Slacker
Slacker, the music streaming service owned by LiveOne, called off its planned merger with Roth CH Acquisition V Co., a special purpose acquisition company, the companies announced Monday (Oct. 30).
LiveOne CEO Robert Ellin attributed the move to a poor market climate for small companies. “Market conditions for micro-cap stocks, for stocks under $1 billion, are just decimated this year as a whole,” he says. Companies that go public through SPAC mergers also face a difficult time, he adds. A SPAC is a blank-check company created and funded for taking a private company public. SPAC funding and mergers peaked in 2021, according to SPAC Research.
The SPAC market has softened considerably since 2021. Many SPACs failed to close a deal and returned their funds to shareholders. Music Acquisition Corp. returned funds to shareholders in Dec. 2022. Liberty Media closed down its SPAC in Nov. 2022 after a fruitless search for a takeover target. A record 123 SPACs liquidated in the first half of 2023, compared to just seven in the prior-year period, and the average redemption rate — SPAC shares redeemed for full value before merging with a target company — increased in the first half of 2023, according to Kroll. “It’s a tough market to come out in,” says Ellin.
Additionally, LiveOne believes Slacker has gained in value since it agreed to merge with Roth. LiveOne previously announced it had signed a letter of intent to merge Slacker with Roth and put a pre-money valuation of $160 million on the music streamer. But on Monday, LiveOne raised its revenue guidance for Slacker to the range of $63 million to $66 million for the fiscal year ended March 31, 2024. The company expects adjusted earnings before interest, taxes, depreciation and amortization of $17 million to $19 million.
“I think it’s worth $200 million at a minimum,” says Ellin, “and probably way higher than that when you’re looking at what Tidal sold for at $400 million and change, where Deezer trades at 300 million [euros, or $317 million]. We’re the only one that’s profitable. We make money every month, every quarter, every year.”
The market currently puts a far lower value on Slacker, however. LiveOne — including Slacker — has a $92 million market capitalization. That includes an 81% stake in PodcastOne, a podcast company LiveOne spun off in September that currently has a market capitalization of $70 million. LiveOne said that prior to the spin-off, PodcastOne was valued at between $230 million and $274 million by third-party valuation firm ValueScope.
Slacker was founded in 2007 and acquired by LiveOne — then called LiveXLive Media — in 2017 for $50 million. Many of its subscribers come from a white-label service that powers other brands’ digital radio. For example, nearly every new Tesla automobile sold in the United States comes with a subscription to Tesla Radio that’s provided by Slacker and paid for by the automaker. LiveOne says it added over 300,000 new paid Tesla subscribers in the first five months of its fiscal year, a 30% year-over-year increase. The company expects to add over 800,000 new subscribers this fiscal year.
With the SPAC merger off the table, Ellin sees numerous potential avenues for Slacker. “There’s an opportunity today to roll up multiple other companies in the space,” he said during an investor call on Wednesday (Nov. 1). “We have four to five potential acquisitions in the audio business alone that would fit in very nicely with the company and be extraordinarily accretive to revenues and bottom line. We also could explore a sale or a strategic investor, including some of our current customers or investors. We also will explore a direct IPO as the markets change and fair market value for the numbers that we’ve delivered are available.”
Roth “is currently exploring opportunities with other potential merger candidates in order to complete its business combination,” according to Monday’s press release.
Streaming service Slacker is looking to become the fifth music company to go public by merging with a special purpose acquisition corporation, or SPAC — and the clock is ticking. Its owner, LiveOne, has signed a letter of intent to combine Slacker, which it estimates will have a valuation of $160 million, with Roth CH Acquisition V Co.
But like many other SPAC deals, Slacker’s merger with Roth has faced challenges. For starters, many of Roth’s shareholders have opted not to take part in the Slacker deal. Roth experienced $93 million in redemptions in the second quarter, according to its latest 10-Q filing, as shareholders opted for a $10 redemption value rather than roll the dice on a music streaming company that expects to finish 2023 with 3.75 million free and paying users. That leaves Roth with $26.4 million to contribute to Slacker once the deal is done.
