Facebook's Next Big Move: Music?

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

By Tom Taulli of InvestorPlace.com

ROCKVILLE, MD ( InvestorPlace) -- Facebook is an entertainment destination, with a massive global audience (the latest count: 750 million users). While it has had much success allowing people to communicate, it looks like the company is gearing up for the next step: adding premium movies and music. Move over Rupert Murdoch, get ready for the next media network.

As should be no surprise, Facebook has big ambitions. Keep in mind that the company recently named Netflix ( NFLX) CEO Reed Hasting to its board.

The company's first move into the media business may be music. Blogger Jeff Rose found that some of the code for the company's new video chat system has hooks to music downloading. Some of the keywords include "MusicDownload" and "vibes."

A music service may be a part of a partnership with Spotify, a Swedish music-streaming service which has gotten lots of traction in Europe. One of its key backers is Sean Parker, who was one of the masterminds of Facebook. He was also part of Napster.

Related article: Google+ vs. The World - Can Google Beat Facebook?

No doubt, a deal with Spotify could be huge. Just look at Zynga -- the company has built an online gaming franchise on Facebook. According to Zynga's latest IPO prospectus, it has generated over $1.5 billion in bookings since its inception in 2007. In fact, the company is expected to generate the same amount in 2011!

Interestingly enough, Spotify may enter the U.S. market sometime in July, perhaps even this week. A Facebook-Spotify combination would definitely be a big problem to rivals. One of those rivals is Pandora ( P), which recently came public and has already given shareholders a wild ride.

However, the big issue for Facebook's media move is really the long term. It will certainly take some time for a new service to grow and gain subscribers (Facebook is known for testing the market). But this is likely to take increasing market share from Pandora.

Given that Pandora already was expecting to generate losses for the next several years, this could make it tough for shareholders to get sustainable returns, especially with its hefty valuation.

Tom Taulli's latest book is All About Short Selling and he has an upcoming book called All About Commodities . You can find him at Twitter account @ttaulli. He does not own a position in any of the stocks named here.

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  • This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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