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Google Enters Streaming Music Arms Race with Purchase of Songza

By  +Follow July 2, 2014 10:37AM
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Google Inc. (GOOG)  has purchased Songza, a Long Island-based streaming music service that uses situational context to generate music playlists.

Talks between the two companies have been ongoing for at least a month, as the New York Post reported in early June that Google was offering around $15 million. Songza successfully held out for a higher bid from Google, which upped their offer to over $39 million, according to The New York Times.

The deal is a strategic move for Google to seize a larger piece of the high-growth streaming music industry and keep users engaged with its devices and services. Google hopes to build Songza and its 5.5 million subscribers into a legitimate competitor.

There has been a recent series of acquisitions for streaming music businesses, but even with Beats and Lala under Apple’s (AAPL) control, Twitter (TWTR) owning SoundCloud, Pandora (P) dominating internet radio, and Spotify boasting over 10 million paying users, Google still has the resources to build a true rival.

Songza’s product is unique and intuitive because it assembles playlists based on the situation. For example, on a Friday night, Songza will offer playlists for dance parties, unwinding, romance, bedtime, and so on. Playlists are entirely different by Saturday morning.

The acquisition is unlikely to affect Google’s bottom line whatsoever. Even Spotify, with $500 million in revenue, is still losing money, and Pandora's struggles are well documented. Yet, major tech companies are paying premiums to buy out streaming music services to improve user engagement and remain musically competitive with their rivals. One has to wonder if Samsung (SSNLF) is next to make a similar acquisition.

Google shares traded flat during trading on Wednesday, hovering around $582 most of the day.

However, Pandora reacted positively to the news as investors continue to speculate that the company could be primed for an acquisition. The stock rose 2.4% to $30.30, up 24% for the month.

 

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions.


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By  +Follow July 2, 2014 10:37AM
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