Analysis: CBS Acquisition of Last.fm - Is it the Technology or the Users?
Author: CNET Tech News CNETNews.com.cn June 1, 2007, 9:41:35 AM
CNET Tech News, June 1st, International Report: CBS has acquired the music social networking site Last.fm, but its plans for how to utilize this site remain unclear.
This $280 million acquisition gives CBS a popular social media technology: Last.fm's music scrobbling engine, which analyzes what songs users are listening to.
Based on scrobbling results, Last.fm provides playlist recommendations to users, creates personalized radio stations, and connects users with similar musical tastes.
This deal continues the acquisition frenzy in the high-tech industry — traditional media companies are using acquisitions as a way to enhance their digital products. For example, News Corporation announced this Wednesday that it had reached agreements to acquire the photo-sharing site Photobucket and the slideshow creation tool company Flektor.
Jupiter Research analyst David, speaking about CBS's acquisition, said that this was a very positive move. Last.fm is a great service. Everyone has a slightly different experience, and it does an excellent job integrating community and music discovery.
According to a statement issued by CBS, the three founders of Last.fm, Miller, Martin, and Richard, will continue to independently operate the site.
However, industry observers have differing views on how CBS will "handle" Last.fm. Since its launch in 2002, Last.fm has over 15 million active users worldwide. This acquisition allows CBS to reach a tech-savvy, music-loving young audience, which is a valuable asset.
But, according to Forrester Research analyst James, the high price of this acquisition suggests that CBS also covets the scrobbling technology. Last.fm's valuation is comparable to the price MySpace paid for Photobucket, but MySpace gained twice as many users.
James said, CBS did not just pay a high price for a rapidly growing audience. In my view, CBS believes it has acquired a useful technology that can be applied across multiple websites.
The official CBS statement also hinted at this. CBS stated that the founders and management team of Last.fm will collaborate with all relevant CBS departments to leverage their community-building and technical expertise to expand CBS's web and mobile business.
However, David firmly believes that CBS is more interested in Last.fm's strong community than its software. He said, I don't think this is a technology game; I believe CBS values Last.fm's community. Many people are already using Last.fm, and it offers users a great experience.
David pointed out that Last.fm's technology heavily relies on its existing user base, making it very difficult to use these technologies in other products. He said, developing collaborative filtering technology is not difficult; many companies have developed this technology, but to make collaborative filtering effective requires a large user base.
In fact, even James admits that CBS might want to acquire Last.fm, but it would not be easy to scrobble other CBS content. He explained, scrobbling technology fits perfectly with music, but it doesn’t yet work well with video or news — content CBS possesses in abundance.
Currently, almost all social media acquisitions come with legal troubles: just look at Google's acquisition of YouTube. However, so far, Last.fm has successfully avoided the copyright issues plaguing the digital music industry.
Kramer Levin analyst Randy said, Last.fm is impeccable when it comes to copyrights; it does not allow unauthorized downloads and pays licensing fees.
Although there are currently no copyright disputes, the congressional debate about increasing internet radio licensing fees could soon affect Last.fm. CBS paying these licensing fees would not be a problem, but it would reduce Last.fm's profitability.
According to James, selling music could be a way out for CBS. He said, the pressure of rising licensing fees has led more and more online radio stations to turn to music sales as a way to increase revenue, because advertising income is insufficient to offset the losses caused by the rise in licensing fees. This is why Pandora signed a music sales contract with Sprint.
CBS has devised a plan to handle potential issues. Randy said, I believe CBS has analyzed all these factors and formed its own opinion.