case of Netflix, there’s plenty of room for both arguments.

One reason investors were willing to overlook the big earnings miss is that much of it was caused by the strong US dollar, which lowered international revenue 48%. Without the foreign-exchange losses, Netflix would have reported a 77-cents-a-share profit, above the Street’s expectations. As it was, Netflix reported a $14.7 million net profit, less than half the $35.8 million profit a year ago.

Investors, it seems, are willing to overlook that because of another metric, one that’s particularly scrutinized at Netflix these days: new subscribers. In the US, Netflix added 2.3 million new subscribers net of cancellations, which was well above the 1.8 million adds it had expected. Internationally, Netflix added 2.6 million net subscribers, also above the 2.25 million it forecast.

That was largely because of new original programming the company has creating, like the third season of House of Cards and the debut of new Netflix creations like Tina Fey’s Unbreakable Kimmy Schmidt and the star-studded drama Bloodline. Netflix has been cultivating series that can appeal in the US as well as abroad, and the new subscriptions suggest it’s working for now.

This quarter, the company is rolling out even more original content, such as the Marvel series Daredevil, released last Friday; a documentary series, Chef’s TableGrace and Frankie, a comedy starring four Emmy award winners; Sens8,a scifi series created by the Wachowskis; and the return of Orange Is the New Black. Those should keep new subscribers signing up, but they’re also adding to spending.

It’s the mounting spending that the Netflix bears often point to. Streaming content obligations (basically, licensing fees for titles coming in the future) rose to $9.8 billion in the last quarter from $7.1 billion a year ago. These figures don’t necessarily affect the current income statement as much as give an indication of how spending will happen in the future, but they are daunting numbers nonetheless.

For the last quarter’s spending, Netflix offers another home-brewed metric, contribution profit. It’s revenue minus content spending and marketing expenses, so it excludes tech infrastructure or administrative costs. It’s an unorthodox metric, but it at least shows how, as Netflix pushes into new markets, content and marketing are performing against revenue.

In the last quarter, the contribution profit from US streaming operations rose 55% year over year to $312 million, or 32% of revenue. International streaming, however, incurred a contribution loss of $65 million, up from a loss of $35 million a year ago. In the current quarter, the contribution loss will swell to $101 million.

On a video call discussing earnings (like its home-brewed metrics, Netflix has its own style of conference call, where a pair of rotating analysts ask questions on a Google hangout), CFO David Wells was asked about how long the spending would keep growing. He reiterated a warning Netflix has made before, that the losses could grow throughout 2015, thanks in good part to marketing in newer markets in Europe and Asia.

“We’ve said we are committed to running the business at global breakeven and we have ambitious plans for international growth,” Wells said. “We’ll have some bigger launches, and we’ve described them as meaningful and significant investments in back half of this year. So you should expect those losses to trend upward and into ’16, and then improve from there.”

The case Netflix has been making has been that it’s spending aggressively to take advantage of a global, long-term trend away from traditional broadcast and cable TV and toward TV streamed over the Internet. Others, like HBO, Hulu and possibly Apple are approaching the same market, but Netflix is racing less to compete with them today than to be ready as the audience and demand for Internet TV emerges.

To get there, Netflix has made it clear it will spend what it needs to, even at the risk of losses or shrinking profits this year. Future content obligations are growing, Wells said, but not faster than current revenue. The company’s big bet is the spending today will translate into faster growth and more profit starting in 2016.

This explains why subscription growth is so closely watched. It’s the clearest measure of whether the spending on new programs and new markets is actually delivering. The bulls believe this long-term growth will come as Netflix has promised.

What it doesn’t explain is why the stock sees such volatile swings whenever Netflix reports its quarterly earnings. For that, you need to look to the stock speculators, who have for years driven Netflix shares to euphoric heights that make its executives uncomfortable, if not themselves.

Netflix’s business may be as bullish as ever, but that doesn’t mean the stock price is fairly valued. It rose $56 to $531.50 on Tuesday’s earnings, making it worth 162 times the profit Netflix is expecting this year. Netflix is making some risky but realistic investments in its future growth. But that risk is nothing compared to what investors are taking on by buying at such a crazy valuation.

TIME Television

Netflix Makes Daredevil Accessible to the Blind After Complaints

Netflix Marvel's Daredevil

Show about blind lawyer was initially difficult for blind to enjoy

Netflix is planning to make its shows more accessible to the blind following complaints from customers. The issue came to a head because Daredevil, a new Netflix show about a blind lawyer with superpowers, didn’t initially include audio descriptions, which are spoken explanations for actions occurring onscreen.

