What's going on?
Two deals are cooking in the music industry, and both show just how much digitization has changed the business of distributing music over the past decade…
What does this mean?
Spotify, still a private company, announced on Friday that it had agreed to exchange a minority sliver of its shares for an equivalent amount in the music subsidiary of Tencent, the massive Chinese conglomerate. Tencent’s streaming services – like QQMusic – account for over 70% of all music streaming in China, so cooperation might help both companies secure better deals on music licenses from record companies (among other things).
On top of that, Apple is apparently on the cusp of acquiring the startup behind Shazam, the music recognition app, for an as-yet undisclosed amount. Shazam has been downloaded more than a billion times and has access to a major network of smartphone users (of all makes) across the world.
Why should I care?
For markets: There’s a connection to Spotify’s possible IPO (tweet this).
On top of the share swaps, Tencent is going to outright purchase even more of Spotify (earlier this year, Tencent actually tried to buy all of Spotify). That extra cash will help Spotify shore up its finances ahead of its IPO (rumored to value the company at around $20 billion), which some expect to happen as early as next year.
The bigger picture: Music’s move to digital is almost entirely complete (sorry, vinyl junkies).
As more and more Chinese consumers have begun to stream music through their computers and smartphones, Spotify may be interested in collaborating with Tencent to access this growing customer base. And while Apple hasn’t spelled out explicitly its reasons for acquiring Shazam, the app’s forays into augmented reality (AR) and social media connectivity definitely fit with Apple’s aims – including the development of its own AR headset by 2019 and the promotion of its own streaming service, Apple Music.