SDIG: Positioning to Benefit From Rapidly Growing Digital Content Streaming Market
By Marla Backer St. Louis based StationDigital (SDIG) is an Internet radio and digital media distribution platform that launched on September 20, 2013 and came public through a reverse merger on April 23, 2014. In one short year, StationDigital has exceeded 4.3 million unique listeners. What Differentiates StationDigital? It is still early days in music streaming. Although there are many competitors, we believe there is still an opportunity for a new service with an innovative offering to build a presence. StationDigital aspires to become the first device agnostic, multimedia, global broadcast platform, differentiating its service by providing many other content options in addition to music streaming. Most of the other players focus on one media. Pandora, iHeart Media and Spotify, for example, focus on music, while Netflix (NFLX-not rated) and Hulu focus on video. Multimedia Offering Makes This Service Different Unlike these many other digital competitors, the company’s offerings include much more than audio content. StationDigital’s business model is to offer Internet radio, TV and movie content, music videos, books and specialty content such as Latin American telenovelas and videogames. While this seems closer to the Amazon Prime model, StationDigital hopes to provide this breadth of content offerings as an ad-supported free service, with revenue – and the user experience – enhanced by its e-commerce initiative. Management expects its multimedia offering to be a competitive advantage, as users begin to recognize StationDigital as a one-stop shopping experience for a variety of media they want to consume. The StationDigital site and apps provide access to music content, as well as music videos, movies, television programming, specialty programming and video games. The company also intends to extend its rewards program to each additional digital media offering it adds to the platform. The company expects its user base to grow substantially, reflecting these differentiating factors, and as it promotes the service to boost consumer awareness. Looking at Pandora as an example, Pandora was able to grow its base of registered and active users rapidly in its early days. Pandora had first mover advantage. While StationDigital joins a field that is seeing frequent new entrants, the niche is still young enough, we believe, to reward an innovative new entrant as streaming revenues expand. Management believes that innovations such as its rewards program and online store position it for rapid user base growth, as it raises awareness of the service. StationDigital Rewards Program In order to capture market share, the company offers the StationDigital Listener Rewards Program (SD Rewards), which management believes provides consumers with a significant inducement to use the system and redeem these rewards in the StationDigital e-store. Registered users earn reward points when they listen to StationDigital via the internet or a mobile app and when they share StationDigital with friends on social media. The company offers genre-based and artist-based music discovery stations in a broad range of genres. In addition to ad supported content that is free to the consumer, StationDigital also offers direct sales of digital and physical products. Since the service launched in September 2013, StationDigital listeners have earned more than $100,000 in rewards by listening to nearly 22 million songs. Management believes the rewards program incentivizes people to share StationDigital. In turn, this can help grow the membership base, as users earn points by sharing content with friends via social media. Listeners can redeem StationDigital rewards points through the company’s online e-store, which carries over 50 million physical and digital items. Management intends to form partnerships with other virtual currency systems to broaden the item selection available to StationDigital users. Allowing people to trade their StationDigital points for other currencies or for use in other applications such as videogames, for example, would further enhance the rewards program, in their view. Customer loyalty platforms that allow members to earn points each time they transact are becoming increasingly popular as a way to drive consumer loyalty and stickiness. According to Business Insider, from 2008 to 2012, U.S. loyalty memberships increased by 10% per annum, reaching 23 memberships per household in 2012. A recent McKinsey study of 55 North American and European publicly traded companies showed that, despite some negative impact on EBITDA margins reflecting that the reward essentially results in discounted pricing, market capitalizations for companies with strong loyalty programs outpaced those of companies that do not offer or emphasize a rewards program. The company believes its SD Rewards program creates brand awareness and consumer loyalty. As users listen, invite friends, or share music on StationDigital, they earn more and more SD rewards points. We also believe that as the company adds new items, it further enhances the attractiveness of the reward program. The company also expects to lower its average customer acquisition cost, as people refer friends in order to earn reward points. … Enhanced by e-Commerce Transactions In addition to advertising revenue, the company also expects to generate e-commerce revenue through its online store. On May 15, 2014, management engaged CloudWebStore to develop a branded StationDigital e-Store to sell and distribute a variety of digital and physical products. The store sells videogames, digital music, movies and posters, among other items. The fee for developing the e-commerce initiative was $1 million and StationDigital will receive 20% of the e-commerce revenue that the store generates. Accelerating Market to Drive Brand Awareness Management has launched a series of mobile ad campaigns across multiple ad platforms to promote brand awareness and drive mobile app installations. As its mobile user base expands and reaches competitive critical mass, the company’s marketing efforts will focus on promoting increased frequency and duration of use in order to continue to engage its users. Moreover, with a digital multimedia platform, management expects to capitalize on the opportunity to cross-promote and cross-merchandise its various services and monetize them all through its online store. READ THE LATEST FULL RESEARCH REPORT HERE SUBSCRIBE TO ZACKS SMALL CAP RESEARCH to receive our articles and reports emailed directly to you each morning. Please visit our website for additional information on Zacks SCR and to view our disclaimer.
