Hybrid Record Label – Warner Music and Shazam

In February of 2014, Warner Music Group and Shazam announced that they would enter into a “strategic collaboration” in which Warner would have access to Shazam’s user data and Shazam would have access to exclusive Warner content.1  Currently, when a user hears a song that they like, whether it is at a restaurant or on the radio, they can open up the Shazam application on their smartphone and hold the phones microphone to the speaker which will then analyze and identify the song title and artist that the user is listening to.2  Once a song is identified, the app logs data such as the time of day the song was “tagged”, the song being identified, and even where the song was tagged (if the user has location services enabled).3  This is the sort of data that Warner plans to use not only for A&R, but also for marketing and promotion purposes.

Primarily, Warner will use this deal with Shazam to start a new Shazam based record label called “Big Data” utilizing data collected by Shazam to find new artists to sign to the label.4  Shazam already has charts, available to the public, created by calculating which songs are tagged the most by its users. But most of the top hits there are artists who are already fairly well known.5 For example, Katy Perry’s “Dark Horse” was number two on the Shazam charts on March 26, 2014 while that same song was also number two on Billboard’s Hot 100 chart.6 This is not the type of data that Warner will use in order to find artists for its new label.  By using the data not readily available to the public on Shazam’s top charts, Warner will be able to analyze and recognize trends in upcoming, unknown artists.  Many independent artists register their songs with Shazam directly because the exposure of having their songs being recognized can lead to higher sales.7 Because Warner will be able to see how frequently an unsigned artist’s songs are being tagged, the risk factor of signing a new artist will be lower.  Warner will no longer have to put large amounts of capital towards promoting and developing an artist from scratch.  Instead, Warner will now have data that will allow them to know beforehand what type of popularity and sales to expect from an artist.

The other largely beneficial exploitation of this data comes from Warner being able to have detailed information about its current artists and songs.  First, the data will allow Warner to conduct control experiments to test the potential success for songs and artists.  For example, Warner will now be able to play multiple songs by different Warner artists at one specific venue.  Then, by comparing the amount of users who tagged each individual song, Warner will be able to identify which artist and song a particular test set of potential listeners would be more likely to purchase.  Secondly, because Warner will be able to tell at what time the Warner artists and songs are tagged, Warner will be able to identify another specific trait of its target market: if any songs are tagged past midnight, for example, it is likely that a younger crowd is involved. Lastly, the most beneficial use of the data is likely that Warner will now have access to where its content is actually being tagged (so long as the user has the location services turned on).  If a label can tell that a particular artist is being tagged in a particular region, then a label can plan tours, concerts, and other events, in that particular region.  The result would be a higher attendance rate at events leading to more album and merchandise sales.

There is one possible problem with the deal: In December 2013, Shazam provided an update which includes an “always-on” feature.8 Currently, Shazam has 88 million users worldwide which tag songs about 500 million times per month.9 While these large amounts of users can prove immensely beneficial, when users turn the always-on feature on, the app automatically picks up any song that it hears.  At that point, users no longer have to make an effort to tag songs that they enjoy.  Therefore, there is no way for Shazam to know if the 88 million users actually liked the song that they tagged or if the always-on feature incidentally tagged the song.  As a result, Warner’s data would lose a degree of freedom. The specific terms of the deal have not been disclosed so it is hard to tell how this issue will be addressed.

The Warner/Shazam deal can also be used as a model for streaming services that are looking to start creating in-house content. Shazam has access to data that shows which un-signed artists have the potential to be successful, but so do streaming services such as Spotify and Grooveshark. Given their quest to acquire more paying subscribers, the question is whether these streaming services will use the data to sign new artists or instead use it primarily for the benefit of their existing roster. Shazam reduces the risk of signing unknowns, but it is less clear that it will precipitate higher risk-taking overall.