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TEAM 07 High-Tech Entrepreneurship course, July 2015
AGENDATeam and ideaMarket AnalysisStrategyFinancial AnalysisSummary
TEAM
Team
Elisabeth Ulander (CPO)
Francesco Gambardella
(CEO) Uros Jovanovic
(CFO)
Mustafa Guray Taydas (CAO)
Vladimir Stoiljkovic
(CTO)
ANALYSIS
IDEA STRATEGY
FINANCE
SUMMARY
Mission
“To use music as the key connection bridge and communication tool
between venue owners and visitors and provide customizable and
ultimate in-venue music experience, through online and real-
time interaction based on musical taste.“
ANALYSIS
IDEA STRATEGY
FINANCE
SUMMARY
IDEA
Problem
ANALYSIS
IDEA STRATEGY
FINANCE
SUMMARY
Solution?
ANALYSIS
IDEA STRATEGY
FINANCE
SUMMARY
Media Player
App Choose the venue and perform
check in Vote and suggest songs Play their songs Match people with similar music
taste
Licensed music for businesses Improve customer satisfaction Customer analytics Greater visibility of the venue
Solution
ANALYSIS
IDEA STRATEGY
FINANCE
SUMMARY
MARKET ANALYSIS
Market trendsThe global recording industry passing through a new transitionGlobal digital revenues increasing year over yearMusic subscription services becoming a major driver of digital growth
46%46%
8%
Share of industry revenues - 2014
DigitalPhysicalPerformance rights and sync
Permanent downloads
Subscription streams income
Mobile personalization
Ad-supported streams income
Other
0 0.1 0.2 0.3 0.4 0.5 0.6
52%
23%
3%
9%
12%
Global digital revenues by sector - 2014
* Taken from IFPI Digital Music Report 2015
ANALYSIS
IDEA STRATEGY
FINANCE
SUMMARY
Competitors
Competitors AMUSING
MelOn
Rockbot
Spotify Business
Social Jukebox experienceSearch for a venue based on user’s music tasteUsers participation in the music played in the venueUnlock of the rewards and special discountsLicensed music for business venuesImproved visibility of venue ownersEngagement with customers through notificationsAnalyticsEasiness of usePresence in South Korea
ANALYSIS
IDEA STRATEGY
FINANCE
SUMMARY
Licensing
LICENSED
MUSIC
PERFORMING RIGHT
ORGANIZATIONS
RIGHT HOLDERS
Right holders % of revenue
Writers 10% of revenue from one subscriber
Performers 6% of revenue from one subscriber
Producers 44% of revenue from one subscriber
ANALYSIS
IDEA STRATEGY
FINANCE
SUMMARY
* Taken from government pay-per-stream system in South Korea
Selection of the country
Highest number of bars per capital
App addicted populatio
n
Android driven market
Government
pressure on venue owners
No direct competiti
on
Indicator Japan USA Brazil South Korea
Number of bars in capital per 100.000 people
108 88 133 231
Performing market size (millions) 78,837 391,864 55, 545 7,974
Performing market growth rate 13% 46 % 103 % 89 %Competition presence NO YES NO NONumber of apps installed 36,4 32,8 22 40,1Internet Bandwidth (kb/s per person) 52 36 44.8 63
ANALYSIS
IDEA STRATEGY
FINANCE
SUMMARY
* Sources : IFPI Digital Music Report 2015 , WCCR 2014, Statista 2013
STRATEGY
Target groups and sizeVenues
Festivals
App users
1. Single location venues with normal capacity of visitors (10 -100)
2. Low number of locations (<5) with large capacity of visitors (over 200)
3. High number of locations (10 to 1000) and normal capacity of visitors (30-200) Music festivals, public parties and
similar events
Visitors of the business venues, festival and events with smartphone access
8,697
22,006
145,037
700+
9,3 M
ANALYSIS
IDEA STRATEGY
FINANCE
SUMMARY
2015• Develop product• PRO agreement• Funding round
2016• Launching in SK•Market penetration• Database expansion
10kVENUES
300kHITS
3MSONGS
ANALYSIS
IDEA STRATEGY
FINANCE
SUMMARY
Timeline and Milestones
2015• Develop product• PRO agreement• Funding round
2016• Launching in SK•Market penetration• Database expansion
2017• App promotion • Token system• Strong advertising
22kVENUES
1MHITS
10MSONGS
ANALYSIS
IDEA STRATEGY
FINANCE
SUMMARY