On Tuesday Netflix changed course, writing in a blog post that it plans to add audio descriptions to Daredevil and other Netflix original series like Orange Is the New Black and House of Cards. Other shows and movies that are not original to Netflix will get the feature later.

Robert Kingett, who leads a group calling for improved accessibility features on Netflix, told The Washington Post that he’d like to see the streaming service include the audio descriptions already available on the DVD version of movies and TV shows in the future.

[Washington Post]

 

MONEY Media

Digital Music Revenue Beats Global CD Sales for the First Time Ever

spotify on cell phone
Alamy

Streaming revenue alone increased 39% since last year, taking in a total of $1.6 billion.

The CD is one step closer to death.

A new report from the International Federation of the Phonographic Industry, a recording industry trade association, shows that 2014 was the first year in which digital music revenue exceeded physical music sales. Streaming services and sales of digital downloads generated $6.85 billion worldwide last year, while sales of CDs and LPs took in $6.82 billion.

The rise of digital music over the last two decades has been extraordinarily painful for the music industry. The IFPI’s report also shows overall industry revenue has now fallen below $15 billion. If revenues are adjusted for inflation, that number is roughly 2.5 times less than the recording industry made during the late 1990s, when revenue approached $40 billion in today’s dollars.

The good news for music publishers is that revenues from streaming services like Spotify have continued to expand rapidly. Streaming accounted for almost $1.6 billion in revenue for the industry, up 39% year-over-year, and streaming services now claim about 140 million users. Back in March, the Recording Industry Association of America reported streaming and downloads together accounted for 64% of the total U.S. music market, with streaming revenue passing CD sales alone for the first time.

Downloads still make up slightly more than half of digital revenue both internationally and domestically, but that may soon change. Edgar Berger, CEO of Sony Music Entertainment International, told the Telegraph that streaming had already overtaken digital downloads in 37 markets.

Despite the streaming market’s lucrative prospects, some artists have revolted against the prevailing ad-supported model, which allows customers to listen in for free. Taylor Swift has been especially vocal, pulling her music from Spotify in protest of the service’s free tier. In March, Jay Z announced Tidal, a new pay-only streaming service that seeks to place pricing power back in the hands of artists. However, reviews of Tidal have been largely negative, and Swift’s battle against Spotify may ultimately prove unwinnable as streaming comes to further dominate how we listen to music.

TIME Television

Review: Other Space Is a Cosmic Blast

Yahoo

Paul Feig's oddball sci-fi comedy gives us a spaceship as dysfunctional dorm room.

TV has given us space as final frontier (Star Trek), space as epic war site (Battlestar Galactica), space as source of mystery (Extant) and menace (V). Paul Feig’s goofily funny Other Space, whose full eight-episode first season is now on Yahoo Screen, gives us space as a site to work out your personal business. In Other Space, no one can hear you scream, except the family members, unrequited loves and assorted misfits you’re trapped with.

It’s the year 2105, and the Universal Mapping Project has given command of one of its ships, the UMP Cruiser, to wet-behind-the-ears captain Stewart Lipinski (Karan Soni). It seems like a big assignment for the well-meaning but jittery newbie, but deep-space exploration has become a less glamorous job over the half century in which the UMP has found nothing but rocks and dust.

So Stewart inherits a ship and crew of castoffs and oddballs, including his hard-charging big sister Karen (Bess Rous), who resents being his second-in command; his childhood buddy Michael (Eugene Cordero); Tina (Milana Vayntraub), whom Stewart hired because of a badly-hidden crush; and onboard computer avatar Natasha (Conor Leslie), who was originally programmed as a blackjack dealer. In a nod to low-budget sci-fi-TV past, the gang is rounded out by Mystery Science Theater 3000‘s Joel Hodgson as a stoner tech officer and Trace Beaulieu as the voice of outmoded robot A.R.T. (who, we learn, is the downloaded consciousness of a billionaire who made a bad investment in Singularity technology).

All goes–not well, and then it goes worse. The Cruiser is sucked up by a temporary wormhole–or “space toilet”–that flushes it into another universe. Inexperienced, poorly provisioned and terrified (a UMP training video on resigning yourself to die alone in space doesn’t help) sets out to navigate its new envirnoment, as well as all the personal and interpersonal space-junk that the stress stirs up.

