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New Yonder music service challenges subscription model

NEW YORK — To many in the music industry, Apple’s pending $3.2 billion deal for Beats Electronics, which emerged last week, suggested a watershed moment for streaming music by subscription. Once a marginal model, it is now being trumpeted as the future of consumption by Spotify, Rhapsody, Rdio, and Beats’ own service, Beats Music.

But music by subscription also has doubters.

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Among them is Yonder, a small service opening this week with a very different model: selling specially licensed smartphones that allow users unlimited free downloads. Under this plan — sometimes called hard bundling — the cost of the music is hidden in the price of the phone.

Adam Kidron, the chief executive of Yonder, said this has much greater potential than streaming by subscription, which despite becoming more prominent has remained a small part of the business. Last year such plans, which typically charge about $10 a month, attracted about 6 million customers in the United States.

“What we’re saying,” Kidron said, “is that we need a model that attracts the other 98 percent of people who are not paying.”

The hard-bundled model, however, has a checkered history. In 2008, Nokia’s Comes With Music offered free downloads with certain phones, but the plan drew few customers and was withdrawn in most countries.

Blue-chip investors like News Corp. and Allen & Co. later backed a similar effort by Kidron’s previous company, Beyond Oblivion. Yet the company fell apart in late 2011 before ever reaching the public, which with $34 million in investments became one of the most spectacular failures in digital music.

Now “humbled,” Kidron said Yonder is setting out with more modest plans, including raising less than 10 percent of the size of Beyond Oblivion’s investment. While that company employed about 70 engineers, for example, much of the work to build Yonder, which is made for Android devices, was farmed out. Seed money came from Cliff Burnstein, a powerful music manager whose company, Q Prime, works with superstar acts like Metallica and the Red Hot Chili Peppers.

In a further challenge to Yonder, a deal between Apple and Beats could mean a major marketing lift for subscription. Google has already entered the market with its own service.

To prove its model, Yonder will try to sell just 10,000 devices containing its service, including unlocked models of HTC’s One phone, the M7 ($479) and M8 ($679).

If the plan succeeds, the company hopes to make large-scale deals with manufacturers for phones around the world carrying licenses granted by music companies.

Yonder’s profit would come from a share of those music licenses, which Kidron said range from as low as $15 in poor countries to $80 in the richest markets.

As a way to link music to other kinds of expenses that people pay automatically, like phone service, bundling has wide support in the music industry. AT&T sells subscriptions to Beats Music, and last month Sprint announced a similar deal with Spotify. Muve Music, whose price is included in plans offered by Cricket Wireless, a prepaid wireless service, has attracted more than 2 million subscribers.

Many analysts consider such collaborations with telecommunications companies essential to make any music plan viable on a broad scale.

“For this model to work, it really has a to have a telco and a device manufacturer working in tandem,” said Mark Mulligan, a music technology analyst and consultant.

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