“After nearly two decades of disruption, the music industry is undergoing a massive revival. Artists, labels and publishers are cashing in on the growing popularity of streaming platforms like Spotify and Apple Music — and consumers are signing up for subscriptions like never before.” Goldman Sachs, May 2020
The report from the Wall Street bank, entitled Music in the Air, forecasts net/wholesale revenues for the industry will double over the next decade to almost US$47bn.
The half-year to April 30 2020 was a period of consolidation after spending £5.6mln (US$6.9mln) adding to its music library the previous year. Yet in that period the market capitalisation of One Media barely changed.
While there has been a modest uptick since October, the current share price is only now beginning to factor in what's been happening at the company and what, according to the Goldman analysis, should be an appreciating set of assets.
If this irritates chief executive, Michael Infante, then he doesn’t let it show. In fact, his reaction has been to change the way the company goes about buying music catalogues.
One Media’s new Harmony iP business borrows from the equity release plans that dominate the ad slots on daytime TV. So, rather than acquiring a whole music catalogue, Harmony has set itself up buy between 10% and 30% valued on a multiple of the income it generates.
The group adds value to the content by maximising its availability in over 600 digital stores globally, including Apple Music, YouTube, Amazon and Spotify.
It also has a powerful piece of proprietary technology called the Technical Copyright Analysis Tool, or TCAT for short, to clamp down on piracy (more on this later).
One Media will also have the right to match any competing offer for the rump of the collection if or when it goes up for sale.
Harmony has been “very well received” by the industry, Infante reveals.
“We are now seeing some interest. The main driver for a lot of musicians is their income for live performance has been washed away,” he adds.
“The City like the model too … it is a proper initiative that scales out.
“As soon as we are past this summer and we can travel about for meetings, we are going to start ramping up publicity for Harmony and we’ll probably look for a fundraise at some stage to beef up the acquisition in the new Harmony style.”
TCAT: To catch a thief?
Harmony is one of two initiatives the One Media CEO hopes will kick start interest in the business.
The other is the aforementioned TCAT. Initially developed as an in-house asset to detect copyright infringement within legitimate stores, the plan is to roll it out across the record business as a software as a service platform.
The infringements captured by this sophisticated algorithm may be honest mistakes, equally they could be a deliberate attempt to siphon off revenues. In either case, the technology provides record labels another means of policing their IP and maximising income.
TCAT also has functionality that aggregates real-time data, which has several applications: current and historical industry chart information, global music track data for legal disputes, territorial music trends and publisher reporting. It’s informational that might be montised at a later date.
A life of its own
Infante said he “very much intends to give it [the TCAT platform] a life of its own”.
“We are now in discussions about scaling it and how we best scale it to make a second operation in our business,” he adds.
The coronavirus pandemic hasn’t been a major impediment to One Media, which remains profitable, cash-resourced and paying a dividend.
In fact, being a pure-play digital B2B delivery business, with its team working remotely, and with global streaming revenues proving robust during lockdown.
Indeed, underlying revenues for the half-year to April increased 28% to just over £2mln and pre-tax profits were up 177% to £399,236.
“This ‘new normal’ lends itself to our continuing operations and we have successfully proven our robust business model in the first six months of 2020,” Infante said.
Core business remains strong, says broker
According to the company’s broker, Cenkos, the core business of acquiring intellectual property rights and fully monetising them “remains strong as it continues to grow both organically and through acquisitions”.
Cenkos expects One Media’s existing content library to continue to grow its revenue base at around 10%, with the strong pipeline of potential acquisitions “further enhancing revenue growth opportunities”.
Analyst Oliver Holmes concluded that the share price had become “detached” from its fair value, estimating a fair value market cap of £17.8m, equivalent to 12.7p per share.
“It has an easily scalable business model allowing it to expand its geographical footprint, exploit its new product offerings and capitalise on the growth in streaming globally.
“This combined with One Media’s strong pipeline of catalogue acquisitions and its track record of acquiring assets, which are underpinned by low risk content with robust annuity like revenues…bodes well for future financial performance.”