The subject matter may seem an odd choice for Feig if you know him from Freaks and Geeks, which he created, or Bridesmaids, which he directed. (He did branch out into comedy sci-fi in his young-adult Ignatius MacFarland: Frequenaut! books.) But the science in Other Space‘s fiction is definitely light, even by the standards of, say, Futurama, and the production design is decidedly old-school. (It’s reminiscent of one of the few live-action sci-fi sitcoms past, NBC’s Quark, starring Richard Benjamin, from 1977.)

Really, Other Space is a workplace self-discovery comedy about misfits finding their place, in a office that just happens to be floating in an alien dust cloud. Though Yahoo may not have planned it this way, actually, Other Space (which Feig originally conceived for NBC) turns out to be a closer companion to its adopted Community than anything NBC ever paired with the show. The vibe is a little like a college dorm set afloat in space (at one point Tina draws on “my RA training” to handle a challenge), as the Cruiser’s maladjusted crew gets a forced crash course in socialization. (There’s a great example in the second episode, in which nebbishy officer Kent, played by Neil Casey, reveals an origin sotry that’s both heartwarming and hilariously gross.)

As with the LED-lit, beep-boop control panels of the Cruiser, there’s little brand-new about Other Space, but it grows into a low-stakes, good-hearted good time. The production feels amateurish in a good way, loose, light and benefitting from a cast heavy on sketch comedy experience.

Early in the pilot, the crew of the Cruiser discovers that its food replicator is busted, leaving them with nothing to eat but a massive stash of fudge in the ship’s hold. It feels like a metaphor for streaming the show. It might be too much to binge this odd confection all at once (just as, Karen dourly informs the crew, an all-fudge diet will lead to a ghastly death within weeks). But who doesn’t like fudge? Other Space may not be TV’s, or streaming’s, next great comedy. But it’s a welcome and unexpected treat.

TIME Media

Why Musicians Want Radio Stations to Start Paying Them

The decline in record sales means artists are looking for new revenue streams

Music sales’ continued decline has forced performing artists and their record labels to look to radio as a potential new source of revenue — and they want Congress to help make it happen.

Monday morning, a group of politicians, musicians and music industry executives are expected to unveil a new bill that would force terrestrial radio stations to pay royalties to performing artists and record labels when playing their songs. Performing artists currently don’t get paid for traditional radio play, which has long been thought of as a promotional tool to drive music purchases rather than as a revenue stream itself. New digital music platforms such as Spotify and Pandora, however, are already paying royalties to performing artists. (Songwriters, who can’t make money through avenues such as touring and merchandising, are paid for radio play.)

In addition to targeting terrestrial radio, the new bill, sponsored by House Democrat Jerrold Nadler and dubbed the “Fair Play Fair Pay Act,” would also force Internet and satellite radio companies like Pandora and Sirius XM to pay royalties to performing artists on songs recorded before 1972, which are currently not protected by federal copyright law. It would additionally raise the royalty rates paid by satellite radio platforms like Sirius XM to be more in line with rates paid by Internet radio services such as Pandora.

“The bill is a comprehensive piece of legislation that attempts to address several inequities that exist in the copyright world today,” says Michael Huppe, CEO of SoundExchange, a non-profit established by the record labels to administer digital royalty payouts. “The overriding theme is leveling the playing field, treating everyone equally and making sure all creators are paid fair market value for their work whenever it’s used.”

Record industry revenue has been more than halved since its CD-era peak, dropping from $14.6 billion in 1999 to less than $7 billion in 2014, according to the Recording Industry Association of America. An increasing amount of the money that remains is coming from streaming services rather than purchases of individual songs and albums. Those factors could increase pressure on radio broadcasters to pay performers whose revenue is coming from fans accessing their music across myriad platforms rather than buying it outright.

“It seems to be inconsistent that the same recording rewards performers when it’s on the Internet but doesn’t when it’s on AM/FM radio,” says E. Michael Harrington, chair of the music business program at SAE Institute Nashville. “That inconsistency is really foolish.”

Despite the onslaught of new ways to listen to music, AM/FM radio still wields incredible clout, with 243 million Americans tuning in weekly. That massive audience means the medium is still the best way by far for artists to debut and promote new music, radio station advocates argue.

The National Association of Broadcasters, a powerful lobbying group for radio and television stations nationwide, has already expressed its disdain for the new legislation, rallying 147 representatives and 11 senators to oppose the new bill. “We think it would be potentially devastating to the economies of a lot of local radio, kill jobs and actually hurt artists in the long run because if you have fewer financial resources, you have less ability to expose new artists,” says Dennis Wharton, NAB’s executive vice president for communications.

