Apr 2012 Financial News

C2W places faith in royalties

Apr 30, 2012

Intellectual property start-up company, C2W Music Limited, has been valued at $645 million based on future earnings it hopes to get from collecting songwriters' royalties.

On May 10, the company will open its initial public offering (IPO) to raise $129 million for 20 per cent of its shares. However, if it falls short of the target it won't proceed with the listing on the Jamaica Stock Exchange (JSE) and return the funds to subscribers.

In its prospectus, C2W Music projected that it won't make a profit until its second year of operation in 2013, but the board of directors expect that earnings will grow from US$668,100 ($58.1 million) in 2013 to profit before tax of US$2.36 million in 2016.

The virtual company, which said it won't have any "real" property, plant and equipment except for computers, printers and other similar electronic devices, described its principal products as intellectual property rights, "namely licensing and publication rights to songs".

More specifically, the company plans to use a licensing and publication agreement with Caribbean songwriters, which assigns existing and future compositions during the contract period (typically 12 months) to the C2W, to commercialise the rights to the songs globally from royalty collections.

Most of the royalties — 51 per cent — the company expects to collect is projected to come from the sale of recorded music (not including video), followed by sales generated from live performances on television, radio or other broadcast of songs.

A small proportion — five per cent — is also expected to come from the use of songwriters' compositions in movies, TV programmes, commercial advertising and video games.

After expenses the royalties are to be split between the artist and the company, although C2W said it projects that, beginning in 2013 and 2014, the songwriters' share will begin to account for the lion's share of total expenses. The songwriter contracted to the company will be paid up to 50 per cent of royalty revenue earned by the company net of administration, finders', contractor, plugger fees and taxes.

The start-up said it has already begun to acquire songs for its catalogue, having signed four songwriters: Candy Gloster and Mark Cyrus, both of whom are residents of Saint Vincent, and Alexander Larcombe and John King, both of whom are residents of Barbados.

The contracts gave C2W the rights to 49 songs and a commitment from the songwriters to provide at least 24 more (among them) over their 12-month contract period.

"The company is also in advanced discussions with other songwriters with a view to acquiring further rights to build its catalogue," said the prospectus.

The board intends for the catalogue of songs to grow to include some 500 existing songs by the end of 2012.

C2W doesn't expect that more than $15 million of the IPO funds will be used to cover the cost of the invitation. It plans to use the rest of the funds to seek more songwriters, develop talent, market songs and repay related party loans, which totalled over US$40,000 at the end of 2011.

The share offer is for the issue of 100 million shares at $1.29 each, and a minimum subscription of 2,000 shares (valued at $2,580) is being made available.

"If, however, the Invitation is not fully subscribed and the company does not raise at least $129 million as a result of it, the company will not make application for the shares to be admitted to the Junior Market of the JSE and all payments for shares received from applicants will be returned (or refunded in full) to the applicant," added the prospectus.

The invitation, which is being made to "Jamaican residents in Jamaica only", closes on May 17.

Stocks and Securities is the lead broker.


Source:
By Camilo Thame
thamec@jamaicaobserver.com
Business Co-ordinator
Jamaica Observer
Sunday April 29, 2012

http://www.jamaicaobserver.com/business/C2W-places-faith-in-royalties_11358245#ixzz1tWzZLB8V