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(The Wall Street Journal) Music-App Maker Shazam Finally Turns a Profit—But Not From Music

News   •  Sep 29, 2016 12:06 EDT

Most of its revenue comes from advertisers

Shazam Entertainment’s headquarters in London in 2013. The company had its first operating profit this quarter after 15 years in business.

Shazam Entertainment’s headquarters in London in 2013. The company had its first operating profit this quarter after 15 years in business. PHOTO: SIMON DAWSON/BLOOMBERG NEWS

By HANNAH KARP

After 15 years, music-discovery company Shazam Entertainment Ltd. finally is turning an operating profit—but not thanks to music.

Shazam, which counts hundreds of millions of active users and an app that is been downloaded 1 billion times, is earning most of its revenue from advertisers, who pay to use Shazam’s image-recognition and sound-recognition technology in their marketing campaigns.

That is a big shift for the maker of the app that most users use to identify songs they hear on the radio—a process that takes an average of three to four seconds.

Until recently, Shazam had made most of its revenue by driving users to Apple Inc.’s iTunes Store to buy the songs they identified with the app, taking a commission on these sales. Shazam has been driving about 10% of the music industry’s digital-download sales, said its chief executive, Rich Riley.

But as streaming music from services, such as Apple Music and Spotify AB, becomes increasingly popular, song and album download sales have been shrinking—a trend that Mr. Riley said has spurred his team’s push to an ad-based model.

While Shazam still drives the same share of download sales and sends 1 million clicks a day to Spotify, Apple Music and other streaming services, which compensate it for the business, that traffic doesn’t necessarily result in the users signing up for a $10-a-month music subscription, Mr. Riley said.

The revenue from advertisers has grown faster than from streaming partners recently, making Shazam profitable before interest, tax, depreciation and amortization. The closely held company declined to disclose other financial information.

Many advertisers have used Shazam for campaigns that have little to do with music. NikeInc., for example, made the icon of a jumping basketball player on its recent line of Nike Jordan shoes “shazamable,” so Shazam users scanning the image through the app would be able to view other Nike offerings. Air New Zealand Ltd. created a dress for a model made of boarding passes that travelers could “shazam” for a chance to win a free trip.

To keep growing, Shazam is planning to launch soon in emerging markets and to embed its app into platforms such as social media sites, to make it easier for people to use while they do other things online, Mr. Riley said. It also is working to make its recognition technology faster and more accurate.

“People usually use Shazam in noisy environments—we’re constantly working on that problem,” Mr. Riley said.

Shazam was valued at $1 billion in a private financing round early last year. Its backers include Kleiner Perkins Caufield & Byers, Institutional Venture Partners, DN Capital and Acacia Capital Partners.

Write to Hannah Karp at hannah.karp@wsj.com

Corrections & Amplifications:
Shazam Entertainment was founded 15 years ago. An earlier version of this article incorrectly indicated the company is 17 years old. (Sept. 29, 2016)