Previous legislation aimed at forcing radio stations to pay performers, like the 2009 Performance Rights Act, went nowhere. Moreover, the fact that the new bill simultaneously burdens terrestrial radio, Pandora and Sirius XM through its different provisions could lead to widespread opposition from a variety of stakeholders. “I can’t see the whole thing working because of the divided interests,” says Harrington. SoundExchange’s Huppe, meanwhile, argues the bill isn’t overly ambitious, pointing to a recent U.S. Copyright Office report advocating performing artist royalties for terrestrial radio and for pre-1972 songs on Internet radio.

Sirius XM declined to comment on the bill. Dave Grimaldi, Pandora’s director of public affairs, said in a statement: “We welcome a thoughtful conversation regarding ideas that promote robust music ecosystem for all music-makers, as well as consumers.”

Even if this bill dies, changes are certainly coming to the way performing artists are compensated for their music in the future. Sirius XM has been found liable for copyright infringement in various states for its use of pre-1972 recordings by the band The Turtles. Meanwhile, broadcast radio giants like Clear Channel have been quietly brokering deals to pay performing artists royalties at individual record labels such as Big Machine, which represents Taylor Swift.

“It’s all about the listen, the stream, the hitting of the eardrum instead of the buying of the CD,” says Huppe. “That makes these issues even more critical because they’re now such a big part of the revenue stream.”

TIME Media

These Are the Cheapest Ways You Can Now Get HBO

New Product Announcements At The Apple Inc. Spring Forward Event
David Paul Morris—Bloomberg/Getty Images Richard Plepler, CEO of HBO, speaks during the Apple Spring Forward event in San Francisco, Calif. on March 9, 2015.

HBO's new streaming service isn't the only way to get Game of Thrones

At long last, TV lovers don’t have to buy a cable subscription with 100 other channels just to get HBO. The premium network has officially launched a new standalone streaming service, dubbed HBO Now, that lets users subscribe to HBO without any kind of cable plan.

Still, getting HBO remains a bit more complicated than signing up for Netflix. HBO is continuing to work with cable and tech companies to distribute its content, and everyone is offering up their own different bundle to try to entice customers. While a standalone HBO seems like a steal at first blush, it’s important to remember that HBO now customers still have to buy an Internet plan separately. Internet Service Providers will likely continue to try to keep customers buying HBO through them by offering up compelling bundles.

Here, we break down the myriad HBO deals currently on the market that allow you to subscribe to the network and receive a high-definition broadcast, either with an Internet plan or a small bundle of other channels. In order to make a fair price comparison for those offerings that include Internet service, we pegged the median price tag of standalone high-speed Internet at $41.95, based on price ranges gathered by the New America Foundation for plans with download speeds in the range of 15 to 20 Mbps.

It’s also worth noting that these prices are based on promotional rates that cable operators often offer for the first 12 months of service. Prices for television and Internet service can increase by $20 to $30 each in ensuing years, depending on the plan. Fees charged also vary slightly based on region.

HBO Now (No Contract)

What You Get: Stream HBO content live and access back catalogue of shows and movies

In the Fine Print: HBO Now is almost entirely exclusive to Apple devices like the Apple TV for the first three months. The Apple TV costs $69, though subscribers can also use an iPhone, iPad or PC. You’ll also have to pay for Internet separately.

Perfect For: Dorm-dwelling college students who don’t have to pay for their own Internet

Total Cost: HBO Now ($15) + Internet Access ($41.95) = $56.95 per month

HBO Now via Optimum (No Contract)

What You Get: High-speed Internet with 15 Mbps download speeds and HBO Now

In the Fine Print: HBO Now is available to Optimum Internet subscribers regardless of what device they’re using to access it. But there’s a $40 installation fee and it’s only available in a small part of the northeastern U.S.

Perfect for: People who just want to watch this season of Game of Thrones, then cancel HBO

Total Cost: Internet Access ($40) + HBO Now ($15) = $55 per month

Amazon Prime Instant Video (12-month contract)

What You Get: Access to thousands of movies and TV shows, including a large selection of HBO classics like The Sopranos and The Wire (to say nothing of the free 2-day shipping for Amazon products, the music streaming service and other perks)

In the Fine Print: HBO shows arrive to Amazon three years late and current mega-hits like Game of Thrones and True Detective aren’t part of the deal at all

Perfect For: A streaming novice who’s never watched HBO’s past content or the other popular shows available

Total Cost: Internet Access ($41.95) + Amazon Prime ($8.25) = $50.20 per month

Comcast (No Contract)