To shore up support ahead of a merger, Roth entered into non-redemption agreements with shareholders representing 2 million shares. Those shareholders agreed not to redeem public shares and will receive a payment of 4 cents per share per one-month extension, according to a Roth filing with the SEC.
Starting a SPAC gives the founders a limited window to put investors’ money to good use or return the funds to shareholders. Running out of time to close a deal with Slacker, in May, Roth received shareholder approval to extend the merger deadline by up to six months. The extension ends Dec. 4 — barely more than three months away. “It seems [like a] very tight [timeline],” says Megan Penick, an attorney at Michelman & Robinson. “I mean, conceivably they could still complete it. It just seems that they must still be conducting their due diligence and coming to terms on how the deal is going to be structured.”
A SPAC effectively puts the cart before the horse: It raises money through an initial public offering (IPO) before setting about finding an appropriately sized, high-growth company to take public. (Pursuing a target before the IPO, as Digital World Acquisition Corp. did with Donald Trump’s Truth Social, is against the rules.) The target company is spared the long and costly process typically incurred when taking a company public. The SPAC founders get a stake in the post-merger company and investors benefit when the post-merger stock rises above the redemption price. The number of SPAC IPOs jumped from 55 in 2019 to 610 in 2021, according to S&P Global Market Intelligence, while money raised increased from $14 billion in 2019 to $160.8 billion in 2021.
Overall, however, SPACs have failed to live up to their lofty expectations. “Too many SPACs, not enough suitable targets,” says Penick. After 265 SPACs closed mergers in 2021, only 187 did so in 2022. And while there were 100 SPAC deals in the first half of 2023, the value of the deals amounted to just one-tenth of the deals closed in the first half of 2021, according to S&P Global.
Faced with a shortage of good candidates, many SPACs have opted to dissolve and return capital to shareholders. Music Acquisition Corporation, co-founded by former Geffen Records president Neil Jacobson, dissolved in 2022 after raising $230 million in a 2021 IPO. Liberty Media did the same with its SPAC, Liberty Media Acquisition Corp., in November, more than two months before the deadline to complete a deal or return to shareholders the $575 million it raised in an IPO. “Frankly, getting an extension wasn’t worth it, given we had nothing on the table that was attractive enough for us to take [a] look,” said Liberty Media president and CEO Greg Maffei.
Perhaps the biggest problem with SPACs is they haven’t been a good investment for the original investors. Abu Dhabi-based music streamer Anghami has fallen 91% to 89 cents since merging with Vista Media Acquisition Corp. in February 2022. French music streamer Deezer has fallen 76% to 2.06 euros since merging with IPO2 in July 2022. And New York-based publisher and label Reservoir Media has fallen 43% to $5.45 since merging with Roth CH Acquisition II — the same team behind the SPAC that intends to merge with Slacker — in July 2021. All three stocks had a $10/10 euro IPO price.
Worse yet, Alliance Entertainment ended up trading over the counter in February after a high number of redemptions left its partner SPAC, Adara Acquisition Corp, with just $1.7 million to contribute to the merged company — probably not enough to cover investment banking and legal fees for the transaction. That also left Alliance short of the New York Stock Exchange’s float requirements. “The issue of having enough market volume and enough market cap to remain a listed security is a challenge that a lot of SPACs run into,” says Michael Poster, an attorney at Michelman & Robinson. Alliance has dropped 75% to $2.02 since it merged with Adara in February.
Slacker didn’t respond to a request for comment on the deal.
A federal judge says he won’t undo his ruling that Slacker owes nearly $10 million in unpaid music royalties to SoundExchange, seemingly unmoved by the streamer’s warning that the ruling will have a “devastating” impact on the company’s finances.
