Digital music is increasingly becoming a mix of large audiences and small revenues. Take, for example, the latest financials of music identification company Shazam. The company had a loss of 635,000 pounds ($957,000) on revenue of 10.6 million ($16 million) in the year ending June 30, 2010. The company's financial results were released Tuesday and first reported by MusicAlly.
By many measures, Shazam is a success story. It created one of a handful of must-have apps that can be used by anybody regardless of age or music preferences. For years the company had the music identification market all to itself and was able to grow its user base through partnerships and great word of mouth. And it has raised funding from the likes of Kleiner Perkins Caufield & Byers and Acacia Capital Partners.
Yet each user has resulted in little revenue. Based on the timing of its announcements of 75 and 100 million registered users, Billboard estimates Shazam had roughly 80 million users by mid-2010, which means each user was worth an average of 20 cents that fiscal year. However, some of Shazam's revenue is the affiliate revenue from digital download sales the service originates from its buy buttons. That means Shazam is actually responsible for more revenue that it shows on its income statement. Just how much download revenue Shazam creates is unknown because the company does not break out its revenue by category.
To put that in context, compare Shazam's average revenue per user with that of another must-have mobile app with relatively little revenue per user, Pandora. The popular Internet radio service had 80 million users as of January 2011 and finished the 12-month period ending January 31 with $138 million in revenue. That's $1.75 per registered user.
But Shazam can make do with less revenue because, unlike Pandora, it doesn't have to deal with expensive content licenses (it plays only samples of songs). Many other hot digital music apps - SoundHound, SoundCloud, Soundtracking - also avoid models that require content licenses.