Music identification technology has changed the way consumers and brands interact, both by creating new ways to consume and discover content and by influencing how companies deliver new products. Investors are taking notice, and the digital tech industry’s appetite for more financing rounds is underwritten by the media and advertising conglomerates’ thirst for data driven campaigns where audio analytics are beginning to play a significant role.
Shazam, an entertainment application that uses audio-recognition software to identify songs playing on radio, TV, or clubs, has dominated the market since 2002. Users simply hold up their smartphones, wait a matter of seconds, and are instantly connected to a 35 million-song database that returns an exact match of the sound byte they just heard. Shazam reports the app has been downloaded over 500 million times and that it has over 100 million monthly mobile users. One in every ten digital songs sold, it claims, have to do with it.1
The London-based company began adding TV commercials to their database back in 2010. The app listens to the commercial and then provides users with additional information about the product—a marketing coup. In fact, Shazam has now turned its focus to retail and new media partnerships and is benefitting from competition between Google, Yahoo, and Amazon, each foreseeing a rising opportunity in audio detection services.
Unsurprisingly, Shazam Entertainment Ltd recently announced it had received an additional $30m from investors for a post money valuation of $1bn. This makes it the fifth richest technology startup in the UK. Investors in Shazam are some of the most storied venture capital firms around. They include Institutional Venture Partners (IVP), DN Capital, Kleiner Perkins Caufield & Byers, and Mexican billionaire Carlos Sim, who poured $40m in July of 2013. Sony Music Entertainment has also bought an equity stake. Executive Chairman Andrew Fisher suggests that Shazam is about audio but not for the exclusive pleasure of music fans: “[t]his funding reflects the substantial progress we have made in delivering a new paradigm for brands and content owners to increase engagement with their audiences whilst magically connecting people to the world around them.”2
Initially, the app earned revenue by charging for each song match. It then switched to a cut out of digital-music downloads from services such as Apple’s iTunes. Shazam, which estimates that it contributes to a total of $300m in digital music sales every year, has taken a hit as Spotify, Pandora, Deezer and others push subscriptions models and hurt song downloads. Not that this seems to trouble the holders of Shazam’s purse strings. CEO Rich Riley can claim that the company is “intentionally not profitable” and can focus instead on technology development and staff expansion, none of them short-term revenue generators. Clearly, the strategy is to add value hoping for a later liquidation event, like an IPO. In any case, the trend for revenues is up while losses are down.3
The latest investment round will go to expand new markets, as well as further develop the software. Shazam has recently moved beyond music recognition and into the world of retail, cinema advertising, radio advertising, and second screen-based services. The rise of “second screen” engagement – smartphone and tablet use while watching TV – has created a unique opportunity for the platform to connect with a lucrative part of the ad industry.
The tech company recently launched a sales platform and digital engagement solution called Resonate, which aims to help TV networks better monetize and engage viewers who use mobile devices while watching a program. The service, which was beta tested during the Billboard Music Awards to drive real time fan voting, provides television network partners with more control over messaging and content delivery, through granting access to Shazam’s technology and deep user base. The platform has already established partnerships with AMC, A+E, Dick Clark productions, and FUSE TV.
Shazam has a high hope of tapping into the £200bn worldwide TV advertising market.4 During the Super Bowl this year, the company helped approximately half of the advertisers there link their ads to exclusive songs by Interscope artists who performed during the halftime show. This tie in with music is unheard of.
Shazam has created a new avenue for brands to connect with wider audiences, possibly making the value of music rise, not fall, in proportion to the value of spectator sports and mass media. And while technology has become a means for artists and fans to get closer, it has devalued recorded music. Fortunately, the promise of music subscriptions is growing at a time when marketers are finding new ways of bringing commercial brands to the attention of the end listener. Here, Shazam may be in a class of its own. And its repercussions for the future of the music industry can hardly be doubted while its infusions of cash continue to grow.
By William Kiendl