Twitter's (NYSE:TWTR) six-second video looping site Vine recently introduced new music features to its iOS and Android apps. Creators can use a new feature called "Snap to Beat," which can use repetitive parts of a song for never-ending loops. A list of "Featured Tracks" lets users pick from a list of popular songs to add to their videos, while tapping the music note icon in a video will display information about the song. Vine has also teamed up with Billboard to include Viners in its Social 50 chart of the most active music-focused social-media accounts.
The addition of music to Vine could represent an interesting new way for Twitter to monetize the app, which had 100 million monthly active users at the end of last year.
Will Vine follow Shazam's footsteps?
The addition of background music could enable Vine to use a similar business model as Shazam, which identifies songs from brief audio samples. After Shazam identifies a song, it displays links to buy the track from digital music stores like iTunes, then earns a portion of each purchase as a referral fee. Shazam has since expanded that service to TV shows and films. Shazam estimates that out of its 17 million daily "tags," 5% to 10% convert to a digital purchase. The service, which generated $47 million in revenues in 2013, had 100 million monthly active users as of last August.
If Vine offers similar music purchases for its 100 million users, it could finally start monetizing the platform. Vine could also offer deeper integration with the Twitter accounts of artists, record companies, or digital music stores. For example, when users press the music note icon, they could choose to buy the track or follow the musician or record label on Twitter.
However, the key difference is that Shazam only identifies a song and offers music previews with external apps (YouTube, Spotify, etc.), while Vine Music plays a clip internally and exposes itself to licensing fees. Vine is only offering about two dozen copyrighted songs for now, and it didn't disclose whether it's getting the tracks for free or paying licensing fees.
If Vine can convince record labels to provide promotional music samples for free, it could be a win-win situation for both parties. But if record labels charge Vine licensing fees for every loop played, it could crush its chances of monetizing music purchases.
Why should Twitter monetize Vine?
Shares of Twitter have plunged 25% since the beginning of the year and now hover near its IPO price of $26. That steep decline was caused by slowing user growth, the failure of new ad initiatives, and a lack of a permanent CEO.
Last quarter, Twitter's monthly active users rose just 15% annually to 316 million -- its slowest growth since going public. Revenue rose 61% during the quarter, but that represented a slowdown from 74% growth in the previous quarter and 124% growth in the prior-year quarter. Meanwhile, Twitter's polarizing decision to let marketers only pay for the interactions they wanted caused it to charge less money for fewer clicks.
As Twitter's main site stagnates, Vine becomes a potential new source of revenue. Yet Twitter has repeatedly dismissed suggestions that it should monetize the platform's 100 million users, who view over a billion six-second loops daily. The only step Twitter has taken toward monetizing the app is purchasing Niche, an online talent agency that brokers endorsement deals with social-media celebrities on Vine and other social networks. That move gives Twitter a potential cut of big advertising deals with top Viners, but it's a far cry from stable monetization strategies like video ads and in-app music purchases.
Baby steps in the right direction
Even if Vine can generate comparable annual revenues to Shazam's, it would still only represent a low single-digit percentage of Twitter's top line. But if Vine opens its API to automated ad buys from mainstream marketers like Instagram, its importance could grow. Vine Music is a baby step in the right direction, but it won't mean much unless Twitter can effectively monetize the platform with digital music partnerships and in-app purchases.
Leo Sun has no position in any stocks mentioned. The Motley Fool owns and recommends Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.