Jay Z is buying a streaming service that ‘is not fully funded for the coming year’

Jay Z may need to show deep pockets if his latest acquisition, HQ streaming service Tidal, is ever going to seriously take on the likes of Spotify.

An end of year fiscal report from Tidal/WimP parent company Aspiro lays bare the fiscal demands that troubled the business before Project Panther Bidco (PPB) – of which Jay Z is the main shareholder – made a €50m acquisition bid last month.

Most pertinently, Aspiro’s board admits that “given the current strategic plan and the associated capital needs, the company is not fully funded for the coming twelve months”.

It adds that it hopes a successful takeover from PPB could ‘give rise to new funding opportunities’, and that although it has ‘many promising growth initiatives, primarily related to the expansion of Tidal… these initiatives are currently unprofitable and capital consuming’.

Aspiro AB posted a net loss of 84.1m SEK (€8.9m) for the last calendar year, off the back of a 22% increase in net revenues to 303.2m SEK (€31.9m).

The Swedish firm’s Independent Bid Committee has now concluded that PPB’s bid is a fair one, and represents a premium of 58.7% compared to Aspiro’s average share price during the last three months.

Other conclusions from Aspiro’s end-of-year report:

  • ‘Both expanding to new markets and increasing the number of users will, in the short term, increase costs (primarily related to efforts to increase number of users, rather than the global expansion in itself), and Aspiro has arguably neither the same scale advantages nor access to funding as its main competitors.’
  • ‘Based on the current cost base and strategic initiatives, the Independent Bid Committee’s current judgement is that this will require significant capital injections over the coming years.
  • ‘Taking Aspiro’s streaming services to the next level requires a dedicated owner with relevant experience and knowledge as the streaming market is highly competitive and evolves rapidly.’

In order to achieve a return on investment that bettered the current bid from PPB, Aspiro concluded it would ‘have to achieve an extreme and unprecedented growth in number of subscribers’.

It added that comparing Aspiro to the likes of Spotify ‘was very limited’ due to its rival’s ‘much larger scale, stronger leadership position, proven product offering and differences in business model’.

Aspiro’s main shareholder, Norwegian company Streaming Media AS (Schibsted, Platekompaniet and Verdane Capital VIII), has already unconditionally accepted Jay Z’s offfer. Schibsted has also publicly announced that it no longer considers streaming music a core business.

On January 31, Aspiro reported that it had a total of 503,000 paying music subscribers, down from 566,000 in January 2014. They say this is due to reduced telecom bundles in Scandinavia.

Telcom bundles make up 78% of the firm’s subscriptions, with HQ-tier user numbers at 41,000, up from 10,000 in January 2014.

Aspiro apparently began a strategic review in the first half of 2014  because: ‘The board of directors identified the need to supply the Company with significant expansion capital to maximise the opportunities for future value creation… its judgement was that this could not be secured under attractive conditions for the Company’s shareholders considering the ownership structure and limited market capitalisation of the Company.’

It was during this process that a sale of Aspiro was mooted and an analysis of its chances of meeting its planned growth strategy over the coming years was carried out.

This concluded that ‘even after deployment of significant amounts of capital the return for shareholders would be very uncertain given the competitiveness of the market’.

 Music Business Worldwide

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