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

%