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Nielsen Holdings NV
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Shazam seemed like magic when it debuted in 2008 on the iPhone. The app can identify nearly any song playing on the radio, even over the din of a coffee shop. It’s been downloaded more than 200 million times and become modestly successful; by steering buyers to iTunes (AAPL) and other music services, it generated about $24 million in revenue for the 12 months ending June 2011, the most recent figures available.
Now Shazam Entertainment is moving away from its musical roots. David Jones, vice president of marketing, says Shazam’s audio-matching technology can do more than help barflies settle bets about what’s playing on the jukebox. It can, he says, help advertisers and broadcasters make money from TV viewers increasingly distracted by iPhones and iPads. According to Nielsen (NLSN), more than 40 percent of tablet and smartphone owners use their devices to read e-mail or scan the news while watching TV. Instead of fighting this attention-deficit trend, Shazam says media companies and marketers should embrace it.
Over the past 18 months Shazam has built technology so viewers can use the app to take an audio snapshot of TV shows and ads as they would a song. (The company’s name is the verb that describes this action: “Just Shazam it.”) During the Super Bowl, for instance, commercials from Toyota Motor (TM) included a small logo prompting watchers to Shazam the ad to enter a contest to win a Camry. The startup counted more than a million tags on ads from Toyota, PepsiCo (PEP), and other game sponsors.
Shazam now offers the same feature for TV shows and live events. The big test will come during the Summer Olympics, which begin July 27. Through a partnership with NBC Sports (CMCSA), viewers will be able to use Shazam to get extra info about athletes and events and to participate in polls as they watch. Says marketing chief Jones: “We’re planning to demonstrate that second-screen experiences have arrived, are mainstream, and can be quite useful and compelling.”
And potentially profitable. Shazam hopes the NBC partnership will help it gain exposure with advertisers, which pay the startup a flat rate based mostly on the size of the campaign and the number of likely viewers. While Shazam insists music is still critical, it’s hoping to carve off a sliver of the $189 billion spent on TV ads globally each year. “This is a bet-the-company kind of thing,” says Matt Murphy, a partner at Kleiner Perkins Caufield & Byers, one of Shazam’s biggest investors.
One goal of the Olympics tie-in is to condition viewers to turn to Shazam for learning more about what they’re watching. Shazam had to invest in new technology to make its app work for live events. With songs, Shazam has plenty of time to load new tracks into its database, where algorithms decipher their unique elements so they can be recognized later. For the Olympics, Shazam’s servers listen to broadcasts in real-time and have only seconds to analyze them. “It’s like a conveyer belt where you’re just a little bit behind,” says Doug Garland, Shazam’s chief revenue officer. A fan watching, say, the 100-meter butterfly swim event might Shazam it to get stats on Michael Phelps and real-time medal counts.
It’s a neat trick, but the nagging question is whether viewers will treat it as anything more than a novelty. For most people, tagging a song to discover new music is more enticing than tagging an Old Navy (GPS) ad for a deal on corduroys. And Stephen White, the president of Gracenote, Sony’s (SNE) audio-recognition unit, says Shazam’s strategy risks running afoul of broadcast and cable companies. “They’re really concerned about what happens to their advertising revenue,” says White, whose company sells technology so others can build Shazam-like features into their apps. “They’re going to be much more aggressive in terms of asserting what they consider to be their rights around the content.” Media companies will increasingly want people using their own applications, not Shazam’s, says White. Walt Disney (DIS) and Viacom’s (VIAB) MTV are among those creating their own tablet and smartphone apps to keep people engaged as they watch The Lion King or the MTV Video Music Awards.
Shazam says it’s careful to work closely with broadcasters and shares some of its revenue with those making the shows, though it won’t go into detail. With more than 200 million users, Jones says its built-in mobile audience is an advantage. Says Heather Way, an analyst with Parks Associates who has studied the company: “Shazam has the biggest opportunity because they already have a huge footprint.”
The bottom line: To snare a piece of the $189 billion TV ad market, Shazam wants its 200 million users to tag ads just like they do songs.