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(Music Ally) As it passes 1bn downloads ‘Shazam is a profitable entity’

News   •  Sep 29, 2016 13:10 EDT

Shazam has announced a major new milestone: more than 1bn downloads of its app. Just as significantly, though, the mobile music-turned-advertising firm says it has now achieved “EBITDA profitability”.

The company has come a long way since its launch in 2002 as a service for identifying music by dialling the shortcode 2580 on a mobile phone, then receiving an SMS message with the song title and artist.

Shazam’s real growth has come since 2008, when its app was an early hit in Apple and Google’s app stores for iPhone and Android smartphones respectively. It took six years to reach 500m downloads, but just over two to hit the 1bn milestone announced today.

“It’s a very significant milestone in terms of our relationship with the music industry and the advertising industry,” Shazam’s executive chairman Andrew Fisher told Music Ally, ahead of the announcement.

What we’re seeing today is that we’re delivering value both in terms of user engagement, but also data, and that’s playing a part in how we’re helping artists and advertisers engage with their consumers.”

A billion downloads is impressive – Fisher thinks (and we can’t find any reason to disagree) that Shazam is the first European non-gaming app to achieve it – but what does that mean in terms of active users?

The numbers we’re using are 300 million users per year, and 20 million per day,” said Fisher. “We are continuing to see growth in that, and importantly, increasingly higher engagement with the actual Shazam experience.”

In other words, people are sticking around in the app longer after they have tagged a song or advert. That makes sense on the musical front: besides the title and artist, anyone tagging a song now gets lyrics; links to streaming services and videos; information on more tracks by that artist and similar songs they might like; options to follow their profile and more. Meanwhile, Shazam now has a central news feed with song recommendations, trending tracks, charts and social features.

“We are trying to give people more reasons to use Shazam, and more valuable experiences when they do use it,” said Fisher. “We’re working really hard to build on our heritage in music: we want to enrich the music experience, so we now have over 1,800 artists posting their own Shazam activity, and 3bn followers of those profiles.”

At times it has felt like Shazam’s move into advertising – with people able to tag TV ads and see related content from those brands – might have drawn it away from music. The company’s business model has certainly changed: a shift from mainly making its money from referral fees to music download stores, to advertising deals with brands.

That’s good news for Shazam, which claims double-digit revenue growth from partnerships of the kind that have put Shazam on every Coca-Cola product in North America this year, with a campaign called Share a Coke and a Song that used Shazam’s visual-recognition feature to scan lyrics, then record a “digital lip-sync video” to share on social networks.

Fisher said this campaign was an example of how Shazam’s music and advertising businesses can work together well, rather than one sucking its attention away from the other.

We are seeing continued interest, if not increasing interest, between brands and music as a way to engage consumers. We provide a very strong platform to help them with that,” he said, before stressing that Shazam remains committed to standalone music uses of its app too.

“Our heritage is in music. We have invested very heavily over the past 12 months in the music experience. There’s our news feed, and we recently launched Listen, which is curated playlists based on Shazam data. Based on our data, we have channels created around genres, and people can see what’s up-and-coming and unsigned bands,” he said.

“We have integrated players from services like Spotify, and all these things contribute to greater engagement, more daily users, and giving people more great experiences. We’re still benefiting from virality as a result: people still talk about Shazam to their friends who haven’t installed it.”

shazam

Is this paying off? Shazam’s announcement today is that it is now profitable on an EBITDA (earnings before interest, taxes, depreciation and amortisation basis), although Fisher is open about the fact that when Shazam publishes its financial results for 2015 – they are imminent – they will show a loss for that year.

Our loss is going to be pretty much the same as the year before,” he said, referring to results that showed Shazam lost £14.8m in 2014 on revenues of £36m.

“We’re still investing, in fact slightly higher than last year. But the important thing for us is we’ve been able to drive for profitability. We have been profitable for the last few months, as a business,” added Fisher.

“We are very happy to invest in the opportunities, and happy to be lossmaking as a business, but it is appropriate in the current economic climate, and with Brexit, that we’re profitable and have significant cash on the balance sheet. Shazam is a profitable entity and it can be sustained in its growth.”

It’s very important that companies can control their own destiny in the current climate, and that they do have viable business models. But we may again increase our levels of investment if we see opportunities we want to pursue.”

For now, Shazam is continuing its strategy to push on from 1bn downloads of its app: a milestone that Fisher believes Shazam is the first “European, private, non-gaming company” to reach. He added that outside games, the vast majority of billion-download apps belong to Google or Facebook.

Talk of private companies spurs an obvious line of conversation though: what are Shazam’s plans? There has occasionally been talk about the company moving towards an IPO, as well as speculation that it might make a tempting acquisition target for a big-tech firm. Neither of these things has yet come to pass, so what is Shazam’s thinking regarding its ultimate exit?

We have received interest in the business. We do think of ourselves as having real scarcity, because we’re running a profitable business around media, advertising and entertainment, along with a billion users. There are very, very few private companies that meet that criteria,” said Fisher.

“However, we still don’t feel we’re complete in any shape or form on our journey. It does take time to educate consumers about a broader proposition beyond music.”

Fisher noted that Shazam’s move into advertising has been a big hit in the US, with the company involved in “thousands of TV advertisements, not just hundreds” now. But he admitted there is plenty more work to do in the UK and Europe on this front.

“We are a beneficiary of staying private for longer, and we have shareholders who support that opportunity,” he says. “We don’t think the IPO markets are open right now, so we don’t think that is a viable option for us to consider. But we are a beneficiary [of staying private]: we can continue to iterate very rapidly, as we did with visual, and try new things.”

Meanwhile, the company is thinking hard about where its next billion downloads will come from. Fisher says Shazam has been “fortunate” in the bulk of its downloads so far coming in developed western markets where it is easier to make money.

“In other parts of the world, we’re still very immature as a business, which is a big opportunity ahead of us,” he says. “We’re still seeing new downloads in the UK, western Europe and North America, but given that there are just under 3bn smartphones and 5.5bn mobile phones in general in the world, there is still a very significant opportunity in terms of the total install base.”

STUART DREDGE