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- February 22, 2024
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Reservoir Media has clocked yet another year of strong growth, with revenues up 14.6% YoY in calendar year 2023.
The company’s quarterly financial results show revenues of USD $140.5 million during the year, up from $122.6 million in 2022.
With the company’s stock trading at $7.00 as of February 22 (up 6.4% over 12 months, and down about 1.3% year-to-date), Reservoir has a market cap of $453.76 million. It’s the US’s first publicly traded music company to be founded and led by a woman (Golnar Khosrowshahi).
Reservoir’s fiscal 2024 comes to a close at the end of March, and we can expect the full fiscal year report to land in May or June, but in the meantime, we can take a look at the company’s recent 8-K filing with the SEC, which consists of an investor factsheet, for an idea of its performance.
One thing that jumps out right away: Since its inception in 2007, Reservoir has spent nearly a billion dollars – $938 million, to be exact, as of December 31, 2023 – on acquisitions and signings.
Of that, $770 million has been invested into acquisitions of catalogs and companies. That’s up from the $695 million cited in the previous year’s filing, suggesting the company invested around $75 million into catalog acquisitions in 2023.
Additionally, the company has put $168 million since inception into “futures spend,” meaning signings of songwriters to write new songs.
The typical contract that Reservoir signs writers to is for three years, and the company says that “significant” writer signings, meaning those above $2.5 million, have had a 20.2% internal rate of return (i.e., 20.2% of the initial investment returned in revenue per year). Many businesses can only fantasize about a 20.2% yield on their investments.
Here are five other things we learned about Reservoir from its latest factsheet:
Reservoir closed 55 deals in FY2023, with 120+ future M&A targets
Reservoir’s M&A pipeline seems to be very steady and predictable. In fiscal 2023 (which ended March 31, 2023), the company considered 232 deals – exactly the same number as in the previous fiscal year.
Among those, it made 97 offers, and took 60 deals into a period of exclusivity – compared to 96 offers made the year before, with 60 going into exclusivity.
It ended up closing 55 deals in FY2023 – three more than the 52 it closed in FY2022.
Looking forward, the company has 120+ M&A targets in sight, with a combined value above $2 billion. That does represent something of a decline versus the prior year, when Reservoir was looking at around 220 deals, with a total value around $2.3 billion. In other words, Reservoir sees potentially fewer – but larger – deals in its future.
Economies of scale are Reservoir’s best friend
One nice aspect about growing a business like Reservoir’s is that, as it scales up, costs don’t rise nearly as much as revenue.
The company’s core infrastructure can largely absorb increased activity as acquisitions accumulate. One simple example: It doesn’t take much more in resources to administer 150,000 copyrights than it would to administer 75,000 – certainly it doesn’t take twice as much.
Reservoir’s three core operating expenses – corporate (leadership, finance, M&A), administration (royalty admin, copyright) and value enhancement (sync, marketing, A&R) are growing “far less than revenue,” the company reported in its factsheet.
Small wonder, then, that it sees 91% of its acquired gross profit in fiscal years 2018-2023 going towards adjusted EBITDA.
80% of Reservoir’s publishing and recorded music profits came from less than 1% of its songs
It’s no secret that, in the music business, the biggest hits are the main drivers of revenue, but Reservoir’s numbers give us an idea of just how concentrated things really are.
Of the approximately 150,000 songs in Reservoir’s publishing catalog, just 1,215 songs – or about 0.8% of the total – accounted for 80% of the net publisher share (the gross profits left after paying out other rightsholders).
Likewise with recorded music: Of around 36,000 recorded music copyrights held by Reservoir, just 286 recordings – again, about 0.8% of the total – accounted for 80% of the net label share.
One song stands out: Coolio’s Gangsta’s Paradise, which alone accounted for 9.3% of net label share. Beyond that, no one master recording had more than 4% of net label share, though a handful of other tracks accounted for more than 1%, including House of Pain’s Jump Around, Everlast’s What It’s Like and Sinead O’Connor’s Nothing Compares 2 U.
(It’s worth pointing out that O’Connor’s untimely death took place in July of 2023, and these numbers are for the year ended June 30, 2023. So the strong revenue showing by Nothing Compares took place even before her tragic passing renewed interest in her music.)
On the publishing side of Reservoir’s business, no song had more than a 2% share of net publisher share, though The Isley Brothers’ It’s Your Thing came close at 1.7%, and both Labelle’s Lady Marmalade and John Denver’s Take Me Home, Country Roads clocked 1% or more.
Surprisingly, Reservoir’s revenue is becoming more concentrated in the US
Founder and CEO Golnar Khosrowshahi notably declared last year that it’s Reservoir’s goal to become “the largest holder of Arabic music copyrights.”
And that’s just one part of the company’s push into international markets.
“We are able to execute in [international] markets at very attractive pricing, which makes for attractive returns,” Khosrowshahi said on the company’s fiscal Q3 earnings call earlier this month.
“We would like to be in a position to be content owners in the international markets on the cusp and ahead of how these markets grow and consumption grows and streaming grows, which will then translate into the associated revenues, and that’s what makes it captivating for us.”
And that’s not just idle chatter. The company has made numerous non-US acquisitions, many of them via the partnership it launched in 2020 with Middle Eastern music publisher and consultancy PopArabia. With PopArabia, Reservoir has acquired Lebanese label and publisher Voice of Beirut, Egyptian label 100COPIES, Cairo-headquartered production and distro company RE Media, and most recently, the entire catalog of “Queen of Arab Pop” Nancy Ajram.
The company has also invested as far afield as China, with a minority stake in Outdustry.
Yet for all that, the company’s revenues have concentrated more heavily inside the US over the past year.
In calendar 2022, Reservoir’s publishing copyrights made 58% of their revenue inside the US, with 42% coming from outside the country. But in 2023, its publishing copyrights made 60% of their revenues in the US.
Even more extreme is the shift in recorded music revenues. In 2022, 56% of recording rights revenues came from outside the US. In the 12 months to the end of 2023, that dropped to just 40%.
That may have to do with the fact that, aside from its investments outside the US, Reservoir has also made some large US-focused acquisitions of late, including a global publishing deal with Joe Walsh of The Eagles, as well as the master royalty income streams of four members of The Spinners.
Yes, the music industry is booming outside the US, but the US remains – at least for now – the world’s largest music market.
Reservoir generated $13 million from lawsuit settlements in five years
In case you were tempted to think that the music industry’s numerous copyright lawsuits are frivolous, consider this: Reservoir reported that it had generated $13 million from such lawsuits from fiscal 2019 through fiscal 2023, inclusive.
Given that Reservoir reported $412 million in revenue across those fiscal years, that represents nearly 3.2% of revenue – a not-insignificant amount.
This doesn’t necessarily mean lawsuits that Reservoir launched itself; it would include settlements reached in lawsuits launched by industry bodies, such as, for instance, the lawsuit the National Music Publishers Association (NMPA) settled with Roblox in 2021.
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