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published:
24-Apr-08
territories:
USA
categories:
Merger/takeover/investment deal, Technology deal
Sony acquires digital media identification firm Gracenote
Sony Corporation of America (SCA) will acquire Gracenote – a firm specializing in digital media identification and recommendation technology – for $260m. The deal is expected to close in May 2008. The firm will continue to operate as a separate unit and senior management will remain unchanged.
Gracenote currently provides various services:
• MusicID: used in applications in online and mobile devices, such as PCs, portable devices, mobile phones, in-home and in-car stereos. Referring to a database, the service can identify and write tag information on tracks. Examples range from tracks played back on a PC jukebox to identification of music captured on a mobile phone microphone. The database holds information on over 6 million albums, 80m tracks and 8m audio waveforms and was developed out of "CDDB", the CD recognition platform. The database receives 2bn database requests per month, from over 300m unique users annually.
• Music recommendation: generates track recommendations using a combination of methods, both human and computer-based – editorial classification (including genre); software analysis of track characteristics (digital signal processing or DSP); consumption data fed back from users of Gracenote applications.
• Related information: other than track metadata such as artist, track and album name, background material to tracks - including lyrics, artist biographies, cover art and reviews – can be supplied.
• Analysis of track information to generate playlists.
More recently, the company has been extending beyond music classification and recommendation, developing a similar line of products for its Video Platform. Five solutions are due to arrive in phases until mid-year 2009: VideoID-DVD (DVD and Blu-ray disc recognition); VideoID-file (fingerprinting and recognition of digital video for content owners); Video Link (enables serving of video-related products when a video file is played back, i.e. option to buy disc); Video Recommendation Engine; Media Monitoring and Monetization (enables content holders to tag, monitor, control usage, filter and monetize online files). The firm reported in January 2008 that it hopes to add data for over 300,000 DVDs and one million total video programs – the largest tagged catalogue of video globally.
Device manufacturers and service providers currently partnered to Gracenote include Apple (iTunes); Yahoo and Winamp (online music platforms); Samsung, Sony Ericsson, KDDI, KTF, Musiwave (mobile music services); Alpine, Panasonic, Philips (in-home and in-car device applications).
Reports indicate the company could earn $40m in revenue in 2008, although the company does not make this figure public.
Our take...
Gracenote holds a strong position in the music identification and recommendation sector, due in part to its extensive product line and widely-used CDDB platform. The CDDB is typical of the company's business model: revenue generation from licensing fees that are comparatively small but highly frequent, coming from a broad range of affiliates.
The expanding number of devices beyond the PC that have integrated Gracenote's solutions – reaching to in-car stereos – coupled with the business' established position serving a wide number of phone manufacturers and operators suggest good prospects. Indeed, Gracenote's product features have been developed to meet rising trends in consumer behaviour. For example, music recommendation and playlist generation are playing a central role in emerging content-focussed social network sites; the ability for users to hear and then find out a track's name via a mobile phone is also a popular service feature.
As the parent of Gracenote, Sony stands to benefit from these licensing fees. Additionally, the acquisition enables Sony to cost effectively incorporate the technology in a range of multimedia devices produced by Sony units - including Sony Ericsson mobile phones, PlayStation consoles and future hardware – as a way of increasing functionality and user appeal.
Significantly, Gracenote is aiming to extend its name in the CD recognition and music fingerprinting space into the comparatively untapped video disc recognition and filtering/monetization sectors. DVD and Blu-ray recognition is a core service that is likely to supply a significant source of revenue on top of music solutions. Furthermore, given well-backed content owners' concern for the growing amount of pirated video online, Gracenote's software that can help fingerprint and eliminate copyrighted content is well set to produce revenues from the likes of user-generated video site operators, or even ISPs, looking to avoid legal action from rightsholders.
As a player with well-known products and a firm focus on widening its product line further, Gracenote, wedged in the value chain between the content owner and the service provider, is likely to prove a solid investment for SCA.
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