After weeks of speculation, Google Inc. (GOOGL) has finally entered into a definitive agreement to acquire Songza Inc., an online music streaming service, in a bid to ramp up its Play Music offering. Financials of the deal were not disclosed. However, as per previous reports, Google had offered more than $15 million for the deal.
In 2010, Songza had launched its streaming music app, which currently has 5.5 million users. The app is one of the few services that specialize in creating a customized curated playlist based on users' activities and preference. It also offers song recommendations based on the time of day and weather. The service is offered free of charge and without any advertisement breaks.
Google offers a few music streaming offerings, like its Google Play store, Google Play Music All Access premium-subscription service, and YouTube. However, all its products do not have strong music curation.
Therefore, the deal will help Google to make its music services more engaging by adding contexual playlist curation. The app will boost its overall music portfolio as Songza has a huge collection of music selected on the basis of the time of day, weather, location, mood and activity. Moreover, this will enable the tech giant to match up with companies like Spotify, Apple (AAPL), and Pandora (P) when it comes to music curation.
In addition, it will help Google to attract and retain users on Android devices as it will help its services offer better music suggestions.
However, Songza lags far behind the competition when it comes to the number of subscribers. Pandora has 75 million and Spotify and iTunes Radio have 40 million each, which can be a major disadvantage for Google.
Songza’s team will join Google and for now the service will remain active. But gradually, Google intends to integrate the technology into its Google Play Music and its upcoming YouTube paid streaming service.
Music streaming is becoming increasingly competitive, attracting leading technology companies. Apple has just acquired Beats Electronics for its ad-based music-streaming service, iRadio. Other players in the market include Spotify, Pandora , Rdio, Rhapsody, Microsoft’s (MSFT) Xbox Music and Sony’s Music Unlimited. Even Amazon.com Inc. rolled out its new music streaming service to ramp up its Prime offerings.
Lately, there has been a secular decline in digital music sales and subscription-based services are expected to be the next life-line for the music industry. According to ABI Research, music streaming services are expected to generate $5.0 billion in revenues this year. The analyst firm forecasts revenues to grow to $46.0 billion by 2018, which presents a significant growth opportunity.
Given the long term prospects in the music streaming business, the latest acquisition will help Google expand its footprint and help to diversify its revenue stream. However, we believe that intensifying competition will be a major headwind.
Currently, Google has a Zacks Rank #2 (Buy).
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