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Apple Has Opportunity to Succeed Where Pandora Has Failed

Imagine a scenario where a streaming platform, chock full of both historical and real-time listening, music preference, demographic, geographic and other types of data, opens their mines (and minds) to everybody from record labels to musicians to concert promoters to marketers to major brands. It's all about unleashing "the firehose of data" (as Twitter calls it) and maximizing the largely untapped value in music -- the one thing everybody uses to sell everything.

Record labels use data from Shazam to inform radio airplay:

The company's data from tags of songs is an increasingly-important metric within the industry too. Witness Secretly Label Group's Hannah Overton's comments about its use by radio playlisters in the UK, at the recent Music Connected conference: "It's all about Shazam now really. It's the main factor they look at over all other factors: where something is Shazamming in the pre-release chart," she said.

This use of Shazam's data ties into Cohen's quote about knowing who the customer is. There's a marriage between the two excerpts streaming radio can effectively officiate.

Record labels can take data from streaming services such as Pandora and use it to inform everything from radio airplay to touring schedules, merchandise sales and the real value (beyond the pittance of a royalty) of a particular song with respect to marketing activities. If Pandora's unwilling to step up and provide that data (quite possibility because of competitive reasons, re: informing radio airplay, or strategic reasons, re: the battle over royalties), an Apple/Beats combo could be more than ready to seize the opportunity Pandora leaves on the table. Apple, given its dominant position, simply doesn't have the same strategic-competitive concerns. 

By doing that, it opens the floodgates. Major brands would absolutely love to use the mounds of music data streaming services collect to build consumer profiles and learn how to better move product, quite often with music working as the emotional trigger to prompt purchase and build brand loyalty. It's an area Nielsen (NLSN) is already already delving into with broadcast radio.

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Would the revenue generated from these and other activities -- from, say, self-serve databases of historical and real-time data, licensed to labels, marketers and brands -- be a windfall to a company like Apple? Probably not. I'm still working various sources to quantify the precise value of the data, but the amount will not be negligible and it absolutely would move the needle at pure playing streamers looking to boost the bottom line, be it Beats as a subsidiary of Apple or an independent Pandora. (Twitter's data licensing business, which includes data derived from all tweets -- not just music-related tweets -- already grosses about $70 million in sales. That's 10% of Twitter's total pie).  

But beyond building a fresh and potentially lucrative revenue stream, data helps complete just one more piece of the puzzle to owning the digital music landscape. If Apple sells data to labels and such, it makes money on top of mobile advertising and subscription revenue, but it also builds goodwill with the labels. That could mean even sweeter royalty deals than the ones Apple already finagles as well as more dynamic promotes and partnerships. Plus you dig deeper into knowing who your users are and, if you play it smart, who the people are who access Beats Music on, say, an Android phone.

Bottom line -- outside of what's happening at Nielsen, Twitter and a handful of other places, building a data business as it relates to music represents a largely untapped area. I know Beats Music has wanted to go there since prior to its public debut. That was going to be a significant part of their business. It's a game Jimmy Iovine talks. I can't imagine a situation where he joins Apple's executive team and drops that mission, because there's wide-ranging value there. Iovine and his colleagues at Beats know this.

That has to be part of what got Apple excited enough to pull the trigger (presumably) on a little multi-billion dollar M&A in the first place.

--Written by Rocco Pendola in Santa Monica, Calif.

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Rocco Pendola is a full-time columnist for TheStreet. He lives in Santa Monica. Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.
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