5 Reasons Why Facebook Won’t Spend its IPO Money on the Music Business

After raising $6.84 billion in its initial public stock offering, Facebook will have more than enough cash on hand to acquire a major music company or two. A major music publisher or record label can be had for a few billion dollars. Same goes for a major concert promoter or digital music service. Facebook could buy Universal Music Group or Spotify and have enough money left over to run its operations.
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But don’t hold your breath. There are always calls for some technology company to buy a media company in order to capture the synergies between the two. Years ago pundits urged Apple to buy a major record label or two (Apple will know how to save the music industry, they said). Every now and then somebody will suggest an Internet service provider buy a music subscription service (not the strangest pick considering Comcast merged with NBC). And while it wouldn’t be totally inconceivable for Facebook to buy Spotify (the two are closely intertwined), Facebook shouldn’t make such an expensive bet that Spotify will be the king of digital music for the next decade or two.
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No, Facebook won’t get into the media business by buying music assets. It’s frequently called a media company even though it’s really a conduit used by media — record labels, publishers, newspapers, magazines, TV and film studios, other video producers and a bevy of advertisers — to reach consumers. Facebook is a technology company and will focus on the types of things that will make it a better technology company.
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Here are five reasons Facebook won’t delve into the music business after its IPO.

— Facebook will focus on its mobile shortcomings. The company admitted in its Securities and Exchange Commission filing it “[does] do not currently directly generate any meaningful revenue from the use of Facebook mobile products, and our ability to do so successfully is unproven.” It finished March with 488 million monthly average users on mobile devices but receives the vast majority of its revenue from advertising related to desktop advertising.

— Social connections are still the most important thing to Facebook. The company has a war chest to fund acquisitions of products and teams that will help people get in touch and stay connected. In fact, Facebook has been on a buying spree for years: the company acquired Glancee earlier this month, picked up location-based social app Gowalla in December and acquired group messaging service Beluga in March 2011.

— Facebook needs to improve its advertising’s effectiveness. According to WordStream, Facebook have a lower-than-average click-through rate (0.051% compared to average of 0.1% and Google’s click-through rate of 0.4%).

— Facebook excels at user-generated media, not traditional media. Facebook does not originate, create or own any of the music, music videos or movies streamed through the platform. Nor does Facebook own any of the games offered on its platform. Instead, Facebook either charges rent (30% of digital goods purchased with Facebook Credits) or generates advertising revenue on the views associated with those media items. Facebook is really good at getting its users to upload their own content such as photos and videos.

— What does a technology company know about running a music company? It’s easy to see the possible synergies on paper: Facebook streams a lot of music and helps people find a lot of concerts, so why not buy a music subscription service and a concert promoter? It’s happened before: Clear Channel got into the live music business so it could promote the shows on its radio stations. But Facebook will stay within its comfort zone and stick to refining and improving the world’s most popular social network.




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