SoundExchange claims Slacker’s parent LiveOne has failed to pay royalties for years, and last month won a ruling requiring the streamer to hand over $9,765,396. Slacker said last month that the huge judgment could trigger financial ruin for the company – a warning SoundExchange urged the court to disregard.
In a decision issued Wednesday, Judge André Birotte Jr. did exactly that. He ruled that the seven-figure judgment was simply the result of an agreement that Slacker itself had signed – and noted that the streamer was not actually legally disputing the terms of that deal.
“Defendants cannot argue that the judgment is a result of ‘excusable neglect’ or that it is ‘without fault,’ when the judgment was entered pursuant to stipulation that defendants negotiated for and assented to,” Judge Birotte wrote. “Because Defendants signed the stipulation, and in fact do not dispute the amount of money Plaintiff is entitled to, the court finds the judgment is fair, adequate, and reasonable.”
SoundExchange, which collects performance royalties for sound recording copyrights, sued LiveOne in June, claiming the company had stopped paying artists and labels way back in 2017. And it claimed that a subsequent audit revealed it had been underpaying for years before that.
Court records show the two sides entered into the repayment plan in 2020, which gave Slacker two years to pay off its debts. But in the June lawsuit, SoundExchange claimed that Slacker had quickly failed to live up to the terms of the agreement.
“By refusing to pay royalties for the use of protected sound recordings, Slacker and LiveOne have directly harmed creators over the years,” SoundExchange president and CEO Michael Huppe said at the time. “Today, SoundExchange is taking a stand through necessary legal action to protect the value of music and ensure creators are compensated fairly for their work.”
Just a few months into the litigation, SoundExchange played an unusual legal trump card. On Oct. 12, the group invoked a so-called consent judgment, which had been inked and pre-signed by execs at Slacker back in 2020 as part of the repayment plan. Under the terms of that earlier deal, if Slacker ever defaulted again, its executives agreed that a judge should enter a so-called judgment against the company for the full sum owed.
On Oct. 13, Judge Birotte did so, ordering the Slacker to pay $9,765,396, which covered both unpaid royalties and late fees. He also permanently barred the company from using the so-called statutory license, an important federal provision that makes copyright licenses for recorded music automatically available to internet radio companies like Slacker and Pandora at a fixed price.
A week later, Slacker asked the judge to overturn his own ruling, saying it had been procedurally improper. To support the request, Slacker warned the judge had quickly caused other creditors to call in other debts owed, threatening “economic damage” to the company that would be “unsustainable.”
“Plaintiff’s surreptitious request for entry of judgment has triggered LiveOne’s default on two substantial senior secured notes which are secured by all of LiveOne’s and their subsidiaries assets,” the streamer wrote.
SoundExchange urged the judge to deny the request, saying it had spent years “indulging” the company’s “many excuses for non-payment,” and that it had simply become time for the streamer to be legally forced to pay up: “Five years is long enough.”
In Wednesday’s decision, Judge Birotte sided with SoundExchange, ruling there was no legal wiggle room for Slacker to challenge an agreement signed by its own executives. The judge said that unless there is proof of “fraud or misconduct” – and there is none – there was no reason to undo the ruling. And he was unmoved by the company’s warnings of economic ruin.
“Defendants argue that the ‘repercussions will be devastating to LiveOne, its employees, and to its creditors,” the judge wrote. Defendants, however, have failed to explain what balance is actually due, whether defendants’ creditors have elected to require immediate payment, or how the repercussions will actually impact its business or livelihood.”
A representative for Slacker parent LiveOne did not immediately return a request for comment on the decision.
Read the entire decision here:
Slacker is pleading with a judge to overturn his recent ruling requiring the streamer to pony up $10 million in unpaid royalties, arguing it will cause the company economic ruin. But SoundExchange says it is merely the company’s “latest attempt to shirk their obligations.”
