Zynga Files for IPO, Lifts Veil On Financial Performance
Zynga Files for IPO, Lifts Veil On Financial Performance

What Zynga's Troubles Mean for the Music Business
-- Games have always provided an outlet for music, but opportunities can be short-lived. A year ago Zynga was going to be the future of entertainment and provide an avenue for music to be used in online games. Now the company's stock is in a free fall after releasing disappointing second-quarter earnings.

Zynga, which released the Lady Gaga-themed GagaVille (a spinoff of its hit game FarmVille), saw its shares fall by 39.1% by midday Thursday after the company reported weaker-than-expected earnings, losing $22.8 million in revenue of $332.5 million. The intraday low of $2.97 is far below the 52-week high of $15.91 in March and well below its $10 IPO price.

Wall Street has been brutal on Zynga. At least eight analysts cut their ratings on Zynga Thursday morning, according to the Wall Street Journal. "We do not share management's belief that these trends are temporary," Arvind Bhatia of Sterne Agee wrote in a note to investors. Michael Olson from Piper Jaffray echoed many analyst's concerns that Zynga's popularity on Facebook won't translate to mobile devices. "As Zynga looks to grow its footprint in the mobile category, the traditional Facebook business was expected to act as a solid foundation, but is instead showing incremental weakness."

Zynga is only the latest gaming disappointment for the music business. Music games were all the rage just a few years ago but enthusiasm has cooled dramatically. "The Beatles: Rock Band" was emblematic of the shift in consumer sentiment. Released with a major marketing campaign in September 2009, the title had tepid sales of 583,000 in its first month - analysts were expecting 1 million -- and less-than-stellar holiday sales.

Timing was also an issue. "The Beatles: Rock Band" marked the downward slide of music games' popularity. Sales of music video games fell 46% in 2009, according to the NPD Group. Two once-popular franchises have flamed out. Activision says "Guitar Hero" is officially on hiatus. Harmonix's "Rock Band" last put out a title in 2008, and all "Rock Band" titles will be removed from Apple's App Store on July 31.

Fortunately, there has been a couple bright spots this month. First, Disney-owned Tapulous released "Tap Tap Revenge: Tour" earlier this month. It was #38 on iTunes' Free iPhone Apps list Thursday afternoon. In addition, Smule's new AutoRap, which sets the user's rhymes to pre-installed beats, is #5 on iTunes Free iPhone Apps list.

But Zynga's struggles show the music business can't expect consistent returns from music video games. There will be peaks and there will be valleys. With Zynga suffering and major franchises put out to pasture, music video games are definitely in a valley right now. ( Zynga press release)

Roku Raises $45 Million inFunding
-- The digital living room just got a bit more exciting. Roku, maker a set-top box that connects a TV to the Internet, has raised $45 million in funding from News Corp and British Sky Broadcasting in addition to previous investors Menlo Ventures, Globespan Capital Partners and an additional yet unnamed investor.

The funding is a strong sign of potential in connected TVs. Although Apple CEO Tim Cook called Apple TV "a hobby" earlier this week, Apple TV sales rose 170% to 1.3 million and totaled 4 million through June 30. Roku's funding shouldn't make Apple feel threatened. Instead, he investment shows how much the market has evolved since Roku sold its one millionth device in January 2011.

But not all connected TVs are the same. Google TV has been a disappointment. Boxee is still a marginal player without widespread distribution (although it is available through Amazon). Roku has succeeded by creating a simple (it doesn't even have an on-off button) that is affordably priced and sold both online and at major retailers such as Best Buy, Walmart and Target.

Roku obviously has international expansion and video on its mind given its recent investors. But the device is also a common gateway for digital music to enter the living room. Numerous digital music services I've talked to in recent months have said they are working on Roku apps. The new app from Internet radio service Slacker joined a host of others including Pandora, Mog, Rdio, Live365, TuneIn and SHOUTcast.

If you're a music company and haven't been thinking much about the digital living room, here are 45 million reasons to consider how your artist, label or publisher will be impacted by the rise streaming music audio and video to the TV. ( Roku press release)

Amnesty for EMI Artists?
-- Helienne Lindvall at the Guardian - along with Beggars Group chief Martin Mills -- has an artist-friendly idea for Universal's merger with EMI: let Universal artists buy out their rights at "market price" rather than risk getting lost inside the world's largest music company. As she notes, the amnesty clause, to put it in American sports lingo, is actually a proposal of the U.K. artist group Featured Artists Coalition.

Why amnesty? "Imagine choosing to entrust your career to a team that is passionate enough to sign you," Lindvall writes, "only to wake up one day with a different boss and team around you, who may not be interested or even understand what you're about. This is the reality EMI artists are now facing." Actually, that's a scenario in which workers around the world live with every day. The lucky ones - a.k.a. the less-paid, lower ranks - tend not to have contracts and are free to leave when their boss gets sacked and the board of directors takes a scalpel to their department. But some employees have contracts with non-compete clauses. They're more likely to be trapped. This is life in a world of contracts.

But the Featured Artists Coalition's idea isn't crazy. Every employee knows there is only one good time to ask for concessions: when you're hired. Similarly, artists have precious few opportunities to reasonably expect the concessions they seek. One such time is before the contract is signed (but that time has passed). Another is a proposed merger. There's no telling what a record company will agree to in order for its $1.9 billion acquisition to go through.

Should you bet on a Universal-EMI amnesty clause? No, probably not. But opportune times are very rare, and artists are at an opportune time. ( The Guardian)

Questions? Comments? Let us know: @billboardbiz

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