As part of the ShareBuyers’ going for growth series, we take a look into the growth prospects of 7digital (LON: 7DIG) – one of the most talked about AIM-listed technology stocks over the past few months.
With news that its music catalogue is powering hugely popular TikTok rival Triller and an accelerated demand for music catalogues around the world – it is easy to understand why its share price is up by over 600% in the year to date and there is so much interest about what’s next for the business.
In this feature, 7digital Chief Executive Officer, Paul Langworthy, talks about how 7digital is now ready to enter a period of sustainable and profitable growth across international markets as well as how he’d pitch the business to legendary investor Warren Buffett!
Firstly, could tell us a bit about your business and its value proposition?
7digital’s mission is to enable innovation and growth in the music industry using our leading global music platform. Our technology platform provides access to a global catalogue of music as well as the core services and functions required to launch music-based products and streaming services. In so doing, 7digital simplifies access to music, and helps brands build the best music experiences that keep their users connected and engaged.
Our music platform is market leading and provides access to a truly global catalogue of over 80 million standard and high-res tracks in over 82 territories. Every month, the platform ingests more than one million new tracks from more than 300,000 labels and publishers all around the world. We liaise with the rightsholders and provide the technical framework to provide our clients with seamless access to high-quality, legally compliant music. These clients range from large enterprises to start-ups and digital innovators, including consumer and social media brands, online fitness technologies, mobile carriers, broadcasters, automotive systems, record labels and retailers.
Over the last year, we have pivoted the focus of the business to ensure we capitalise on our core technology and industry relationships. As a result, we have built up an exciting pipeline of new customers and established a foothold in some of the fastest growing markets, positioning 7digital for profitability and sustainable growth.
The current climate is presenting challenge and opportunity – how has this applied to 7digital?
These are unprecedented times for us all, and I am immensely proud of the 7digital team for rising to this new and challenging environment. In 2020, we have continued to support and improve services for current clients, while also creating value for new markets and models.
Capitalising on 7digital’s leading music platform, global music catalogue and industry experience, we have been able to retain a focus on growth in traditional services, and also prove a strong product-market fit in emerging trends and formats where music streaming plays an integral role in customer engagement. In particular, we are seeing substantial interest from three markets: social media, home fitness and artist monetisation.
- Social media: the success of TikTok is representative of the contribution of music as a primary driver of engagement on social media and the popular influence of apps built around video and music-driven user-generated content. We recently signed a deal to power Triller, a fast-growing competitor which has actually overtaken TikTok to top the App Store in more than 50 countries around the world.
- Home fitness: Fitness, health and wellbeing have become a crucial driver of the growth of the music industry, delivering streams and new fans for artists. Building on our recent contract with Apex Rides, we are engaging with multiple fitness companies looking to music-driven workouts as core to engaging their target audiences. A leader in the space, 7digital offers the only end-to-end solution, incorporating a pre-cleared fitness catalogue, music delivery, advanced playlist curation, and reporting.
- Artist monetisation: Before COVID-19 the live industry was projected to generate $28.8b in revenue in 2020. Since the shutdown, artist managers, labels and brands are looking for new ways to monetise music consumption through sponsorships, music and merchandise. To this end, we have partnered with eMusic to launch eMusic Live, a first-of-its-kind virtual concert platform that combines audience interactivity with the most advanced commercialisation tools available including music sales, tickets and ticket bundling, and in-video merchandising.
By focusing on traditional streaming services and these new strategic markets, we have been able to win significant new contracts throughout 2020 and build an extensive commercial pipeline of clients offering similar or more disruptive services, which should provide plenty of newsflow for investors both in Q4 2020 and continuing into 2021.
Growth catalysts are crucial to business growth – what do you believe yours are?
Streaming is being adopted by consumers at a staggering pace, accounting for 56% of all music sales in 2019 and driving the fifth consecutive year of growth according to the IFPI. Yet while 3 billion people listen to music every day, only 255m are paying for streaming services. We think there is great opportunity in diversification of services, enabling the industry to capture the 2.5 billion people who listen to music, generally offline or on the radio, for free every week. This is the underlying driver for us as we power the future growth of the industry through the adoption of music in new technologies and digital formats.
As mentioned, the pandemic has only further accelerated adoption, and is also leading to a rise in new forms of user consumption in fast-growing markets. This requires significant flexibility to serve new formats and models that the company is well-positioned to deliver – creating a catalyst for growth in the coming weeks, months and years. On top of this, our shift to a highly productised technology offering means that more of this growth will drop straight down to the bottom line, driving profitability.
This is all supported by our extensive network of relationships within the music industry. For example, by offering a comprehensive pre-cleared catalogue of compliant music, we can create a safe, cost-effective way to deploy music in new innovative use cases and across new markets. This is a significant long-term growth catalyst for 7digital.
What are the biggest headwinds you foresee to achieving growth in the coming months and years? How will you tackle them?
The biggest headwind at the moment is clearly the impact of COVID-19 on the music industry and the wider global economy. However, we have mitigated against this by focusing on new markets that are accelerating and are likely to continue growing even in a post-COVID world as user consumption trends make a semi-permanent shift and new, disruptive formats gain traction. In fact, we actually had a bigger pipeline of new clients heading into H2 this year than we did at the same time last year. Our commercial team is very busy at the moment which gives me great encouragement and validates our strategy.
Having successfully repositioned the business, we recently raised £6m in an oversubscribed equity raise alongside a £1m credit facility with Investec. This will allow us to rapidly grow the business and scale up our operations sustainably. Our cloud-based technology platform is highly scalable and will enable us to seamlessly service new clients with music requirements in territories all around the globe.
Imagine you find yourself in a lift with Warren Buffett. What would be your ‘elevator pitch’ to summarise why he should invest in 7digital?
Music consumption is growing – three billion people listen to music every day, but only 255m are paying to do so. Brands need music as a key customer engagement tool and will bring huge value to the industry with mass audiences and innovative platforms, but the industry’s complexity sets a high barrier to even the biggest consumer companies seeking to tap in and participate. 7digital exists to simplify access to music and reduce the costs so that brands can succeed in enriching their customers’ lives with music, while ensuring the industry can continue to diversify and grow. We have worked in the industry for over 15 years and have built the expertise and technology to support the frameworks that exist today and the consumption models that will shape tomorrow. By enabling both established businesses and innovators to build new and diverse music-based experiences, we play a leading role in driving the whole market forward.
Please note: this discussion with Paul Langworthy of 7digital forms part of the ShareBuyers’ going for growth series – helping companies with high growth potential to share their story. It is not a recommendation to buy or sell shares in 7DIG.