Reservoir Media has established itself as a multifaceted player in the music industry, operating through diverse segments that encompass music publishing, recorded music, management, and rights administration. With a significant portfolio and a strategic approach to acquisitions and royalties, Reservoir is positioned uniquely in a rapidly evolving market landscape.
At its core, Reservoir Media is divided into two primary segments: Music Publishing and Recorded Music. The Music Publishing branch is instrumental for the company, contributing approximately 66.41% of overall revenue. This segment thrives on the acquisition of music catalog interests and songwriters’ agreements, creating a steady revenue stream from copyright royalties. The catalog includes iconic compositions from legendary artists such as Joni Mitchell and John Denver, signifying both historical and cultural significance.
In parallel, the Recorded Music sector captures around 29.25% of revenue and focuses on discovering recording talents while managing and distributing sound recording catalogs. The synergy between these segments supports Reservoir’s mission to maximize royalty earnings and expands its reach in the music ecosystem. With over 150,000 copyrights and 36,000 master recordings, Reservoir’s extensive catalog ensures diversity and stability.
Despite the competitive nature of the music industry, Reservoir has shown promising financial performance. The company recently went public in July 2021, following a merger with a Special Purpose Acquisition Company (SPAC), showcasing an innovative approach to capital acquisition. However, the transition to a publicly traded entity has not entirely shielded Reservoir from market fluctuations, as evidenced by a 22.24% decline in share price since its IPO.
The company’s resilience is highlighted by its year-over-year growth, almost doubling its gross profits from $47.39 million to $89.38 million. Earnings before interest, taxes, depreciation, and amortization (EBITDA) also rose impressively, from $33.8 million to $54.4 million. The increasing revenue from subscription streaming, which embody a critical revenue driver for Reservoir, reflects a larger industry trend, where subscription models are gaining traction.
Recent developments have indicated that Irenic Capital, a notable activist investor founded by former executives from renowned investment firms, has taken a significant stake in Reservoir. Their recommendation for a strategic review underscores their view of the company’s untapped potential. Irenic’s focus on collaborative investments manifests a push towards enhancing shareholder value through strategic activism rather than confrontational takeovers.
Activist investors like Irenic often recommend restructuring options, and in Reservoir’s case, they see considerable merit in exploring either a restructuring of assets or a potential sale. While activism can often signal instability within companies, in this instance, it appears to align with the interests of improving operational efficiency and enhancing shareholder returns.
Despite these positive developments, Reservoir faces challenges in capitalizing on its valuation. The previous excitement around SPACs provided a launchpad, but with current trading multiples being considerably lower than when they first went public, the initial expectation for high-growth opportunities may need reevaluation. Currently, Reservoir is trading at 8- to 9-times the net publisher’s share (NPS), whereas peers command much higher figures in the mid to high teens.
This disparity poses a dilemma for Reservoir’s management regarding strategic acquisitions. The original thesis around using high-valued SPAC shares for purchasing less valued peers has dwindled, leading to discussions about whether remaining public is beneficial or if a move back to private status might yield greater financial flexibility.
Looking ahead, Reservoir’s future could unfold along multiple trajectories. In light of its financial stability and strong management, potential buyers—both strategic and financial—may emerge. The active involvement of the Khosrowshahi family, who retains a significant portion of the stock, coupled with Irenic’s ownership, creates an interesting scenario for any prospective sale negotiations.
Moreover, parallel instances, such as the acquisition of Hipgnosis by Blackstone at favorable multiples, illustrate that there is a market appetite for well-structured music catalogs, which Reservoir has in abundance.
While challenges exist, Reservoir Media’s extensive catalog, proactive management, and strategic potential propelled by activist shareholders position the company as a compelling entity in the music industry. The coming years will be crucial as Reservoir navigates its options to enhance shareholder value amid changing market dynamics.