Timeline and Milestones
2015• Develop product• PRO agreement• Funding round
2016• Launching in SK•Market penetration• Database expansion
FUTURE• Finding potential buyers• Entering Japan and Brazil
2018•Maintain high MS • Further expansion • Keep churn rate low
70kVENUES
1.5MHITS
14MSONGS
2017• App promotion • Token system• Strong advertising
ANALYSIS
IDEA STRATEGY
FINANCE
SUMMARY
Timeline and Milestones
One time fee (200€)+
Monthly subscription (40€ -50€)
Freemium model (free download +
tokens for extra service)PRIC
EPL
ACEM
ENT
PRO
MOT
ION
MEDIA PLAYER APPLICATION
Sales agents Website Android market
Trials Special events
Strategic partner
ReferralOnline
ANALYSIS
IDEA STRATEGY
FINANCE
SUMMARY
4Ps and Marketing Strategy
FINANCIAL ANALYSIS
Software & App devel-opment - 150,000 €
Negotiate with PROs, and label houses - 20,000 €
Prototype testing - 10,000 €
Agreement with label house - 25,000 €Initial marketing campaign
- 25,000 €
HQ opening in Seoul - 250,000 €
Korean partner for legal issues - 20,000 €
TOTAL START-UP PHASE COST = 500,000 €
ANALYSIS
IDEA STRATEGY
FINANCE
SUMMARY
Startup phase costs
Pessimistic ScenarioRealistic Scenario
2015 2016 2017 2018
7M6M
5M4M3M2M1M0
-1M-2M
1st Round 2nd Round
Distribution through Fore-casted Years
Cum
ulat
ive
Net
Cas
h flo
w in
€
Capital Needs for Start-up 500,000 €
Personal Funding 50,000 €Crowd funding 30,000 €Minimum investment needed 420,000 €
Investors 420,000-500,000 €25% - 35% of shares will be sold to Investors
1st Round Fundraising in 2015-Q4
2nd Round Fundraising in 2017-Q1*Optional in case of pessimistic scenario
ANALYSIS
IDEA STRATEGY
FINANCE
SUMMARY
Capital Requirements
Cost of Service Structure
Royalties 50%Streaming 37%Commission 13%
Average Revenue Structure
Subscription 64%Media Player 32%
Selected Data from P&L and ROI
Income Statement(Realistic)
2016 2017 2018
Total Revenues 4,237,53011,577,60
032,809,15
0
Cost of Service 3,166,054 9,275,11225,320,62
5
Total Expenses 834,500 1,544,000 1,984,000
EBIT 236,975 758,488 5,504,525
Profit 189,580 606,790 4,403,620
ROI 37.92% 121.36% 880.72%
ANALYSIS
IDEA STRATEGY
FINANCE
SUMMARY
Revenue and Cost Structure
2015 2016 2017 2018Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
PES* -110000 0
-2745
0-64395 -15909 -58062 51 38049 179655 353669 980569 1529415 2503791 301021
1
REA* -110000 0 3833
1 65947 188229 223580 174180 417169 718552 864371 1988654 3093633 4565305 530199
1
OPT* -110000 0 4552
07 886720 1354993
1390926
1802803
2512600
3406459
4268811
6326903 9003115 1274667
1146357
12
OPT*REA*PES*
Net Present Value 2018 19,9 M
5,03 M
1,19 M
Enterprise Value 2019 161,36
M 53,05 M
23,55 M
Q4-2016
Q1-2018
Q3-2018
Payback Period
Breakeven Point 9093 clients location
Cumulative Cash Flow With Minimum Investments
* PES- Pessimistic REA-Realistic OPT-Optimistic
ANALYSIS
IDEA STRATEGY
FINANCE
SUMMARY
Cash Flow and Indicators
SUMMARY
Conclusion
Key Partners Key activities Value Proposition
Customer Relationship
sCustomer segments
National Performance Right Organizations
Record companies
Hosting and audio streaming providers
Korean partners regarding legal issues and sales
Software development
Obtaining music database and licenses
Setting up streaming service
Finding right partners
Media playerLegal music streaming with added extra features Mobile App Better in-venue experience
Sales representatives
Online technical support
Website
Venues Festivals App users
Key resources Channels PPL music
licenses Music database Media player and
app Organizational
team
Local sales agents
Online selling Google Play
Cost Structure Revenue Streams Prototype development and software PPL music licensing Royalties Music streaming and hosting costs Marketing sales and wages costs
Software one time purchase price Monthly subscription fees Advertising space in mobile app On request license for events App’s tokens system
Thank you for your attention!