What You Get: High-speed Internet with 25 Mbps download speeds, HBO, local TV channels

In the Fine Print: A $32 installation fee

Perfect for: People who live in areas where an antenna won’t pick up the local networks

Total Cost: Bundle Cost ($40) + Modem fee ($10) + HD fee ($10) + broadcast fee (up to $3.50) = up to $63.50 per month

AT&T (12-month Contract)

What You Get: High-speed Internet with 18 Mbps download speeds, HBO, local TV channels and a year-long subscription to Amazon Prime

In the Fine Print: A $100 installation fee, as well as a $180 termination fee for ending the contract in less than a year

Perfect For: Game of Thrones fans who also love free shipping for their Amazon orders

Total Cost: Bundle cost ($49) + equipment fees (approximately $7 per month) + HD fee ($10 per month) + broadcast fee (approx. $3) = $69 per month

Sling TV (No Contract)

What You Get: HBO and 21 other channels streaming live, including ESPN, AMC and CNN. Sling’s streaming version of HBO will be available on many more platforms than HBO Now, including Roku, Amazon Fire TV and Xbox One.

In the Fine Print: Sling’s version of HBO doesn’t allow users to make use of either HBO Go or HBO Now, though subscribers will still be able to access HBO’s programming through Sling’s own video-on-demand interface

Perfect For: TV-lovers who are looking to trim down on their channels but not go totally cold turkey on cable

Total Cost: Sling TV basic package ($20) + HBO ($15) + Internet Access ($41.95) = $76.95 per month

Verizon (No Contract)

What You Get: High-speed Internet with 50 Mbps download speeds, HBO, local TV channels

In the Fine Print: An installation fee as high as $90

Perfect For: Power users who plan to be streaming lots of HD content at once, or fans of Showtime, since you can sign a 2-year contract and Verizon will throw that channel in for free

Total cost: Bundle cost ($60) + Equipment fees (up to $22) + broadcast fee ($2) = up to $84 per month

TIME Television

These Are the TVs Netflix Wants You to Buy

Netflix Illustrations Ahead Of Earnings
Bloomberg—Getty Images The Netflix Inc. website and logo are displayed on laptop computers arranged for a photograph in Washington, D.C., U.S., on Tuesday, Jan. 21, 2014.

Netflix has announced the first of the Web-connected TV sets that qualify for its new “Netflix Recommended” program, which the company unveiled in January.

Many if not most of the hassles involved in trying to watch TV over the Internet have to do with network problems, something that neither TV manufacturers nor streamers like Netflix or Amazon can do much about. But Netflix has for years been working with makers of TVs and TV-connected devices to make streaming video more consistently easy to use.

The criteria for getting on the list are generally limited to the streaming experience. Most consumers presumably will weigh all the other usual factors: picture and sound quality, price, size, the remote layout, the installed interface, etc.

But as Internet video becomes ever-more popular, ease-of-streaming becomes ever-more important. Netflix judged the TVs on how quickly they launch the Netflix app, the loading time of streams, and how quickly users can get to both the Netflix app and its streams. Two of the requirements: whether the Netflix app is displayed prominently enough, and whether the remote has a dedicated Netflix button.

All very self-serving for Netflix, certainly, but also very handy for people who use the service a lot. The giant Netflix logo that will be affixed to the TVs on store displays will attract just those people.

Netflix announced the program last January during an LG media event, and several LG sets using the WebOS 2.0 platform are on the list.

Others use the Roku interface, which puts apps, including Netflix, at the center of the TV-viewing experience, right on the home screen. Those sets are from TCL, Insignia, and Hisense.

Also included are Sony’s coming Bravia sets, which will run on the Android TV platform, and offer similarly easy access to apps, and a remote button dedicated to Netflix—press it, and the TV turns on and Netflix instantly appears.

More than half of the sets aren’t available for purchase yet, but will be in the coming weeks and months. Netflix said it would continue adding sets to the list as it approves them. Expect entries from Sharp Electronics and Vizio, since Netflix mentioned both companies during its January announcement.

 

TIME Media

HBO Now Launches Just in Time for Game of Thrones

New Product Announcements At The Apple Inc. Spring Forward Event
David Paul Morris—Bloomberg/Getty Images Richard Plepler, CEO of HBO, speaks during the Apple Spring Forward event in San Francisco, Calif. on March 9, 2015.

Service is now available on Apple TV and Optimum

After years of begging and pleading, television fans can finally get HBO without going through a cable or Internet company. HBO Now, the channel’s new standalone streaming service, is now available on Apple TV for $14.99 per month, according to TechCrunch. Early adopters can take advantage of a 30-day free trial that HBO is offering.

HBO had promised the new service would go live before the season premiere of Game of Thrones on April 12. For now, Apple devices are the only place you can buy HBO outside of a pay-TV or Internet bundle (the HBO Now website directs people to an App Store app for iPhone and iPad, but the app doesn’t appear to be available yet). The Internet service provider Optimum is also offering HBO Now as an add-on for $14.99 per month and Sling TV, the new pay-TV streaming service, is expected to add HBO as a channel sometime this month for $15 per month.

TIME Media

How March Madness Showed Streaming TV Isn’t Perfect Yet

Wisconsin v Kentucky
Streeter Lecka—Getty Images Traevon Jackson #12 of the Wisconsin Badgers handles the ball against Tyler Ulis #3 of the Kentucky Wildcats in the second half during the NCAA Men's Final Four Semifinal at Lucas Oil Stadium on April 4, 2015 in Indianapolis, Indiana.

Sling TV suffered outages during Saturday's action

Though there’s an ever-growing list of streaming services aiming to bring live television online, there are still plenty of kinks to work out. That was apparent Saturday night when Dish Network’s livestreaming service Sling TV suffered outages during the Final Four men’s college basketball matchups.

As Duke battled Michigan State and Wisconsin squared off against Kentucky, some users weren’t able to reliably watch the games on Sling TV, which carries TBS, TNT, ESPN and a handful of other live channels for $20 per month. The Wisconsin-Kentucy had the highest TV ratings for a Final Four game in 22 years, so it’s no surprise that Sling was getting hammered during the broadcast.

Sling TV CEO Roger Lynch told Re/code that the issues only affected about 1,000 users. Re/code earlier reported that Sling had signed on more than 100,000 users in its first month available.

The Sling TV errors come after similar hiccups during HBO’s stream of the season premiere of Game of Thrones last April and ABC’s livestream of the Oscars earlier this year. Web TV is finally here, but it’s still got a ways to go to achieve the reliability of cable during big events.

TIME Media

How Sprint Could Help Tidal Actually Succeed

Tidal Launch Event NYC #TIDALforALL
Jamie McCarthy—2015 Getty Images Kanye West (L) and JAY-Z onstage at the Tidal launch event #TIDALforALL at Skylight at Moynihan Station on March 30, 2015 in New York City.

A bundle deal of cell phone service and music streaming could help Tidal gain a foothold

Jay-Z’s new music streaming service Tidal is facing a healthy dose of skepticism despite the high-profile list of artists that have invested in the company. However, the startup may have a fighting chance against streaming heavyweights like Spotify (and Apple’s upcoming new service) if it can hammer out a key partnership.

Sprint, the third-largest wireless carrier in the U.S. with 56 million subscribers, is working on a deal with Tidal to distribute the service to its customers. “We are working together in partnership for the vision of the common cause of reestablishing the value of music,” Sprint said in a statement to USA Today to dispel rumors that the company had already bought a stake in Tidal. “It is NOT a financial investment or exclusive partnership.”

Details are murky, but there is plenty of precedent for deals between music streaming services and wireless carriers. When Beats Music launched in January, it offered a discounted family plan to AT&T subscribers that let up five people to use Beats accounts for a combined $15 per month (five subscriptions would cost $50 per month normally). Sprint itself is currently offering six months of Spotify Premium for free to customers on certain wireless plans.

“Every major digital music service that you might care to name have dedicated senior executives whose mission is to do nothing but bundling deals with mobile operators,” Larry Miller, a music business professor at New York University, told TIME when the Beats-AT&T deal was rolling out.

A bundle deal would be especially helpful for Tidal, which lacks the name recognition of Spotify or the Apple-owned Beats Music. And the more tightly packaged the service is into customers’ wireless plans, the better for Tidal — Spotify has found that customers who sign up for so-called “hard bundles,” in which its music service is included in the standard monthly rate instead of as an add-on, end up keeping Spotify 80% of the time even after the discount period ends.

Tidal will need a lot of other things to go right to gain a toehold in the streaming space. Carrier partnerships can be lucrative, but also fleeting—the heavily promoted AT&T-Beats tie-up ended in October. Eventually, the service will simply have to stand as a better user experience to overcome its competitors.

Read more: How Jay Z’s Tidal Press Conference Showed He’s Out of Touch

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