MIDEM(Net) Blog

StrategyEye interview: Andrew Fischer, CEO, Shazam

 

In this exclusive interview from our industry knowledge partner StrategyEye, Shazam CEO Andrew Fischer talks about music discovery; getting money from Kleiner Perkins; and how firms can build businesses around mobile.

How popular is Shazam?
The figures we have in the public domain are that 50m people have used Shazam. We don’t break down monthly users, but we are growing very rapidly. We acquire around 500,000 new users every week and have done since February this year.

Historically, Shazam has been a paid-for service exclusively and today we still have a paid-for service in the UK [which costs] GBP0.50 (USD0.83) a time. That price point is higher because there is a physical call charge involved. We have now moved away from a fee-per-call to a subscription model. However, we also have services around the world where Shazam is free, such as on O2 in Germany on Motorola devices and Samsung devices or with Verizon in North America. But that is a wholesale model where we are paid to provide the service.

The first time we used our own balance sheet to bring Shazam to the market is the iPhone. Even that model will change to a ‘freemium’ model where there’ll be some element that is paid for and some element that is free. In our opinion there is not an advertising market today that can support music services on a free basis. There has to be an element of ‘paid-for’ in that.

However, we are optimistic about advertising, particularly mobile advertising. Mobile advertising is the ultimate measurable piece of inventory in terms of location and presence. Long term, we wouldn’t be surprised if our business was primarily funded by advertising, but we expect to keep a premium element to it as well. That will evolve over time as the mobile advertising market matures.

 

How does Shazam work?
We look at the peaks and troughs in the sound waves from each instrument and vocal performance. We then slice up the song into five or 10-second pieces and measure the spatial difference between those sound waves to create a pattern which we call a fingerprint. Because of the way the technology works every performance has a unique fingerprint, so even two songs by the same artist recorded in different studios will have very subtle differences in the sound waves and that’s why we can identify this particular recording by this particular artist. If you have something like the Bee Gees singing ‘Tragedy’ or Steps singing ‘Tragedy’ you can then attribute the performance to Steps or Bee Gees, which is really important for the consumer because they specifically want to buy the Bee Gees’ performance.

 

How are you evolving ?
A few years ago most consumers would have probably seen Shazam as a ‘name that tune’ type of service. Now Shazam has evolved from a pure discovery service to one which connects the buyer and seller of music. That has really been driven by people starting to buy digital formats, with iTunes, Amazon MP3 and some of the subscription services. Consumers are being conditioned to buy digital and they have transitioned to buying digital on their mobile. That is primarily because the pricing has achieved parity, so it doesn’t cost you anything more now to buy an iTune over your mobile phone than it does on the internet. Also people have unlimited data tariffs, so there is no bill shock in terms of buying a piece of content for GBP3 (USD5) and then finding out you’ve been charged GBP10 (USD16.6) to GBP15 (USD25) to actually download it.

There have been a number of enablers that have helped Shazam evolve its business from discovery to connecting buyer and seller. What we are focused on now is the sharing aspect, which is why we’ve linked up with Twitter and Facebook and are integrated into the mobile Facebook platform. These networks perpetuate people finding something they like, being able to buy it and share that experience with their friends. We see that as a very strong business model in terms of getting more people to discover and more people to buy.

 

Who are your competitors?
We have more than 90% of the worldwide market in music recognition services. We don’t really have many competitors who have any traction in the market today. What competition we have helps in that there are other organisations educating people about music recognition category and discovery services on mobile.

It’s difficult for any single company to really drive the market. The way we see it unfolding is our partnerships with our business partners like Apple, Nokia and Vodafone, who have a marketing budget to promote these types of services. They can promote the Shazam brand and help us build our audiences, as well as build value for themselves.

 

How important is the iPhone to you?
We have had over 10m downloads of the Shazam application on the iPhone and we have built a profitable business around it led by advertising and selling iTunes. For us as a company though, that’s still only 20% of our user base. We are not an iPhone company. We are deployed on Android, we are on RIM and we have been number one on the Nokia Ovi store for the last four weeks. We also have significant relationships with a lot of handset manufacturers. We are preloaded on Samsung, Motorola and Nokia devices. We work with a lot of the carriers around the world directly as well, like Vodafone.

 

What attracted Kleiner Caufield Perkins & Byers to Shazam?
Before they created the iPhone fund, Kleiner didn’t have a strong investment presence in mobile. They see mobile as a fast-developing category and we have all seen that accelerate since the launch of the iPhone. Kleiner were committed to look beyond the internet to new investment opportunities and we are the seventh company in the iFund portfolio. Part of it was mobile and the change of consumer behaviour to actually using interactive services on those devices and the business models that sit behind those.

