Rockol Tracks: 7Digital talks about undervalued digital audio before flotation

Rockol Tracks: 7Digital talks about undervalued digital audio before flotation

7Digital, the UK-based international digital-music service provider, floats on London’s AIM stock exchange this week as one half of a larger enterprise that will be called 7Digital Group PLC. The move aims to take the company towards its goal to be a leading global powerhouse in high-end digital audio.

The Internet’s disruptive impact on CD sales and the TV industry has got the entertainment sector making a huge fuss over online music and video. 7Digital, however, declares that online audio, including digital music, is still the most underrated content genre in the Internet space.

With ambitions to dominate the world’s business-to-business digital-audio content service sector, 7Digital has merged with UK-based multimedia radio-content production group UBC Media to create a £30 million venture called 7Digital Group when the AIM flotation is completed.

“We’ve always said that we’re committed to high-quality audio. We think the MP3 is old; it is 25 years old. It was invented to solve a problem that no longer exists because of today’s (wider) bandwidth,” 7Digital CEO Ben Drury (pictured) tells in an interview. “There are now more opportunities to increase the quality of the sound.”

The company wants to enable clients, from wireless carriers to consumer brand owners, to offer streaming and download services in local markets or on a multi-territory basis to equal current major players (including Spotify, Pandora, and Apple with the iTunes store and its planned streaming platform via Beats Music) in terms of quality.

Drury, who will become chief strategy officer of the enlarged 7Digital Group, with UBC Media’s boss Simon Cole as CEO, is a digital pioneer who headed BT Group’s very first broadband-music service, which was later sold to Yahoo! His other achievements include being ranked as one of the Billboard magazine’s 40 Under 40 industry executives to watch.

Since co-founding the original 7Digital in 2004, Drury has turned the cloud-based digital-music service provider into the biggest in its field. Its current B2B clients, including Samsung, Astro Radio in Malaysia, and T-Mobile in the US, operate customized digital-download stores and streaming-music services for end users to access via any mobile device anywhere and anytime.

It has a catalog of more than 25 million licensed tracks from major and independent labels licensed for 42 countries and serves about 300 B2B partners. Additionally, it operates its own localized consumer online store in Europe, the US, Australia and Latin America.

7Digital mobile apps are pre-installed in more than 60 million devices. The service can be used on Android devices, iPhones, BlackBerry, Microsoft’s Windows 8, Windows Phone, and can also be streamed via Sonos Wireless HiFi System on any device within range in several rooms.

In May, it formed a partnership with Onkyo, the Japanese manufacturer of hi-fi systems, to extend e-onkyo, its high-definition e-music store, to Europe and North America.

Combining those assets with UBC Media’s content productions and patents for radio services, 7Digital Group is out to be heard by any enterprise with ambitions to offer digital music, especially streaming services.

The ambition to exploit what it says is the still undervalued international audio business sounds valid. PricewaterhouseCoopers, the global accountancy group, predicts that radio and other audio services will generate about $51 billion in (subscription and advertising revenues) in 2018 from $44.5 billion last year. And that excludes music-streaming services, which will be boosted by in-car music.

Like most digital-technology and music industries executives, Drury could not avoid Apple’s recent gobsmacking $3 billion acquisition of Beats Electronics. In his view, however, the move confirmed that the digital-music sector’s transition from downloads to streaming is a reality that Apple’s iTunes, global leader in music-download sales, could no longer ignore.

“Apple has been complacent,” Drury says. “It monopolized the download market and then became a bit arrogant. It thought its success would last forever. iTunes Radio (Apple’s attempt at offering its own streaming-music service in 2013) came out very late, long after the launch of (US rival) Pandora, which was firmly entrenched in the market.”

The fact that Apple, with its reported $160 billion in cash reserves, had to buy out Beats Music and not build its own dynamic rival to US-focused Pandora as well as international service Spotify confirms the sector is being disrupted at an accelerated rate.

“Apple on its own could have created a Beats Music service in a heartbeat, but maybe feared the iTunes brand was too embedded in the download space. But that is great news for us,” he adds.

As everyone focuses attention to how Apple’s current direct-to-consumer rivals, including YouTube and its effectively free streamed music videos, respond to the Beats Music acquisition, 7Digital is building up its place as the frontrunner in the B2B industry.

“There are not many B2B digital-music services out there,” Drury points out. “Some are local players in different countries. But there is recognition that digital music is a global game. You really need a global reach and we think we have the widest reach in the B2B space. We’re not in China and Japan yet, so there is still plenty of room to grow.”

Juliana Koranteng]