Once, all you needed to succeed in the music business were a pair of golden ears and some hustle. Now, it also takes mountains of data.

The Sweet, Streaming Sound of Data



Daniel Ek, chief of the music streaming service Spotify, which has bought a company that analyzes music consumption patterns

Once, all you needed to succeed in the music business were a pair of golden ears and some hustle. Now, it also takes mountains of data.

That is the thinking behind a string of recent music technology deals, including Spotify’s announcement on Thursday that it had boughtthe Echo Nest, a company that analyzes music consumption patterns and was founded by computer scientists from M.I.T.

With the industry turning digital, music companies can now understand their customers’ listening habits in greater depth than ever before, which has led to fierce competition over access to data. Over the last month, Warner Music formed a partnership with the popular music-identification app Shazam and the music mogul Lyor Cohen teamed up with Twitter. Both of those deals centered on the ability of social media to point the way to the next big hit.

Daniel Ek, chief executive of Spotify, said that the Echo Nest acquisition would help his company “improve the customer experience” by giving its 24 million users better suggestions about what songs to listen to. The deal also gives Spotify a programming advantage in the competitive market for monthly subscription streaming services, which also includes Rdio, Rhapsody and Beats Music. (Spotify also has a free version, with advertising.)

The Echo Nest is one of a handful of companies specializing in the arcane but valuable science of music data, examining what songs are being listened to by whom, and how. It makes this information available to its clients, including major media companies like Sirius XM, Clear Channel and Univision, which use the data primarily for music-related apps.

“Analyzing music preferences is something we’ve been doing for a long time,” Jim Lucchese, chief executive of the Echo Nest, said in a joint interview with Mr. Ek. “But being directly wired in, and sitting alongside the Spotify team, will give us the ability to push products a lot faster and learn a lot faster than we could before.”

The deal seemed to set up a possible conflict for the Echo Nest’s other clients, which include some of Spotify’s competitors. Mr. Lucchese said his company would honor its current contracts with these services, but gave no other details. The company, based in Somerville, Mass., will become a subsidiary of Spotify, and its offices and 70-person staff will be kept intact. Further terms were not disclosed.

The purchase of the Echo Nest added to speculation that Spotify — started in Sweden in 2008 and now in 55 markets around the world — is beefing itself up in advance of an initial public offering of stock. On Thursday, a Spotify spokesman declined to comment on its plans.

Music streaming companies like Spotify and Pandora are part of a broad category of online services that rely on technology to crowdsource recommendations. Whether for books on Amazon or films on Netflix, these companies use complex algorithms to comb through their users’ activity to suggest new purchases and products.

Advertisers are also interested in people’s media consumption habits. Echo Nest introduced its advertising plans last year, and in February, Pandora said it had begun selling political ads based on the listening patterns of its 75 million users — Bob Marley fans are usually Democrats, for example, while gospel and country listeners lean Republican.

But with the rise of music data, a contrary view has also taken hold that protests the mechanization of taste. The streaming service Beats Music trumpets the wisdom of its programmers, many of whom come from radio or the record industry, in selecting music. Beats Music has made a marketing strategy of mocking some of its rivals as tone-deaf recommendation programs.

And some music executives openly worry that discounting their expertise for pure data would threaten their jobs and result in “a horrible, soulless, robotic society,” as one put it a conference in Norway last month.

That man versus machine view may be in the minority, however, as more music companies embrace the idea that the vast troves of user data from sources like Shazam, Twitter and Spotify can be tools for talent scouts — known in the industry as A&R executives, for artists and repertoire — and, moreover, that in a competitive environment, using them has become a necessity.

Rob Wiesenthal, chief operating officer of Warner Music, who led the company’s deal with Shazam, said he believed that the new technology could serve as a complement to the trained ear of a music executive.

“There isn’t a substitute for the gut and instinct of an A&R professional,” Mr. Wiesenthal said. “This is art and not computer science.”

Eric Garland, the general manager of Live Nation Digital, pointed out that search and recommendation algorithms had been common in music since the dawn of the web. “Recommendation engines tend to be based on correlations: People who like this also like that. The editorial approach reflects the very specific and idiosyncratic tastes of an individual,” Mr. Garland said. “As humans, we desperately need both. We need to be understood, respected, mirrored, but we also need what we don’t have.”

On Thursday, Mr. Ek, a staunch technologist, took an oblique swipe at Beats Music and its use of humans to pick song selections over the ability of pure data to deliver an enjoyable stream of music. (Beats Music also makes use of algorithms in tailoring music to each user.)

“We believe that the right Christmas mix isn’t just put together by some editors, or even the fact that 100 people can decide what the entire world should listen to,” Mr. Ek said. “We think it’s the combined knowledge of millions of people that make it super interesting.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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