The two have been battling in court since June over allegations that Slacker’s parent LiveOne — formerly LiveXLive — owes millions to artists and labels. Earlier this month, SoundExchange demanded — and quickly won — a ruling from Judge André Birotte Jr. that LiveOne must pay up the full $9,765,396 in unpaid royalties.
Faced with that massive judgment, Slacker now says that SoundExchange’s demand for full payment was an unfair tactic and must be overturned — or risk permanently harming its financials: “This economic damage this will cause LiveOne will be unsustainable for this small company.”
But SoundExchange is unimpressed. In a response, the company says that LiveOne has “steadfastly” avoided paying for music for years, and that harsh measures are “necessary to protect performing artists.”
“The court should deny defendants’ latest attempt to shirk their obligations with the promise that next time will be different,” SoundExchange’s lawyers wrote.
“Refusing To Pay”
SoundExchange, which collects performance royalties for sound recording copyrights, sued LiveOne in June, claiming the company had stopped paying artists and labels way back in 2017. And it claimed that a subsequent audit revealed it had been underpaying for years before that.
Court records show the two sides entered into the repayment plan in 2020, which gave Slacker two years to pay its debts. But in the June lawsuit, the SoundExchange claimed that Slacker had quickly failed to live up to the terms of the agreement.
“By refusing to pay royalties for the use of protected sound recordings, Slacker and LiveOne have directly harmed creators over the years,” SoundExchange president and CEO Michael Huppe said at the time. “Today, SoundExchange is taking a stand through necessary legal action to protect the value of music and ensure creators are compensated fairly for their work.”
Just a few months into the litigation, SoundExchange played an unusual legal trump card. On Oct. 12, the group invoked a pre-signed judgment, which had been inked by execs at Slacker back in 2020 as part of the repayment plan. Under the terms of that earlier deal, if Slacker ever defaulted again, its executives agreed that a judge should enter a so-called judgment against the company for the full sum owed.
On Oct. 13, Judge Birotte Jr. did exactly that, ordering the Slacker to pay $9,765,396, which covered both unpaid royalties and late fees. He also permanently barred the company from using the so-called statutory license, an important federal provision that makes copyright licenses for recorded music automatically available to internet radio companies like Slacker and Pandora at a fixed price.
“Economic Damage”
Faced with that huge debt, LiveOne responded last week with a motion seeking to “set aside the judgment” and asking the judge order the two companies into settlement talks – a move they say will allow them to reach “a fair payment schedule.”
LiveOne’s lawyers said they had been engaged in “ongoing and fruitful negotiations” for a new repayment plan when SoundExchange had suddenly invoked the pre-signed consent judgment. They argued the move came only because LiveOne did not agree to “a complete acceptance” of SoundExchange’s “last and final” settlement offer.
More startlingly, LiveOne’s lawyers said SoundExchange’s big judgment had quickly caused other creditors to call in other debts owed, threatening “economic damage” to the company that would be “unsustainable.”
“Plaintiff’s surreptitious request for entry of judgment has triggered LiveOne’s default on two substantial senior secured notes which are secured by all of LiveOne’s and their subsidiaries assets,” LiveOne’s lawyers wrote. “If LiveOne does not promptly discharge SoundExchange’s default judgment, the secured creditors will accelerate the loans and call for immediate repayment of principal and unpaid interest.”
A rep for LiveOne did not immediately return a request for comment on the filing or for elaboration on its claims about the company’s finances.
“Long Enough”
In a new filing this week, SoundExchange offered no apologies for playing hardball with LiveOne. It said it had spent years “indulging” the company’s “many excuses for non-payment,” and that it had simply become time for the streamer to be legally forced to pay up.
“Five years is long enough,” the group wrote. “SoundExchange has no obligation to negotiate ad infinitum with defendants, who have demonstrated at every opportunity that they will leverage the creativity of others without compensation.”
