Competition in the lucrative music streaming business is intensifying as four of the biggest players gear up to consolidate to expand their reach and cut costs. Two big deals are on the horizon in the music business as Apple sets its sights on snapping up discovery app Shazam, and Spotify and Tencent agree to buy stakes in one another.
Apple Agrees To Snap Up Shazam
Apple is has agreed to purchase Shazam, a UK company founded in 1999 which allows people to use their smartphone to recognise tracks and buy them via Apple’s iTunes Store for a commission, for a reported $400m (£300m). That would be a significant devaluation for Shazam, which in 2015 was evaluated at $1bn in a fundraising round.
Tencent And Spotify Buy Stakes In One Another
Tencent and Spotify, which has 140 million global users and charges users to access a premium, advertising-free music streaming service, are said to be both taking a 10% stake in each other’s businesses. Tencent’s music empire boasts a combined monthly user base of 450m people.
Behind the deals are two very different strategies. For Apple buying Shazam would cut its operating costs by essentially cutting out the middleman and saving cash on paying commissions to Shazam.
It also hints at intensifying competition as Apple would likely make it easier for consumers to find and buy songs via Apple Music and Shazam would probably no longer refer people to Apple’s close rivals Spotify and Google Play Music. Apple has only 27m users, compared with 60m for Spotify.
Apple launched its big push into the music entertainment industry with its $3bn purchase of Beats Electronics in 2014.
For Shazam it presents a way to grow faster, as it strives to become profitable as consumers have increasingly switched to music streaming platforms. Last year the company made a pre-tax loss of £4m on revenues of £40m.
Access To Fast-Growing Chinese Music Market
Tencent and Spotify’s share swap would give Spotify exposure to the giant Chinese consumer market of 731 million Internet users, which is not currently one of the 61 markets it has penetrated. China’s music market grew by 20% last year whereas the global figure was just 6%, according to music-recording industry body IFPI.
Doing that would go a way to proving to investors that Spotify has global scale as it gears up for an anticipated initial public offering as early as next year.
But it would be strategically difficult, given the challenges other companies such as Facebook and Twitter have faced entering China, both of which are banned in the country. Tencent could soften any potential fall Spotify takes.
The dealmaking suggests the four major music streaming players see consolidation as a way to ensure continued global expansion. The deals will enable all of the businesses to benefit from music streaming on a much larger, international scale. It will also give the companies greater leverage in negotiating licensing deals with record labels.