Kazaa Discovered, Short Squeeze On and Head to Head with Spotify

July 26, 2011 at 12:54 pm Leave a comment

It appears that the word is finally starting to get out about Atrinsic and Kazaa. As we have discussed here previously, the introduction of Spotify to the US consumer market has been a huge positive for Kazaa as the storm of media coverage surrounding it continues to do much of the “heavy lifting” of educating the masses about the value proposition of the “on demand” streaming music subscription model. We believe that yesterday’s price action in Atrinsic shares was sparked by the recognition (finally) of investors that Atrinsic is currently the only way to invest in an “on demand” streaming music service. Of course, we are aware that the “true public float” is now well below 1 million shares and that the short interest in the 600k range was essentially a tinder box looking for a spark. For those of you who are tempted to sell your stock now, you should give strong consideration to the fact that there remains a number of things (iPhone/iPad app, Kazaa Radio, official name change to Kazaa, etc.). that we expect to see announced by the company that could be a catalyst for extending what appears to be a pretty effective short squeeze. We would not be surprised to see any one of these items announced this week and we would not be surprised at all to see yesterday’s rally extended as more traders realize what is happening here. Images of Travelzoo are undoubtedly dancing in some trader’s heads as more are obviously piling in to grab a few of the shares in what likely remains (even after yesterday’s huge volume traded) a sub 1 million share public float vs. a 600k range short interest. To put it simply, this stock could rise to $100 per share regardless of whether Kazaa becomes the new iTunes (i.e. the must have music app) simply due to the action of traders continuing to pile in to the stock to further squeeze the short sellers. While we are not saying this WILL happen, we are saying that it CAN, it HAS (see a TravelZoo chart from 2004-2006) happened and the growth potential for Kazaa (Spotify valued at $1 billion+) combined with the obvious consumer appeal of its products and limited number of shares creates the perfect storm. The bottom line here is that you will want to hold on to some of those ATRN/Kazaa shares.

Given all the media hype associated with Spotify’s lauch 10 days ago and in light of the fact that Kazaa offers substantially the same service but has received little, if any attention from the media, we decided to run a head to head comparison of the two services. A member of our community registered for Spotify’s premium tier of service so that it could be compared with Kazaa’s similarly priced ($9.99) mobile service. The notes from this test are included verbatim below:

I signed up for the new Spotify premium service at 9:02am on July 15. I have been testing it since then and I think its a great service with some aspects that consumers will like find superior to Kazaa’s current offering. However, I found Kazaa to be superior in several key facets including speed and accessibility. Here is a brief detail of the key items I compared –

1) Speed – Advantage Kazaa. Kazaa is currently faster, with quicker load times and none of the stalls that we frequently experienced with Spotify. My tests were run head to head in multiple locations, but the bulk of the testing was done in the Orlando Florida area during the middle of the day (between 12pm and 2 pm) and during the middle of the night (between 12am and 2 am). I have read of the articles comparing Spotify with MOG, Rdio, Rhapsody etc. and they all indicate that Spotify is faster. Perhaps Spotify was bogged down due to so many new users all at once (the test was run July 16 – July 23), but regardless, Kazaa ran quicker and without the “resets” that occurred frequently with the Spotify service during testing.

2) Catalog of Songs – Advantage Spotify. Spotify has more tracks. Spotify offers 15 million and the Kazaa service was listed at 5 million two quarters ago. Though I know expansion of the database has been a priority for Kazaa, I doubt they are in the range of Spotify yet. I ran searches for several kind of random songs by not so popular artists (mostly from the 80’s) and found 2 out of five on Kazaa and 4 our of 5 on Spotify. After such a rigorous and uber-scientific method was used, I am confident that Spotify still has a larger base of tracks to pull from. However, I have to say that it is kind of annoying when you search for a specific track and you get 8 versions of the same song and three of them are covers by unknown artists and two of them are karaoke versions. I saw that quite frequently on Spotify.

3) Bells & Whistles – Advantage Kazaa. The basic features (search by track, album, artist) were offered by both and easy access to listen to, create and share playlists were also offered by both. Ringtones and Lyrics were the two big features that were noticeably absent from the Spotify offering. Kazaa offers ringtones and lyrics to most songs and Spotify offers neither ringtones nor lyrics.

4) Accessibility – Advantage Kazaa. Spotify requires the download of its client software to your computer before you can listen to music, Kazaa allows you to stream music without downloading. If you are accessing the service solely on a mobile phone, this is no big deal because Spotify has a good app. However, if you are wanting to access your music from your computer at work, you are probably out of luck with Spotify because most company networks would block such a download. This would not be an issue with Kazaa, where you can just go to http://www.kazaa.com and you can stream music without downloading any software.

In summary, Kazaa bested Spotify in three of the four key measures that I used to grade each service. While Spotify wins hands down in the promotion and marketing of its service, many consumers who tried them side by side might find the Kazaa value proposition to be greater.

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Spotify, Facebook Vibes and Kazaa’s Billion Dollar Question Update on ATRN, VTRO & Time for New Focus Stock Recs

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