Reports last week that Google GOOGL -0.11% is in talks to acquire Songza, a six year old music curation and streaming service, show that an industry-wide rollup in streaming services is now in real possibility. This is on the heels of Apple AAPL -0.44% snapping up Beats Music recently, and may be a sign of things to come in the sector.
Although Songza is a relatively minor player in the space with only 5.5 million active users, it does show that the major players are interested in acquiring infrastructure or feature parts they don’t currently have in order to quickly compete with the other major players. Songza is known for its music curation, which could be immediately integrated into Google Play Music All Access (perhaps the world’s worst brand name) in order to compete with an anticipated new Apple streaming service. Beats Music’s main feature is also curation, and having Apple jump out in front with that feature would require Google Play to catch up even more than it has to already.
Is Curation That Important?
It’s still unclear whether curation is the killer feature that music consumers want though. A trusted source has always been the key to popularizing new music, from radio DJs to MTV to music critics, but as of yet no single curation source has risen above the rest online as the de facto standard. In fact, it can be speculated that curation doesn’t actually matter much at all, given the fact that Beats Music subscriber numbers are so low at between 110,000 to 250,000, depending on what you read. It was the feature that the service hung its hat on, yet it wasn’t something that consumers flocked to when it became available.
That said, there are indications that we’re beginning to see what has been predicted as a slow rollup of smaller streaming players that will eventually leave only the major players of Amazon, Google and Apple, and maybe one or two of the smaller ones, standing.
Deep Pockets Rule
One of the reasons is the deep pockets available to the major players that will enable them to sustain a slow uptake of subscribers versus the high costs involved. While Pandora and Spotify struggle to attain profitability, Apple, Amazon and Google see music as almost a rounding error when compared to their mainstream businesses. They could use it as a loss-leader if need be, and never feel a pinch. Not so much for the stand-alone music streaming platforms however, who pay out in excess of 75% in copyright royalty payments alone. It’s a business with an ever-small margin that can only survive with economies of scale.
But scaling is what the business is achieving, although probably not at the rate that it would like. Spotify reports that it’s up to 40 million subscribers (about 10 million on the paid premium tier), while Pandora reports around 77 million. Total paid subscribers worldwide is around only 30 million at the moment, but it doesn’t take a crystal ball to determine that it can grow to 100 million in the next few years. At that point, some of the struggling services may even turn a profit.
Google’s offer for Songza is reportedly only $15 million, which is a drop in the bucket when you take the valuation of Spotify, at $4 billion, and Pandora, with a market cap of $5 billion, into account. That may cause Songza execs to pass on the offer if they’re in a position to. With that in mind, don’t be surprised if more and more streaming services are gobbled up by the tech world’s 800 pound gorillas in the near future.
