Universal Music, Sony Music and Warner Music All Take Cash Stakes in Shazam

8:38 PM PST 05/14/2014 by Yinka Adegoke

The companies are betting on an IPO for the business, which is valued at $500 million.

Universal Music Group, Sony Music Entertainment and Warner Music Group all bought small stakes in privately held Shazam Entertainment in recent weeks, according to several people familiar with the talks.

The majors bought equal stakes valued at around $3 million each from Acacia Capital, a UK-based fund early investor in the Shazam which was said to be seeking liquidity according to one person familiar with the transaction.

News of the transaction was first reported by the Wall Street Journal.

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Shazam’s most recent round of funding valued the business at $500 million. Depending on the terms, each major’s stake would be less than 1 percent. Given the 14-year old company is expected to be exploring the possibility of an IPO, the majors might stand to make a significant profit on their stakes.  Leveraging the value of music and music-based relationships was highlighted last week with news that Universal Music’s early 14% stake in Beats Electronics for next to no cash investment could produce a windfall of nearly $500 million in total after Apple made a $3.2 billion bid to buy Beats. This latest Shazam deal is slightly unusual in that the stakes are being bought for cash from a third party, rather than based on a valuation of the respective labels' licensing rights to the start-up.

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Warner Music, which is owned by billionaire Len Blavatnik, struck an alliance with Shazam in February,  which would see the third major identify popular new artists early on and potentially sign them to a jointly owned label.

Shazam’s song ID system has been one of the music business’ biggest discovery tools, referring nearly $300 million worth of music sales last year according to sources.

Shazam, which was founded in 2000 as a mobile app that can identify songs quickly developed into a data and research company that has expanded its technical capabilities to also recognize television shows and movies. Its app is used to identify about 500 million pieces of content a month, or roughly 16 million a day. The British technology company has a reference database of more than 35 million songs and is adding about 1 million new tracks a month. In addition, Shazam has employed a team of several dozen people who scour music venues throughout the world to capture new and local music in an effort to make its database as comprehensive as possible.

This story first appeared at Billboard.com.

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