Facebook Could Be Huge For Music Sharing And Discoverability

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Facebook IncFB
is reportedly talking to a
number of record labels
, including Sony Music Group, Warner Music Group and Universal Music Group. Little is known about the talks, but it sounds an awful lot like the hype that preceded the debut of
Apple Inc.'sAAPL
music service. Before its official reveal, Apple was thought to be meeting with the industry's biggest labels. "There's a lot that connects social media and any entertainment medium," Rob Enderle, principal analyst at Enderle Group, told Benzinga. "People like to share what they see and like. That's what Zune was all about -- this idea of sharing." Enderle said that it "makes sense" that a social media company "might see this as a feature they can add and create something else people will talk about." "I don't think it's a bad idea for Facebook," he continued. "We'll have to see how they're going to execute. Clearly music is going to be new to them. But because the social aspect of music has always been a big goal for music services, having a social media company decide that music could be a feature seems like a logical extension."

Related Link: Should You Pay To Be 'Liked' On Facebook Inc?

Discovering New Sounds

Global Equities Research analyst Trip Chowdhry compared Facebook's potential venture to that of Apple Music. He said that Apple's service, which is available for $9.99 month, will not annoy listeners with advertisements or other interruptions. "Where Apple Music will fail is discoverability," said Chowdhry. "How do you discover something that's very good if it's a no-name artist? Suppose you [perform] good music but I have no idea. Discoverability will be a problem in Apple." Facebook could excel in that area, but Chowdhry thinks it must overcome a few obstacles first. "[Discoverability] is very strong on Facebook," said Chowdhry. "It adds a lot of value to, say, an unnamed musician. The question to ask is: does it provide a very good value from the consumption point of view? Because Facebook is an ad-driven model, and do you want to be interjected with an ad?" Chowdhry also questioned the success a record label might have by partnering with Facebook. "You can buy 1,000 'likes' on Facebook for $50," he said. "How do you know that's high-quality?" If a "like" can be purchased, Chowdhry is concerned that a similar level of manipulation could be used for recording artists. This would disguise an artist's actual performance and make it difficult to determine if Facebook was successful in promoting the band.

Consolidation Ahead?

Aside from the Apple-Beats merger, there haven't been too many acquisitions in the streaming music space. Chowdhry doesn't expect that to change. He thinks there will be "hyper-specialization" (where there are multiple services meeting the needs of many individuals) instead of consolidation. Enderle, however, thinks that the sheer number of music services mean that "we'll likely see a certain amount of consolidation in the market." "If Facebook executes marginally well, I wouldn't expect them to be one of the ones that goes away because they have the critical mass of folks that like to do stuff together," Enderle concluded. Disclosure:
At the time of this writing, Louis Bedigian had no position in the equities mentioned in this report.
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Posted In: TechAppleApple MusicFacebookGlobal Equities ResearchRob EnderleTrip Chowdhry
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