We no longer use our cellphones as regular phones very much anymore. More often, we're consuming some sort of content like various social media feeds, YouTube videos, Hulu, or Spotify. With that in mind, the largest wireless carriers in the US -- Verizon (NYSE:VZ) and AT&T (NYSE:T) -- have invested billions in media companies to differentiate their services and provide a unique media experience.
Sprint (NYSE:S) doesn't want to be left out of the fun. It's bought a one-third stake in streaming music service Tidal. Billboard reports Sprint paid $200 million for its share of the company. Rapper Jay-Z paid $56 million for the entire company in 2015. The contract likely has an option for Sprint to take majority ownership of the company at some point in the future.
Sprint's media investment is comparatively tame compared to AT&T's acquisition of DIRECTV, AT&T's potential acquisition of Time Warner (NYSE:TWX), and even Verizon's cheaper digital-media-focused acquisitions. Still, it echoes the same sentiment that media is an integral part of the wireless service experience, and the carriers are looking for ways to differentiate their products.
What does Sprint get out of Tidal?
It's easy to see what Tidal gets out of Sprint: a nice cash infusion for a company that's losing money every year (just like everyone else in the music streaming business).
The benefit for Sprint is less clear. In a press release announcing the investment, Sprint said its 45 million retail customers will receive "unlimited access to exclusive artist content not available anywhere else." What exactly that means is anyone's guess. It could mean exclusive tracks, artist interviews, or something else entirely.
But Sprint faces the challenge of determining what it can keep for itself and what content it needs to provide all Tidal subscribers without cutting into the value of Tidal itself. It's the same problem AT&T faces with its potential acquisition of Time Warner -- except that's on a much, much larger scale.
Verizon's go90 platform -- which offers a variety of digital video clips -- is available to everyone because Verizon saw more value in getting the largest possible audience than trying to use it to attract consumers to its wireless service. AT&T will have to face a similar reality if it successfully purchases Time Warner, and Sprint will have to do the same with Tidal.
There's very little value Sprint can provide exclusively to its wireless subscribers, without destroying the value of Tidal.
No data fees
The biggest benefit Sprint can offer is zero-rated Tidal use on its wireless network. In other words, the data used to stream Tidal won't count against users data caps. AT&T does this with DIRECTV Now -- its over-the-top linear TV service -- and Verizon does it with go90.
Both companies have come under fire from the FCC around their zero-rate policies. They argue that any app can become zero-rated if the app owner is willing to pay for the data. It just so happens that in the cases of DIRECTV Now and go90, the owners are AT&T and Verizon themselves -- so the money goes from one hand to the other. Sprint could use the same logic to offer unlimited music streaming for Tidal subscribers on its network.
But all three are still competing with T-Mobile (NASDAQ:TMUS), which offers zero-rated streaming for nearly all music and video streaming services. It's also moving more of its customers toward its unlimited data plan, which would render zero rating moot. T-Mobile is rapidly grabbing market share in the wireless industry by offering increased value of its competitors through things like zero-rated data.
More of a distraction than a differentiation
T-Mobile is the only one of the four big carriers in the U.S. to resist dipping its toes in the media industry. Its success may be partly due to the fact that it's solely focused on wireless service while AT&T and Verizon are distracted by their efforts in media and entertainment.
For Sprint, Tidal may represent a massive distraction. Not only is it unclear how exactly it benefits from the investment as a wireless carrier, it's now tasked with figuring out how to turn Tidal into a profitable business. CEO Marcelo Claure -- now part of Tidal's board -- will be in charge of figuring out both.