Before 1997, this would have been the most oblique and half-baked venture ever to solicit public money. And it still might be. Digital Music Group, whose website’s bevy of information amounts to “Stay tuned for more information soon…,” is looking to raise $33 million in an IPO of 3.7 million shares ($8-$10 apiece) under the ticker "DMGI" on the Nasdaq.
In spite of DMGI's seeming obscurity, quite
a bit is known about the company.
According to Marketwatch,
Digital Music, based in
The company has rights to over 200,000 tracks and about 88% of its revenue came from iTunes, with a current sales agreement in place with Apple through April 2007. Per Hoovers, the firm changed its name from Online Music Corporation to Digital Music Group in 2005. Presumably using the funds it raises from the IPO, DMGI plans to acquire rival Digital Musicworks International and assets of Rio Bravo Entertainment (doing business as Psychobaby). Digital Musicworks reported a loss of $1.2 million and revenue of $256,000 for the nine months ending Sept. 30. Rio Bravo Entertainment reported net income of $43,000 and revenue of $234,000 in the same period.
“Our strategy is to rapidly acquire by purchase or license the digital rights to as many music and other sound recordings as possible,” the company said in its offering prospectus. “Our focus is on acquiring rights to back-catalog, out-of-print, past hits and independent-label recordings, including those that are not currently available for sale in traditional music retailers.”
The Sacramento Business Journal reports that DMGI’s top sellers include Fats Domino’s “Blueberry Hill” and “Ain’t That A Shame,” Eddy Grant’s “Electric Avenue,” “Build Me Up Buttercup” by The Foundations, “Five O'Clock World” by The Vogues and “Dead Man’s Curve” by Jan and Dean.
Pro forma results for the company show revenue of about $224,000 and a net loss of $866,172 for the six months ended June 30. The company has never been profitable, but revenue has increased in each successive quarter and losses declined from first-quarter 2005 to second-quarter 2005.
I-Bankers Securities Inc., and FTN Midwest Securities Corp., not exactly a white-shoe tandem, are the underwriters.
Pretty clearly, this is an undiluted long-tail play and little else. If DMGI is providing any special metadata services beyond simply digitizing the music, they’re in no rush to tell anyone about it. And unlike the Independent Online Distribution Alliance, IRIS Distribution, the Orchard, Digital Rights Agency or other aggregators of independent music, DMGI doesn’t trouble itself with marketing its music beyond simply dumping it in the music services’ catalogs.
So why these guys? How much upside is there to a company that hopes to cash in on the digital rights to Eddy Grant and Jan and Dean? When you look at what is offered by the other content aggregators in independent music, DMGI starts to look distinctly under-baked and thus the unlikeliest IPO candidate I’ve seen since the late 1990s. Whatever money they raise this year will probably be a great measure of the frothiness of the digital music industry.
1. That was a great write up. Buy CMG (chipotle) instead.
Posted at 11:08PM on Jan 24th 2006 by Micah