By Claire Reilly
SYDNEY, NSW: Gone are the days of the mixtape as a sign of affection and dedication – part Phil Collins, part Duran Duran, all 80s nostalgia. Following the release of JB Hi-Fi’s yearly results this week, Macquarie Equities Research has predicted that the JB star will continue to rise thanks to a mixtape of a far more modern kind.
JB Hi-Fi’s new music streaming service, JB Hi-Fi NOW, is set to launch by Christmas 2011. JBNOW (as it is also known) will allow users to stream music playlists – or “mixtapes” – to their Mac, PC or mobile device for a regular subscription fee.
According to JB Hi-Fi CEO Terry Smart, the service will have “between 6 to 8 million tracks from 100,000 artists at launch” with more to be added over time.
The pay-per-month JBNOW is similar to Sony’s Qriocity service, which was launched earlier this year, and continues the trend of Spotify and Pandora Radio which are available to customers in the US.
Using modelling taken from other similar music services and JB Hi-Fi’s own projections, Macquarie analyst Rob Blythe estimates that “JBNOW has the potential to generate up to $19m in revenue”.
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According to Blythe, most services charge approximately $5 – $10 per month (AUD) “and it is likely that JBNOW could attract a similar pricing model.”
“While it is too early to know how many subscribers JB Hi-Fi could attract, if we take the JB Hi-Fi web traffic of 800,000 unique visitations per month and apply their in-to store conversion rate of 10-20 per cent, we have a starting range of 80-160,000 potential subscribers,” he added.
“Assuming they price JBNOW subscriptions in-line with the market of up to $10 per month, revenue from JBNOW could range between $9.6 million to $19.2 million. JB Hi-Fi suggest they require approximately 30,000 subscribers to break even (perhaps $1.8 million to $3.6 million) and the margins on the business would be broadly in-line with the group margins.”
Blythe posited the music streaming service could be a great success for JB Hi-Fi, citing the success of JB Hi-Fi’s online offering which was established “years ahead of the current internet ‘buzz’,” and currently generates 800,000 unique monthly visits and 51.6 per cent sales growth.
Although JBNOW is currently JBComingSoon and cannot be banked on just yet, the company has posted strong sales results for the 2010 financial year. The key issue interrogated by Blythe is whether or not JB Hi-Fi’s current successes can be taken as a representative model for the future.
“The market thinks so as it is typically valuing retailers by projecting forward current periods’ trading as being representative of future periods,” Blythe concluded. “For JB Hi-Fi this might not be such an issue – because how many retailers are growing at circa 4x ABS retail sales growth rates and profitably as well!”