Although Epidemic Sound has been making waves for years, it’s been a slow road to profitability for the Sweden-based music production house.
That story seems finally to be turning around, as the company announced on Tuesday (April 25) that it swung to a positive EBITDA – albeit a small one – last year.
However, the company’s operating profit (EBIT) was still in the red.
In its annual report for 2022, Epidemic clocked an EBITDA of SEK 2.818 million (USD $278k) on net sales of SEK 1.181 billion ($116.7m).
That compares to a negative EBITDA of SEK -54.819 million (-$6.4m) on net sales of SEK 694.2 million ($80.9m) the year before.
Epidemic posted an operating loss (EBIT) of SEK 491.566 million ($48.6m) in 2022, widening 21% on the operating loss it posted in the prior year (see below).
Epidemic’s solid gain in net sales in 2022 was made on “significantly stronger streaming revenues,” the company said in a statement.
The company’s partnership sales segment, which includes streaming revenue, saw a 117% YoY increase, to SEK 435m ($43.0m).
Within the report, co-founder and CEO Oscar Hoglund predicts Epidemic’s music will soon be heard 2.5 billion times a day on YouTube.
Epidemic’s value proposition is simple: It offers businesses and content creators access to rights-cleared audio content they can customize however they want. In other words, it’s a one-stop shop for enterprises that don’t have the resources, or time, to license more expensive, copyrighted music.
Epidemic’s business model revolves around producing large amounts of audio content, including music and sound effects, which it then licenses to businesses, or provides to content creators (such as on YouTube and TikTok) for a subscription fee.
It also generates royalties from streaming (its tracks are available on all major streaming platforms) and shares recorded music royalty revenue 50-50 with the track’s creators.
It boasts a music catalog of 40,000 tracks, along with 90,000 sound effects.
In 2022 Epidemic acquired A-P Records, a Swedish label focused on mood music.
“Through the acquisition, [Epidemic] strengthens its position within the mood music arena by boosting its capabilities to soundtrack people’s lives via music streaming platforms and by adding the opportunity to work with world class mood musicians from a record label,” the company said at the time.
“The global demand for restriction-free music continues to develop strongly, despite a more demanding economic backdrop, and our 2022 full-year results is a strong proof point of that.”
Oscar Hoglund, Epidemic
Epidemic’s business model has caused the company to come under fire from some quarters in the industry.
Some have criticized its roster of “fake artists” – meaning artists whose music appears under pseudonyms – and in 2019, the company took criticism from the European Composer and Songwriter Alliance for “using 100% buy-out contracts – where music creators sell their rights to a piece of music in exchange for a lump sum.”
While Epidemic does pay 50% of royalties from streaming to creators, that’s not the case when its music is commissioned for use in commercials (the company boasts that its sounds have appeared in ads for lululemon, Walmart, and Estée Lauder) or by social media creators.
Nevertheless, the controversy swirling in some corners of the industry hasn’t stopped Epidemic from attracting some big-name investors, including Blackstone, the world’s largest alternative asset manager, with around $900 billion in assets under management.
Blackstone joined Epidemic’s most recent funding round, in 2021, which gave the company a valuation of $1.4 billion.
According to Epidemic’s latest report, Blackstone owns 18% of the company through its fund Blackstone Growth (see below).
That makes Blackstone the second-largest single shareholder, behind Sweden-based investment group EQT, which holds 32%.
In all, Epidemic has brought in more than $500 million over five funding rounds.
In a statement, Hoglund said: “The global demand for restriction-free music continues to develop strongly, despite a more demanding economic backdrop, and our 2022 full-year results is a strong proof point of that. The goal of Epidemic Sound is to facilitate both artists and customers to achieve creative and commercial success. Across 2022 we have therefore been working relentlessly to take away any friction that is standing in the way of that success, through improved software functionality and product features.”
Hoglund continued: “Through our solid balance sheet, support of our shareholders and Board of Directors, together with several key recruitments, we have both the financial strength and the team in place to continue on our growth journey and scaling up of our business.”
All SEK to USD conversions in this story have been made at the average annual rate as published by the IRSMusic Business Worldwide