The other part of it is Shazam. Kleiner are looking for game-changing companies that can really execute at scale on a global basis. In terms of our profile, while we have been around for a long period of time, really all of our growth has come over the last three years and it has certainly accelerated over the last 12 to 18 months. So I think the attraction for the Shazam-specific investment for Kleiner was the evidence we’re showing in the adoption of the service, plus the fact we’re profitable.

 

What was the incentive to take the money from Kleiner now?
The primary reason was because we recognise that we are transitioning to a global consumer brand, so we were really looking for somebody who had the best track record in terms of supporting such brands. Kleiner was behind eBay and is still on the board of Amazon. A lot of the well-known internet brands seen today are those that Kleiner invested in at a similar stage, as it has done with Shazam. Money is always important, but that was not the primary reason for partnering with Kleiner. It was actually for their expertise in building global consumer companies.

Our mission in life is to be ubiquitous. We would like Shazam to be on more than 100m consumers’ phones by the end of 2010 and that is the next milestone for the company. If we succeed, it will make us one of the biggest mobile consumer properties in the world. With a market forecast of 6bn devices by the end of 2011, it is still a very small proportion of the total handsets or consumers in the world. That is one of the differences between mobile and the web. The addressable market is far more significant around mobile, but nobody has really had or built a very successful mobile-oriented consumer business. Even people like Jamba are business-to-business as well as direct-to-consumer. We’re not saying we’re going to be the only one, but there’s certainly a significant market opportunity for a number of companies to build very big enterprises around mobile.

Bruce Houghton: Music Investments are Down, but the Best Opportunities are yet to be Uncovered, says Bruce Warila

It's no secret that investment dollars flowing into music startups have dwindled. Some of the drought can be blamed on a poor economy, but the music sector has also seen more than its share of failures and false starts. It may not be easy to  make money investing in music, but Bruce Warila  believes that its far from impossible if you look in the right places.

Midem(Net) Blog readers may know Bruce Warila from his contributions to Music Think Tank, but he's also an entrepreneur, analyst and part time investor that has been working with various industry startups and artists over the last five years.

"Looking across the spectrum of previous music industry investments...(most) are held hostage to, and will remain a prisoner of, the large label system that  has dominated the music industry for decades."

Bruce put together a three page white paper originally published on Hypebot outlining the state of current music industry investing and why he thinks the real investment opportunities have yet to be uncovered. Click here to download the PDF.

Gerd Leonhard: The Future of Music and the TeleMedia Economy (slideshow)

I gave a speech at the 7th Telco2.0 executive brainstorm in London, today, and because there was a lot of stuff that I think has great relevance to the music industry, I have put together a special slide-show for my MidemNet blog readers, below. You can view a larger version of all images by clicking on the link, below.  If you want to see the entire presentation please go to Slideshare to download the PDF.

I am sure this will be a big topic for MIDEM 2010, as well. Please comment, tweet etc!

Phil Hardy: A few words in defence of the majors

In 2008, the view calculated that the four major international record companies had a collective global market share of 77.3%. Downsizing that a little, say to 75%, on the basis that as a ratio the majors release fewer titles than the independents and you might expect when you turn to the review pages of the national press that around three quarter of the  reviews would be of albums on the majors’ labels and a quarter on independent labels. You’d be very mistaken.

This weekend I tracked the reviews of non-classical albums in the Saturday edition of the Daily Telegraph, the Sunday Times and the Observer’s Music Monthly magazine. Here are the figures:

 

                                                 Majors                       Independents

Daily Telegraph                                 1                                  6

Sunday Times                                  2                                  7

Observer MM                                   18                                11

Total                                               21                                24

 

This means that of the 45 albums reviewed, in total only 47% were released by the majors, a figure that falls to 37% if one omits the 18 albums given two sentence reviews by the Observer’s Music Monthly magazine.

Denzyl Feigelson: The Fanfarlo Four Step

Fanfarlo have a wonderful story. This hard-working band have been independently incubating (distributing their album "Reservoir" through AWAL into iTunes in March 2009) until their recent licensing with a major label. They created a creative campaign that attracted a solid and growing fanbase, and turned that experience into loyalty & sales. 

Their campaign is quite talked about - The Fanfarlo Four Step - 1) Don't Suck, 2) Get Others to Introduce you to their Audience, 3) Make those Audiences an offer they can't Refuse and 4) Repeat. I remember coming in contact with the band in early 2007, looking for great emerging artists for the first iTunes Festival at the ICA. Their music was a regular on my iPod. Then I heard Bowie was a fan. I started getting emails from the band genuinely looking for opportunities. Their newsletters were regular, and interesting. The quality of their live performances and recordings always stood out. Then they assembled just a great group of experts to assist their growth - great management, their Topsin widgets were brilliant, they also enlisted Radar Maker, who create custom digital campaigns, thus allowing the sharing of the Fanfarlo experience into all social media quite effortlessly. Cleverly they knew they also needed to conquer the vast US market bringing in Sneak Attack Media and BigMouth PR, also one of my favourite ethically produced merchandise companies - Sandbag . I was also noticing ex industry pro's in the US championing their cause. The team a band creates around them in conjunction with a fan army, add great recordings and live excitement - a winning combination. For a limited time the band offered a full download of the album for $1, that offer also included 4 bonus tracks. Tickets to live shows were also offered at a reasonable price.

