The latest earnings results from digital distributor the Orchard painted a picture of a company with a focused long-term strategy for an increasingly competitive marketplace.

For Q1 2009 ending March 31, 2009, the company reported revenues of $15.3 million, up 16.5% versus Q1 2008, and a net loss of just over $1 million. Such results were expected due to seasonality in music sales and one-time annual expenses that fall in the period. The results were also affected by the timing of certain deals that had yet to be closed. Read the company's press release here.

There were a few key themes in the earnings call. First, The Orchard is seeking to differentiate itself by offering a higher level of services. The company's distribution fee is three-to-five times greater than those of its competitors, said president Greg Scholl during the call, but the company would rather attract clients though the value of its services instead of lowering fees to gain market share. The company's focus is not on the near term but the long term - a familiar refrain from music companies over the last two weeks of earnings releases.

Offering value to clients relates to expenses, another theme of the call. The Orchard is trying to balance being mindful of costs with the need to build the company to be competitive over the long term. As such, operating expenses were up 20.3% and as a percent of revenue inched upward to 37.1% from 35.9% in Q1 2008 and 34.3% for fiscal 2008. The drivers of cost increases were mainly bad debt expenses, foreign exchange currency transaction losses and franchise taxes. Nearly 19%, or about $180,000, of the increase in operating expenses was related to the additional staff for the company's physical distribution arm that was acquired in its purchase of TVT assets last year. Physical distribution accounted for only about $600,000 in Q1 but will be a valuable part of the Orchard's overall tool kit. Nearly 15% of the increase in operating costs was related to moving its headquarters in New York.

The company now has a catalog of 1.4 million tracks, up 28.4% versus Q1 2008 and up 6.8% sequentially. iTunes is the Orchard's number one retail partner, followed by eMusic and Verizon. The company had 16.4 million paid downloads, up 40% year-over-year. About 61% of catalog was downloaded at least once. Its active catalog had 18.8 downloads per track. TVT assets accounted for 9% of revenue and offered higher margins.

Questions? Comments? Let us know: @billboardbiz

Print