Editor's Choice

Will These Musically Inclined Stocks Hit Higher Notes In 2013?

Maxwell is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

There is little doubt that cloud storage is the future of media in general and music in particular, and a number of companies are looking to this trend as way of generating revenues in 2013.

The Players

Apple (NASDAQ: AAPL) and Amazon (NASDAQ: AMZN) are looking to provide cloud-based services, even though they already have flourishing and successful music download businesses. There are many benefits for companies, such as the necessity of keeping only a master copy of a song on its servers to cater to multiple listeners simultaneously. Moreover, subscription-based services can often be more profitable than the sales of single tracks or albums, and streaming music can cut down the frequency of piracy.

There are clear benefits to consumers also. They do not have to worry about the storage capacity of their music devices because everything is stored on the cloud and available via the Internet on any device that you chose in any location. All you need, for instance, is an Internet enabled smart phone. You can also save space on your hard drive by permanently storing all your music on the cloud which is useful if you're moving to smaller computers with flash storage or using different devices without permanent storage for your music.

Apple provides iTunes Match through which you can simply buy or upload an album and have it accessible on all your iOS based devices instantly for a subscription of $24.99 a year.

Google (NASDAQ: GOOG) and Amazon are competing with iTunes Match by launching their own services. Amazon has launched a version of its MP3 store aimed specifically at the Apple iPhone and iPod Touch by allowing owners to buy their music from Amazon through these devices and then access it from anywhere. Amazon introduced scan-and-match services after a year of offering only storage and streaming, while Google Music recently fine-tuned its uploading and streaming services to provide more for users than just music storage.

Both services are equipped with many of the features offered by iTunes Match, The Amazon service costs as much as Apple's while Google Music is completely free. The Street Journal observes that Apple and Amazon's will use the subscriber fee for the payments to music labels and publishers that is required to match songs that may be pirated while Google has decided to pay by digging into its own pockets.

Google Play lets you to store up to 20,000 songs on its servers, while iTunes Match can store your entire music library in iCloud and match up to 25,000 tracks though this limit does not include songs purchased through the iTunes store. Amazon's cloud locker service, which is called the Cloud Player Premium, has a free version allowing up to 250 imported songs, while the premium service at $24.99 a year enables subscribers to upload 250,000 imported tracks. These limits do not include purchases that were made from Amazon MP3 directly, or even old CDs whose purchase may have slipped your mind.

Once your music is uploaded to Google Music, you can listen to it on the Web or use your mobile including both Android and iOS devices, though the latter requires an HTML 5-rendered webpage. In iTunes Match, music can be accessed through all iOS devices, as well as the iTunes desktop client. On Amazon Cloud Player, you can access your collection on the Web or via an iOS or Android app.

Another company that is banking on revenues from music but uses a completely different approach is The Singing Machine Company (SMDM). The company was in Las Vegas for the 2013 Consumer Electronics Tradeshow, where the company unveiled its new karaoke product line for 2013. 

More than just another karaoke system, the company showcased a working demo of "Home" at CES, featuring wireless Bluetooth speakers, WiFi connectivity, and a direct connection to a digital streaming karaoke service providing access to over 10,000 karaoke songs. "Home" is the first all-digital karaoke system that provides instant access to high-quality lyrics against the backdrop of full-color high definition video on your TV set to make "Home" the hub of any entertainment in the home. The company intends to start shipping the Singing Machine "Home" this fall. This machine was designed to counter the fact that traditionally, home karaoke machines depended on physical CDs which no one is buying anymore. This difficulty has been overcome by introducing a streaming karaoke service on machines that connect to the Internet.

The announcement of the Singing Machine "Home" system comes on the back of a strong holiday season. Third quarter net sales reached $16.6 million, up from $8.7 million in the same quarter of 2011. This marks a whopping 90% increase year-over-year. The increase in sales came from being the exclusive karaoke hardware vendor at a large "big-box" retailer this past holiday season. The company also cited a record setting quarter for its e-commerce business, where online sales volume jumped over 145% compared to the same quarter in 2011.

The Singing Machine Company has had problems in the past and has been in and out of bankruptcy since the early 2000's. Five years ago, it posted a loss of $3 million but now has a competent and stable management team. Its parent, Starlight, has been providing financial support in the past by shipping new products on open terms. The company's debt peaked at $5.7 million in 2011, but growing revenues have enabled the company to pay its debt down to $4.3 million in 2012, which was the first profitable year in a long time. The growth in revenues and profits should give the company a much more comfortable cash position, with a continuing reduction in debt during 2013.

In fiscal 2012, the company posted a profit of almost $600,000 and increased sales by 30%. The growth in sales was because of new distribution channels such as Target (TGT), into BJ's Wholesale Club Wholesale Club and expenses were in line with slightly improved margins. Online sales on Amazon and Wal-Mart (WMT) took off and as much business was done online as with a couple of Toys R Us stores. With all these developments, the company now has a good story to tell and has turned around from its earlier misfortunes.

StockCroc1 has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus