ShawnTells: Sprint & Tidal— Stupid or Strategic?

ShawnTells: Sprint & Tidal— Stupid or Strategic?

Sprint is making a 33% stake in the music-streaming service, Tidal, valuing the company at an estimated $600 million USD. Will this turn out to be beneficial or a wasted investment for the nation’s fourth-largest wireless carrier?

Welcome to ShawnTells, a commentary column by The University of Texas at El Paso undergrad, Matthew Shawn Montoya, a tech blogger on Odyssey, and an igniteCS Mentor for Google.

It seems like every week, wireless carriers are doing something new, trying to one-up each other and win over more consumers. They point fingers at each other, blame one another for why the industry is broken, then show how big they are when compared to their competitors. It’s like being in a gym filled with too much testosterone. But every now and then, you have weeks like this that seem to confuse every player. Last week, Softbank-owned Sprint announced they’re making an estimated $200 billion USD investment in Tidal, a high-fidelity, music-streaming service owned by artists including Alicia Keys, Kanye West, JAY Z, and 21 others. But why would Sprint do this?

To properly answer that question, there are several layers we must unravel. First, it’s important to understand that despite Sprint’s unfavorable cellular service and low numbers of consumers, they’re a company that has loads of money. This poses another question: why is Sprint not investing in their infrastructure to better improve network speeds and reliability nationwide? Well, maybe this is Sprint realizing they must do something to improve their numbers, and are now taking advantage of the money they have, investing in their 5G Network and in providing content to their users.

“Providing content to their users.”
Wait isn’t Sprint a cellular network carrier?

This is true, and for the sake of brevity, I’m going to keep it at this: There is a long and ferocious backstory behind the idea of telecommunications companies (TELCOs) owning the content they deliver to consumers (which dates to the early days of Netflix and Hulu), but now these TELCOs (AT&T, Comcast, Verizon, Spectrum) have realized that they cannot afford to remain (what we call) “dumb pipes.” In other words, delivering the content is not enough. The next step in TELCO corporate greed is owning the content as well as the pipes, and delivering it at (what they claim is) no extra cost to the consumer, also known as Zero-Rating content. When we think of the idea of Zero-Rating, we think of T-Mobile. T-Mobile zero-rates video and music streaming services, so if you listen to music or watch video from services like Apple Music, Spotify, Netflix, Hulu, YouTube, and many others, this will not count against your high-speed data limit. At first glance, this seems like a pretty big win for the consumer, and in many respects, it is… until you look a little deeper.

Bandwidth, which is the capacity at which we can send data over a network, is a precious, limited commodity, which costs TELCOs money to use. When we as consumers pay for cell phone or Internet service, we’re paying for the use of bandwidth and because there is only so much available at a certain time, we are given data limits (so everyone on that TELCO’s network can use it and not have to worry about slow service in theory). However, TELCOs can exempt certain services from counting against our data limits.

Yay! More data for me, but then who pays for the extra use of Bandwidth?

Well… you, as a consumer, do, in one way or another. Going back to T-Mobile, services can be exempted from counting against a customer’s high-speed data limit if the service pays the TELCO more money for the use of that extra bandwidth.

In turn, the TELCO can zero-rate the content, and use that money to improve their network to allow more bandwidth, or simply pocket the money. The service (e.g. Netflix) needs to find a way of earning back the money they just paid to the TELCO. Surprise! Surprise! The price of the video or music-streaming service spikes, and you pay it because you’re still binge-watching A Series of Unfortunate Events.

That’s a lot of back-end business deals and negotiations. But is that even legal?

My friend, this has been an argument for the longest time, and it’s about to get worse. When the concept of the Internet came up in the 90s, everyone thought that the free and open web was going to be the next big thing! It was a land of unregulated opportunity, a free and equal space for everyone to be themselves and do their thing. But in the process of being ourselves, we managed to do what we do best and screw it up.

Companies began realizing that they could charge individual content providers for quicker access to consumers (in other words, prioritize that contents provider’s service) over other Internet traffic. This meant that if you were a content company with a lot and money, you could pay AT&T (which if you’ve read my articles, you know I’m a strong believer that AT&T is the greediest company in American history) to prioritize your Internet traffic and have it delivered to the consumer before other services, essentially destroying the idea of the free and open web. In 2015, the United States Federal Communications Commission (FCC) acted against this, implementing Net Neutrality, which reclassified the Internet as Title II, meaning it would now be regulated as a utility (like electricity, gas, and water), making practices like “prioritization” illegal. This left TELCOs seeking another way to make money.

And what better way to do this than by acquiring the content companies

The problem with the FCC and Title II reclassification is this: The FCC chairperson is appointed by the President (spoiler alert: Trump wants to do away with net neutrality), the FCC can only do that Congress tells it, but the FCC interprets the guidelines Congress sets for it. During the Obama administration, Congress told the FCC to figure out a net neutral solution, and the FCC implemented the Net Neutrality regulations we have in place today. However, they left a gaping hole for zero-rating, something still argued by businesses and the government today.

What better way for TELCOs to still make money, despite these new regulations, than to acquire the content companies? Ever since the FCC implemented Net Neutrality in 2015, we have mergers like crazy, shaking up the industry every time: AT&T buying DirecTV (leading to the new DirecTV Now service), Time Warner Cable merging with Charter (leading to the rebranded Spectrum TELCO), AT&T buying Time Warner, and Verizon buying Yahoo (for some God unknown reason).

Simply Put: With the new administration, everyone is looking to acquire everyone

Look, if you’ve made it this far, congratulations. You’re awesome and I’m not going to get further into the weeds, except by saying this: With the new Trump administration, business is essentially the forefront of everything in America, and at least for the foreseeable future, maybe even after this new FCC overturns net neutrality, it looks like we can keep expecting TELCOs and content companies to merge and buy each other out. There is a lot of talk of Sprint and T-Mobile purchasing each other or merging together. No one is quite sure which is going to happen if anything is going to happen; but, what we can draw from that is if they merge, Tidal looks to be the first content company T-Mobile would own. They’ve very far away from the idea of owning the content, which, bewilders me.

So back to Tidal: Who actually uses this?

It goes without saying — everyone listens to music. This would be a much sadder world if we didn’t have music. At this point in time, the smartphone market is stabilizing. Almost everyone owns a smartphone and has a preference when it comes to their choice of music service. Tidal's numbers, by comparison to Apple Music, Spotify, and SoundCloud, are really low, and their service is very expensive. However, as Tidal claims, this is because they pay the artists for their music, where other services pay the record labels, which keep most the money, then send whatever is left to the artists. So from the artist’s point-of-view, Tidal is the place to be, and if you’re a person who cares about supporting artists directly, this is the service you’d want to use. However, if you’re like the other 98% of consumers, who are already in their app ecosystem, don’t want to change services, or don’t want to download another app, Sprint acquiring Tidal may be news, but isn’t likely to impact your world. Rather it may leave you wondering “why” they would do this and implement the following business model— according to Sprint, “Tidal and its artists will make exclusive content that will only be available to current and new Sprint customers.”

So… no unlimited, high-quality streaming, no free or discounted Tidal subscriptions for new or current Sprint customers, no way of making money (because Tidal doesn’t have the user base or traction to gain measurable market share), just... exclusive content?

Either Sprint has the worst managerial team in the world, or they’re hiding a secret that will turn the wireless carrier industry on their heads... again.

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This article has not been reviewed by Odyssey HQ and solely reflects the ideas and opinions of the creator.
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