7digital Earnings Up As It Preps Takeover of Last European Competitor

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Digital services company 7digital is reaping the rewards of the global uptake in streaming -- growing revenues by 15 percent year-on-year to total £11.9 million ($14.5 million) and agreeing acquisition terms with its only remaining European competitor: 24-7 Entertainment. 

The London-based company's annual accounts for the year ending Dec. 31 2016 report that licensing revenues rose by 5 percent to £6.8 million ($8.3 million).

Breaking that down, monthly recurring revenue was flat at £4.9 million ($5.9 million), while income from set up fees climbed 22 percent to £1.9 million ($2.3 million).

7digital's creative division, which manages and delivers audio and video programming for broadcasters such as the BBC and Sky Television, generated a further £1.9 million ($2.3 million, up 5 percent), while revenues of its content division rose by 28 percent to £2.6 million ($3.2 million).

In line with 7digital's transition from a service dependent on download sales to streaming subscriptions, streaming accounted for £3.9 million ($4.7 million) of total sales, up 14 percent year-on-year. In December 2016, it delivered record sales of 228 million music streams to over 16 million people. To place that in context, in the whole of 2015 it delivered 72 million streams to around 3 million people. Downloads generated £897,000 ($1 million), down from £935,000 ($1.1 million) the previous year.

The post Brexit fall in value of pound sterling was a contributing factor in 7digital's financial performance as a significant proportion of the company's revenue is denominated on US dollars.

That was not enough, however, to prevent an operating loss for the period of £5.2 million ($6.3 million), although that did represent an improvement on the £7.9 million ($9.6 million) operating loss posted in 2015. 

"2016 was a year in which many of our strategic objectives were achieved," said 7digital chief exec Simon Cole, citing deals struck with all three major labels alongside the acquisition of leading French digital music provider Snowite (since integrated into 7digital France) as helping to strengthen 7digital's position as the global leader in end-to-end digital music solutions for consumer brands, mobile carriers, broadcasters, automotive systems, record labels and retailers.

Cole also identified 7digital's status as the only b2b delivery platform for Hi-Res audio provider MQA -- with the first contract due to launch in the second quarter of this year -- as further strengthening the company's place in the digital music ecosystem.

"This growth will underpin longterm profitability as the music streaming industry develops to include mainstream listening," stated Cole, adding that the company had "agreed heads of terms" for the acquisition of Euro digital music provider 24-7 Entertainment, including the contract to supply its owner, MediaMarktSaturn, Europe's biggest electronics and entertainment retailer. 24-7 Entertainment currently has offices in Berlin, Copenhagen and Kiev.
"We would expect to significantly strengthen our licensing revenues if the transaction completes as anticipated," said Cole predicting that company would become profitable at an operating level in 2017.