GUVERA: YOU HAVE TO SPEND TO MAKE MONEY

Written on the 5 February 2016

GUVERA: YOU HAVE TO SPEND TO MAKE MONEY

GLOBAL music streaming company Guvera is unimpressed with Australian commentators focusing on the losses of a business, saying you have to spend money to make money.

Guvera, headquartered on the Gold Coast, reported an $81 million loss in FY15, but highlights that if you want to lay the groundwork to grow in 20 different countries, as well as attract global music rights, you need to invest.

Co-founder and CEO Darren Herft (pictured below) particularly criticised the media, saying startups in Australia need the support of the press.

"The new Prime Minister Malcolm Turnbull is bringing in a lot of tax incentives to assist venture capital in this country," says Herft.

"That won't help if the press wants to focus on loses because by nature, venture capital is about needing capital to actually invest, therefore we're more than likely going to lose some money in the early years.

"If Australia can't cope with that then, irrespective of the tax incentives, young entrepreneurs in the tech space will continue to go offshore."

The loss reported for FY15 was $81 million, however, Herft says of this, $34.5 million related to non-operating cashflow losses. These included pre-paid music rights expensed, even though they were not yet utilised, as well as share options and depreciation.

Herft says this has led to an underlying net operating cashflow loss of $46.5 million, a figure that is amplified by the weaker US-dollar exchange rate.

"When you consider that we pay major expenses is US dollars, this means we invested cashflow of more like USD$35 million for FY15," he says.

"Guvera has had considerable exchange rate losses in the period FY15. This is quite different to a recent report suggesting Guvera had lost $81 million in operating profit in FY15."

The music streaming service aims to legitimise the download of music and competes with the likes of Spotify and Pandora, offering music lists curated by brands such as Coca-Cola, NightOwl, Virgin and McDonalds.

The company is aiming for a stock market float this year, although Herft chose not to comment further on the IPO plans.

Founded on the Gold Coast in 2008, Guvera has grown from a single-man operation to a team of around 120 and has a presence in more than 20 different countries.

Guvera's database has grown rapidly over the past two years, currently hovering around 16 million subscribers.

"Monthly active users were sitting around 5 per cent 12 months ago, they are now sitting at 40 per cent in Australia and, as a result, we have become one of the two biggest streaming services in Australia by volume of music streamed," says Herft.

"Even though there are other brands that might be more well-known than Guvera in Australia, we are actually streaming more music than them."

Guvera has focused on emerging markets over the past few years, with India being one of its most active markets.

"Guvera is the only company that has proper and full music streaming rights with both the local music labels and the western locals," says Herft

"Apple Music for example, does not have Hungama, which is India's biggest Bollywood label in India.  They have all of their western music they are playing in India, but 90 per cent of music listened to in India is local music.

"You need local music and western music; Guvera has that, and we have the rights to deliver that legally and free, sponsored by brands, which for an emerging market is exactly the strategy you need because unfortunately high volumes of people are not paying for music."

In an attempt to expand its presence in the UK, Guvera purchased Tesco's division Blinkbox Music in 2015, which went from acquisition to administration in six months.

It is now subject to a legal case coming up in the English Employment Tribunal in April.

"Tesco provided us with sufficient working capital for around a 90-day period to be able to properly assess the business," says Herft.

"They were going to close the business down otherwise, so they gave us a chance to at least have a look at it and, on closer inspection, it wasn't a business that we wanted to keep."

In 2016, Guvera is looking at expanding into Brazil.  It is also closing down one or two markets in Latin America and Europe, due to political unrest.

The company aims to focus around brands, and bring on board more serious, hard-hitting companies from a global perspective.

"Our vision is to be the biggest music company on the planet and we have the business model to do that, based on what consumers want," says Herft.

"We can grow in emerging markets because of the fact we are providing consumers access to legalised music through brands sponsored access so it allows us to grow faster than any other music company on the planet."


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