SoundExchange’s lawyers said the group had been “initially amenable” to working out another deal, but that their patience quickly ran out: “Facing stalled settlement negotiations and an apparent unwillingness to abide by their contractual, statutory, or judicial obligations, that willingness had limits.”
As for LiveOne’s warnings that such a ruling might destroy the company, SoundExchange was skeptical. The group’s lawyers pointed out that LiveOne had missed key deadlines in the case, and had waited months to hire litigation attorneys to deal with the lawsuit.
“Defendants’ contention that the judgment poses an existential threat to their business is difficult to square with their lackadaisical approach to finding counsel and subsequent non-adherence to the court’s deadlines,” they wrote.
And if things really are as bad LiveOne’s attorneys claim, SoundExchange said it’s all the more reason for a final judgment to be entered against the company.
“Every hour defendants divert consumers who might otherwise use a different, royalty-paying digital music streaming service, thereby depriving rightsholders of royalties to which they are entitled,” the group wrote. “If Defendants’ dire financial situation is to be believed, artists may never see those royalties.”
Streaming platform Slacker owes SoundExchange nearly $10 million in unpaid performance royalties, according to a recent ruling by a federal judge, issued after settlement talks between the two broke down.
SoundExchange, which collects streaming royalties for sound recordings, sued Slacker and parent company LiveOne in June, claiming they had refused to pay millions over a five-year period. As recently as September, court documents indicated the two sides were having “meaningful settlement negotiations.”
But last week, SoundExchange played an unusual legal trump card: A pre-signed consent judgment, inked by execs at Slacker back in 2020 as part of a previous effort to get the streamer to pay its royalty bill. Under the terms of that earlier deal, if Slacker ever defaulted again, its executives agreed that a judge should enter a judgment against the company for the full sum owed.
On Thursday, Judge André Birotte Jr. did exactly that – ordering Slacker to pay $9,765,396 in unpaid royalties and late fees. He also permanently barred the company from using the so-called statutory license, a federal provision that makes copyright licenses for recorded music automatically available to internet radio companies like Slacker and Pandora at a fixed price.
Without access to the statutory license, Slacker will presumably need to negotiate direct licenses from rights holders for sound recordings, similar to what on-demand streaming services like Spotify must do.
A spokesman for Slacker and LiveOne did not return a request for comment on Tuesday. In a statement to Billboard, SoundExchange president and CEO Michael Huppe said the lawsuit demonstrated that the group “takes our role in defending fair compensation for creators seriously.”
“Despite a prior agreement, multiple promises, and repeated negotiations, Slacker and LiveOne failed to pay properly for the music – on which the companies built their business model,” Huppe said. “It is regrettable that this step became necessary, but we will not back down when it comes to protecting creators and ensuring they are well-represented and properly paid under the law.”
We Can[‘t] Work It Out
In its lawsuit, SoundExchange claimed Slacker stopped paying recording royalties way back in 2017, and that a subsequent audit revealed it had been underpaying for years before that. In 2020, the two sides entered into the repayment plan, which gave Slacker two years to pay its debts. But in the June lawsuit, the SoundExchange claimed that Slacker quickly failed to live up to the plan.
“By refusing to pay royalties for the use of protected sound recordings, Slacker and LiveOne have directly harmed creators over the years,” Huppe said at the time. “Today, SoundExchange is taking a stand through necessary legal action to protect the value of music and ensure creators are compensated fairly for their work.”
Though SoundExchange clearly had the earlier agreement as leverage, it appears the two sides tried again to work out a settlement. In early September, attorneys for Slacker asked for more time, saying that the two sides were engaged in “ongoing meaningful settlement negotiations with the expectation that a settlement would be reached.” But they said such talks had not been easy.
“The negotiations have proven to be complicated. There have been a number of offers, back and forth, and numerous emails, calls and discussions,” wrote Jeffrey A. Katz, Slacker’s outside counsel. “A final resolution appears promising but is not guaranteed. Defendants would like to remain focused on their pursuit of a negotiated resolution.”
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