APPENDIX
Political factors
• Government Pressure on Streaming Services
• Good Government Incentives for Start-ups
• North Korea Disputes
• Strong Foreign Relationship (EU Improving)
• Unemployment Rate (3.2 %)
• Strong military influence
ANALYSIS
IDEA STRATEGY
FINANCE
SUMMARY
Economical factors
• Relatively low Tax Rate (20%)• GDP, PPP Growth Rate (2.8%)• Low Interest Rate (1.75%)• Low venture capital availability (2.1 out of
7 rating)• Exchange Rate (1€ = 1,25 KRW)• Liberalized service sector
ANALYSIS
IDEA STRATEGY
FINANCE
SUMMARY
Social factors
• Tech Savvy. Population• K-POP music Phenomenon• Most Active App Users• High Education Standards• Nationalistically oriented and Language
Barriers • Growing local aversion for foreign companies
ANALYSIS
IDEA STRATEGY
FINANCE
SUMMARY
Technological factors and trends
• Most Innovative Country• Fastest Internet and Downloading
Capacities• Android-driven Market • Most R&D Intensive Country• Strong Telecom Sector• Application market is growing
ANALYSIS
IDEA STRATEGY
FINANCE
SUMMARY
Legal factors
• Anti-Piracy New laws about digital music
• Strict Copyright Policies about performing rights
• Only one PRO - KOMCA (partner) • Open-Net Korea Legal Initiative• Over-regulated Governance• Strict legal mechanisms ANALYSI
SIDEA STRATE
GYFINANCE
SUMMARY
Digital music industry factors
• High Share of Digital Music (58 %)• Growing digital music market (+20 %)• Local Music Oriented business• High music Royalty Rates • Strong Music Streaming Services
(Melon, Milk) • No direct competition
ANALYSIS
IDEA STRATEGY
FINANCE
SUMMARY
Application featuresFeature Free TokenUser registration Vote for songs from the playlist in venue Synchronization of music from device, Facebook, Last.fm and other similar services to create a music taste
Sharing on social media Search for a venue based on user’s music taste or genre Suggest music from smartphone’s users library Check-in in the venue Visualization of all songs in the playlist Discovery of currently playing songs in the venue Ad-free experience Matching users with similar music taste “Prioritized instant request” of the song to be played next Vote counts for 10 votes Access to DJ’s Club Rewards unlock and participation in special offers
Media player margins
Expected Margin from Media PlayerPrice Decision 2016 2017 2018Media Player Price (one time) 200Development Cost 10000 20000 20000Total Expense 834500 1544000 198400
0Commissions on Software (40%, 30%, 20% with years )
80 60 40
Forecasted Numb. of Buyers 9300 13250 46000Unitary Fixed Cost 90.81 118.04 43.57Expected Margin 109.19 81.96 156.46
ANALYSIS
IDEA STRATEGY
FINANCE
SUMMARY
Price calculation for subscription
Streaming, Licensing and Copyright Costs by Music Venue
Monthly based on one location (€/month)
Franchise
Premium
Indie
Licensing Cost (to KOMCA ) 11.67 15.17 11.67Streaming Cost (Data Transfer)
4.15
Copyright Cost - 60% of Subs. Revenue
24 30 24
Monthly Subscription Fee 40 50 40Contribution Margin 0.18 0.68 0.18Copyright Cost 41.61 ANALYSI
SIDEA STRATE
GYFINANCE
SUMMARY
SWOT analysisStrengths Weaknesses
Licensed music solution for businesses allowing music to be played in public environments
Creation of the strong social integration between customers
Innovative concept: easy and intuitive First mover advantage in South Korea HQ location in Seoul allows exploiting
Asian market Overall system architecture allows easy
expansion to other countries
Mandatory agreement with record companies and performing right organizations
Lack of competences in software programming, legal aspects and South Korean culture
Lack of patent in the initial stage Big amount of revenue goes to right
holders and performing right organizatioons
Opportunities Threats Wide potential of the market may result
in fast growth of the company Exploitation of tech-savvy community Functional outsourcing possibilities Continuous product innovation through
R&D
Time required to develop a product could be higher than expected
High entry barrier costs Potential competitors copying the idea
ANALYSIS
IDEA STRATEGY
FINANCE
SUMMARY
Income Stateme
nt
2016 2017 2018
Scenario PessimisticRealisti
cOptimi
sticPessimi
sticRealist
icOptimis
ticPessimi
sticRealist
icOptimis
tic
Total Revenues
2794530 4237530
11162030
7807600
11577600
26659600
22587150
32809150
69040150
Cost of Service
2052091.5 3166054.5
8631373
6135187.5
9275112
21560743.5
17324971.5
25320625
54140023
Gross Profit
742438.5 1071475.5
2530657
1672412.5
2302488
5098856.5
5262178.5
7488525
14900127
Total Expenses
834500 834500
834500
1544000
1544000
1544000
1984000
1984000
1984000
EBIT-92061.5 23697
5.516961
57128412
.575848
8355485
6.5327817
8.555045
25129161
27
Profit-92061.5 18958
0.41356925.6
102730 606790.4
2843885.2
2622542.8
4403620
10332901.6
ROI-11.88% 37.92
%271.39
%13.26% 121.36
%568.78
%338.39
%880.72
%2066.58
%