JAXSTA (ASX:JXT)- The world’s “GO TO” knowledge base for anything to do with music and the music industry
After several years of development, the beta version of the Jaxsta platform was launched in June 2019 providing music fans with the most comprehensive database of music credits and the only one with official data directly from the source. Jaxsta Pro, the company’s paid B2B subscription product, is expected to be launch in H2 2019.
The company listed on the ASX in December 2018 via the shell of Mobilarm. I recently spoke with Co-Founder and CEO, Jacqui Louez Schoorl to discover more about the company, its vision and strategies.
|Date of Report||ASX||Price||Price Target||Analyst Recommendation|
|Date of Report20/02/19||ASXST1|
|Sector: Technology||52-Week Range: $0.090- 0.46|
|Industry: Internet Content & Information||Market Cap: $28.75 million|
What do you do?
Jaxsta has built the world’s most comprehensive official, knowledge base for music. The database holds over 100 million individual music credits, release data, charts, news and more. It covers all genres, extending back into the 1960s and earlier. Jaxsta’s vision is to establish the platform as the prime music data source for credits. The B2B subscription model launching later this year, Jaxsta Pro, intends to be the industry’s version of IMDb (the film and TV industry database owned by Amazon) meets LinkedIn and Bloomberg.
The problem that Jaxsta is seeking to solve is that there is no central or unified database for the music industry. Whilst, the musicians and writers of particular songs are usually known, other professionals, such as producers, engineers, session musicians and others associated with the production are mostly forgotten. As a result, it is very difficult today to identify key professionals and their history. This is important for the attribution of appropriate credits, royalty management as well as for the development of collaboration and networking opportunities.
The platform, jaxsta.com, in beta form was launched in June 2019 and provides free access to an enormous amount of production information about songs, albums and performers as well as links to Spotify and Apple Music. This is a must have site for music fans. The point of this site is to build and drive consumer traffic; to establish the platform as “THE” location for all authoritative information about music.
The commercial side of the platform, Jaxsta Pro, will be accessible to industry professionals and will include news feeds, music chart feeds and alerts, the ability for artists and industry professionals to update their profiles and key information including contacts for collaboration purposes. This information is the lifeblood of label management, agents and producers as well as the thousands of radio stations around the world. The commercial platform is expected to be launched by the end of the year and will generate revenue from membership and access fees which will packaged for individuals and wells as enterprises.
Jaxsta’s commercial API product is set to launch after Pro, providing licensing fees from potential deals with digital service providers such as streaming services and smart speaker companies.
What is the business case?
The global recorded music industry is large but it has been in crisis for the best part of 20 years as the traditional distribution model has been disrupted. It has faced a “near death” experience as the sales of music in a physical form (vinyl, CD etc) have plummeted. Total industry turnover bottomed in 2014 at US$14.2 billion before recovering to US$17.3 million in 2017, still well below its 1999 peak of US$25.2 billion. A number of new revenue channels have emerged; the largest and most important being streaming which generated US$6.6 billion in 2017. It barely existed in 2011.
Streaming has not only saved the industry, it has been transformational as it provides total control to the listener and access to a vast array of information that was not previously available or easily accessible.
The opportunity gap has arisen because the industry has been in survival mode with centralised data management being a relatively low priority. This contrasts with the film and television industry where there is an enormous knowledge base available to the public led by IMDb. It is into this gap that Jaxsta has moved. There are a number of sites that purport to be music industry knowledge bases but none other than Jaxsta have official, industry sourced information, let alone the comprehensiveness of over 100 million credits, 30 million+ pages and over 6 million profiles.
Jaxsta has said that its addressable market is about 1.5 million with a practical opportunity of 250-500K users. This suggests an annual revenue opportunity of around US$40 million from individual subscriptions and before enterprise and other revenue sources. The model is validated by the likes of LinkedIn, IMBd, Spotify and others with freemium characteristics and large user bases.
What the key elements to get right which will drive success?
The key to success will be gaining the support of industry professionals, in particular the leading labels, distributors and streaming groups. Apart from providing volume, these groups will drive a network effort which will attract and harness individuals, much like LinkedIn.
What have you achieved?
Apart from building and launching its public site, the most significant and important achievement has been securing of data feeds from Universal Music, Sony Music and Warner Music, who dominate in the music industry.
In June 2019, Music and Entertainment Rights Licensing Independent Network B.V. (Merlin), granted Jaxsta a licence and authorisation to use Merlin and its participating member’s data worldwide. Merlin is the digital rights agency for the world’s independent label sector. The organisation’s members embody more than 10,000 independent record labels and distributors from 63 countries.
With Merlin on board, Jaxtsa now has access to data from both major labels and independent labels; sources that represent approximately 90% of the global recorded music industry. This is unparalleled and a massive competitive advantage in terms of building the ultimate “GO TO” source for anything to do with music.
In securing these usage agreements, Jaxsta has obviously established strong relationships with the industry’s key players which will be invaluable when the commercial site is launched before the end of 2019.
The company listed via the shell of Mobilarm, however the disposal of the residual business, Marine Rescue Technology (MRT) has been a legacy issue. The business has been sold for about $6 million with settlement to occur in stages over the next 18 months.
As the company is very much early stage, its financials are relatively basic. It is pre-revenue and generated an operating cash flow deficit of $2.3 million in the June 2019 quarter taking the deficit for the 12 months to $6.2 million. Cash reserves at the end of June were a touch under $2.5 million having raised $3.3 million via a placement in May.
As MRT has been sold it has been de-consolidated from the balance sheet and its value is recognised as a receivable. This receivable and intangibles represented nearly 60% of total assets as at 31 December 2018. Most of the remainder was cash. Payables were $2.9 million and there was a small amount of debt ($809K).
What do I think?
I am very impressed with what Jaxsta has achieved. There is no doubt regarding the scale of the opportunity and the validity of the business model. Success will be all about execution.
We assess the key risks being time frame to launch of the commercial model and securing enterprise agreements and the rate of subscriber growth. In other words, what is the shape of the revenue curve and the time frame to positive cash flow and ultimately profitability. If enterprise agreements are quickly secured, the curve may be very steep, early. This will have a direct bearing on the second key risk being financing. Cash resources look to be tight and the question is how much additional capital will be required before the company is cash flow positive. We expect another capital raising will be required before the end of 2019 or early 2020.
The company is well supported by a number of institutional investors. Market cap is currently about $46 million (@20c per share) but commercial validation will likely propel the valuation considerably higher. In the short term, the lack of revenue, cash burn and capital position will most likely weigh on the share price but newsflow regarding the launch of the commercial site, securing enterprise deals and strong subscriber growth rates are potential positive catalysts for 2020.
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