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For Google, Songza Purchase May Represent Its Musical Future

Why the search giant spent $39 million for a 3-year-old music curation site

July 7, 2014 4:20 PM ET
The Songza logo.
The Songza logo.
courtesy of Songza.

Google's $39 million purchase of Songza, a 3-year-old company specializing in custom playlists, signals the latest big thing in digital music: curation.

When Beats Music launched its streaming service earlier this year, founder Jimmy Iovine said: "The song that comes next is as important as the song that's playing right now." Four months later, Apple bought Beats Electronics for $3 billion, leaving rivals in the crowded streaming market — including Google — scrambling to catch up.

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Google Play's multifaceted digital-music service has yet to credibly compete against Spotify for streaming, iTunes for download sales or Pandora for Internet radio — although Google reps insist it's growing rapidly. Songza's 5.5 million user base may not be huge, but it's an affordable way for Google to help users figure out what to listen to, and Songza has been fine-tuning its playlist recommendations longer than nearly any other company. "I don't believe there's any other reason for them to buy Songza," says Bobby Owsinski, a veteran producer for the Who, Neil Young and others who blogs about the music business. "Everyone's looking for an edge, and there's no other apparent edge."

Adds Alex Luke, a former iTunes and EMI executive who is now a venture capitalist: "Just like Apple, Google is making sure it's active in every lane as the music business finds itself."

Over the last two years, the record business has been slowly shifting from selling downloads to emphasizing streaming-music subscriptions from Spotify, Rdio and others — as well as Google-owned YouTube, which provides revenue from video ads. Although track download sales are down 13 percent so far this year, and albums are down 15 percent, according to Nielsen Soundscan, streaming provided $220 million in revenue in 2013. That's an increase of nearly 29 percent, according to the Recording Industry Association of America, and it made up 21 percent of overall record-industry revenues.

"The download market is drying up, and it's drying up more quickly. If the streaming and subscription [model] catches on quickly, a la Netflix, we'll potentially be in really good shape," says Tom Corson, president of the RCA Music Group. "Serving more targeted content that's curated and customized is better for the user. It's about discovery  people need to be guided, and if it's managed the right way, [a service] is going to build trust."

Using Songza, music fans can click on icons with titles like "Waking Up with Energy" and "Foot-stompin' Americana" to find playlists chosen by a staff of DJs, magazine writers and other experts. "They saw music not just as 'we're going to give you a bunch of songs,'" says Robin Bechtel, who specialized in digital music at several major record labels and now advises technology startups. "They saw Songza as more of a lifestyle enhancement  'these playlists really enhance your life, they make you work out better or they enhance your party or make your day.'" Although Google reps wouldn't comment, the search giant could integrate Songza with its YouTube subscription service, rumored for nearly a year and tentatively planned for launch in the next few months.

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