Tesco snaps up Peter Gabriel's We7

Tesco has snapped up Peter Gabriel's We7 digital music service - making around £2m for the ageing rocker.

The £10.8m move sees Tesco get closer to digital entertainment services. But what will British consumers gain from the deal? And can Tesco make money from it long-term?

Music without frontiers

"This move will help us offer a greater choice for the growing number of customers who want to access music instantly on any device," says Mark George, Tesco's Digital Director, "whenever and wherever they want. WE7 has a great team and a good technology platform from which we can launch a range of digital music services in the future."

But first, what is We7? It specialises in creating bespoke personal radio stations for users. You tap in what kind of music you like on We7's website and We7 creates a play list of similar music. It's free with the website funded by advertising. Think of it as a digital jukebox.

Retail analyst Patrick O'Brien from Verdict told AOL Money Tesco's acquisition should help the supermarket sharpen its act against players like Spotify. "It's an interesting one. It [We7] hasn't been profitable. It isn't a direct competitor to Spotify. You can't choose exactly what you want to listen to. It's based on an engine with Last FM, a music recommendation site."

Spotify rival?

He adds: "The idea was We7 didn't have to pay the royalty rates that Spotify has to. That makes it more viable for a free, ad-supported service. Tesco has done quite a bit of work in its BlinkBox [online movie site] acquisition."

Tesco's investment is around £10.8m - chunky but not enormous. O'Brien thinks one route Tesco could follow is integrating We7's technology then going to the copyright holders, using We7 as a launchpad to compete with Spotify - full-music streaming for the masses, in other words.

"Tesco has the leverage to do this," he says. The entrepreneur behind We7, Steve Purdham, business parter to Gabriel, says in a press release that Tesco's customer base, marketing channels and global clout makes it the "perfect partner to bring WE7's music services to a wider audience. Tesco has been an innovator in entertainment retailing for many years and we look forward to continuing this innovation digitally."

But whether Tesco can make serious money from this acquisition remains unknown.

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