Earlier this week, Sainsbury’s purchased a majority stake in ebook retailer Anobii from HMV for £1 in what was the latest example of a major retailer trying to extend its footprint into the world of digital content.
Yesterday, we saw another example of this same trend as Tesco purchased UK-based music streaming service We7 for £10.8m.
According to The Telegraph’s Emma Barnett, Tesco already owned 91% of We7, but is purchasing the remaining 9% and will apparently be doubling down on its investment by launching new services through We7 in the next several months.
As We7 co-founder Steve Purdham sees it, Tesco’s ownership will be a good thing. “With its loyal customer base, numerous marketing channels and international reach, we believe Tesco is the perfect partner to bring We7’s music services to a wider audience,” he stated.
The wider audience part is important: We7 is nowhere near as popular as its bigger rival Spotify. Late last year, the company ended its free on demand streaming service and made changes designed to help it stand out. At the time, Purdham was still confident that his company could compete with the Spotifys of the world. “I think there is room for lots of digital music streaming services and we still haven’t seen one of the biggest players, Apple, fully wade into this space…but we feel there is more commercial gain to follow the radio model with ‘on air’ adverts rather than subscription services and free on demand streaming,” he was quoted as saying.
Obviously, Spotify’s popularity has only increased since that time, so it’s not clear that We7’s approach is working. The big question, of course, is whether Tesco can really change that.
In selling to Tesco, We7 is taking an increasingly popular path. More and more upstarts looking to scale are aligning themselves with big companies in the hopes that those big companies can provide more than just capital. This isn’t just happening in the digital content market. Earlier this year, for instance, UK shopping site mySupermarket raised money from ad agency WPP. The reason: the company’s CEO believed “WPP provides more domain expertise and their breadth of relationship is unparalleled in both the data and advertising worlds.”
At the end of the day, there’s little doubt that strategic investors and acquirers with deep pockets can help also-ran services survive in an effort to bolster their own digital offerings, but in the next couple of years we’ll see if they can really help them thrive.