Shazam’s losses grew to £5.8m in the second half of 2013… but why?


shazamShazam has published its latest set of accounts, for the last six months of 2013, and they reveal widening losses at the company. Shazam reported £16.9m ($27.5m) of revenues for the half-year period, and a net loss of £5.8m ($9.4m).

That compares to revenues of £31m and a net loss of just under £2m for the full-year period to 30 June 2013 – indicating that Shazam’s income hasn’t increased sharply, but its losses have.

The period covered by the results included a $20m funding round from America Movil, while Shazam has since raised an additional $10m from Clifton Capital.

We’ve got some idea of what’s happening to the company: it’s been investing heavily in its push into TV and advertising – a business that it hopes will pay off this year and beyond. Yet there is evidence that Shazam’s existing base of revenues, affiliate fees from download sales of songs identified using its apps, has been shrinking.

In March 2013, 10m songs were being tagged a day, generating 1m daily download purchases – and on iTunes, Shazam took a small affiliate fee for each of them. The company’s own stats revealed that by August this year, its users were only buying 400,000 music downloads a day – 60% down, despite its user base growing to 100m active users.

Using some very rough numbers – a 5% affiliate fee if all purchases were $1.29 songs on iTunes – that 60% reduction in Shazam-fuelled downloads could mean $38.7k less daily revenues – or $14.1m over the course of a year – to be made up for by income from TV and advertising campaigns, as well as other music activities like label promotions.

And yes, those numbers are rough: for starters because not every Shazam sale was driven through iTunes, while we understand that the 10% conversion rate figure given in March 2013 may have been somewhat high – if so, any income decline would have been shallower since then.

The more important point is that in 2013, Shazam was a business in transition, investing heavily in a new business that (judging by the latest financials) was only just able to outweigh the decline in its existing business.

What now, then? We’re unlikely to see Shazam’s financial results for 2014 until well into next year, and they’ll be an important indication of how the company’s non-music business is growing and delivering a return on that investment.

In the meantime, expect more speculation about why download sales have declined so sharply – merely a reflection of the wider industry transition from sales to streaming, including Shazam’s partnerships with streaming services? – and also about the company’s likely exit strategy.

Music identification may be commodified to some extent – Facebook built its own rather than buy Shazam – but TV and advertising may be the company’s best path to a big tech or media suitor. Which, in turn, explains why Shazam has made such bold (and expensive) investment in that area.

As important as Shazam has been to the music industry – and continues to be so – a business whose main source of income was affiliate fees from download sales would face an uncertain future in the industry’s transition to streaming.

Shazam has been working to find other (monetisable) ways of partnering with music companies – a marketing partner for streaming services and labels alike – but rather than showing a company in trouble, its latest financials suggest to us a company working hard to evolve with the trends in its original market, while expanding into new (and likely more lucrative) areas.

Written by: Stuart Dredge