All this activity created a strong foundation for success - huge fanbase, sales in the US, huge digital impressions, sold-out shows, most blogged about on reputable sites culminating with a new home on a major. Its a great story, tons of hard work, more hard work!! and couldn't have happened to a nicer group of band, management and team members.

Hugo Amsellem: Why Spotify could not have been French

In this first guest post, French music industry blogger Hugo Amsellem explains why local music streaming service Deezer may have difficulties whilst Spotify should flourish: over-reliance on music streaming alone is not a sustainable model, he argues...

For those who missed the news, Deezer just raised a second €6 million round from private equity funds.

Formally known as BlogMusik, the service was forced to shut down due to a lack of licensing agreements. 2 years and many negotiations later, the company eventually came up with a legal and complete platform, ready to roll. By then, competitors did launched other innovative streaming services, and even if Deezer is perceived as a success with 10 millions users worldwide, it appears that the service lags behind its competitors. This "Deezer" example raises a problem that relates to a culture of entrepreneurship and innovation in France. How do French startups always end up as the second or third players in their market?

Ruth Mortimer: Tokio Hotel become space-age holograms to support traditional retailers

Ever been gutted at missing your favourite band live? You need worry no longer; music is going space age as German band Tokio Hotel becomes the first act to appear in hologram form in electronics retailers across Europe.  Tokio Hotel's label Universal Music Group worked with agency Musion to create the band's first-ever "virtual tour", which transformed footage of Tokio Hotel performing live into three-dimensional holograms. This then allowed the band to perform "in person virtually" to local crowds in Media Markt stores around Europe over a three week period. The "performances" apparently drew up to 700 people at each store.  Romain Delnaud, director of operations, commercial affairs, at Universal Music Group International, says that the initiative hoped to accomplish "our aim of supporting the traditional retail landscape which still continues to stand as a key player in breaking new acts on an international scale." You can see amateur video footage of an event in Holland from YouTube here:

It's an interesting idea that mixes the exclusivity of live gigs with the need to bring some more interactivity into traditional retail environments. But will it be successful and will we see more artists signing up for virtual touring?

Gerd Leonhard: Social Media & Music - a quick Overview (slideshow)

A picture is worth a 1000 words... hopefully you will enjoy these collected 'Social Media & Music' items. I will be doing a workshop at the MidemNet Academy on this -stay tuned!   Gerd Leonhard

MIDEM 2009 conference video: Publishers, labels and societies working together

As this panel illustrated, publishers, labels and collecting societies are coming together to unveil concrete initiatives of reinforced co-operation, like joint licensing of master and publishing rights, or improved operating efficiencies. This session explored how such initiatives can be developed and extended.

Speakers:
Jakob Hüttel, Head of International Legal Affairs, KODA (Denmark)
Andrew Jenkins, EVP, Universal Music Publishing Group (UK)
John Kennedy, Chairman & CEO, IFPI (UK)
Moderator: Jeremy Silver, MediaClarity

Ruth Mortimer: BSkyB sings about the launch of Sky Songs

Broadcasting giant Sky has announced it will be taking on Apple's iTunes digital music service with a new product called Sky Songs, out next week. The project has all four major labels on board - EMI, Sony Music Entertainment, Universal and Warner Music - along with a number of independents. It follows an announcement last week by Virgin Media that it too would launch a music service.

Unlike iTunes, where consumers can cherrypick the tracks they desire and pay for them individually (a micro-payments model), Sky Songs will use a subscription method, where people pay for access to a library of what claims to be more than four million songs. They can both download and stream tracks.

So will it succeed? Mike Darcey, Sky's chief operating officer, says that the new service "will reach out to consumers who want legitimate digital services offering choice, ease of use and great value. Offering legal access to digital music is a vital step in combating illegal downloading."

Yes, well, obviously anything rewarding artists for their work and cutting down on piracy is great. But music subscription services do not always prove popular with consumers as they tie people into contracts for set lengths. Consumers also worry about losing their library of music when they stop subscribing.

The real chance this service has of succeeding and really rivalling Apple where others have failed is in the sheer power of the Sky brand in promoting it and cross-marketing it with its other products. Spotify has already proved that music streaming online can garner consumer interest online and through mobiles and Sky can take the service onto its set-top boxes too.

Although competitors like Spotify and We7 are more established in this market, it appears that Sky and Virgin Media are keen to make a big noise by getting involved in music. Do you think they can succeed?