7digital Earnings Show Sharp Revenue Decline from Downloads, New Focus on Streaming

7digital is following consumers and clients into streaming. The digital music service company's earnings release on Tuesday was its first since merging with UBC Media Group in May, and the first since being listed on the London Stock Exchange. In both numbers and written word, the release was an argument for making its catalog of 32 million tracks available to a growing number of subscription and digital radio services.

Where else could 7digital go? Download sales revenue declined 8.7% in the U.S. last year, according to RIAA figures released last week. Those numbers are declining in other countries, too. On the other hand, streaming services are being created around the world and are being offered in territories that have never had legal download services. For a white-label, back-end technology and content provider like 7digital, the download has become dated.

Not surprisingly, the shift in 7digital's business strategy has changed its revenue mix. Recurring revenue from setup fees and other monthly items represented 61% of revenue in December, up from 34% a year earlier. Low-margin download sales from its business-to-business segment declined dramatically, to 22% of revenue, from 79% a year earlier.

Revenue decreased 12% to £10.2 million ($15.17 million) from £11.5 million ($17.1 million). Operating loss was flat at £4.5 million ($6.7 million). Net income improved to £0.3 million ($0.44 million) from a loss of £4.5 million ($6.7 million) due to gains related to 7digital's stake in audio social network Audioboom.

The financial figures include 12 months of 7digital results plus UBC Media Group, which merged with 7digital in May, from June 10th onward. The comparative 2013 results are 7digital only. Thus, the combined company had less revenue, but a better bottom line in 2014, than 7digital in 2013.

7digital believes switching its emphasis to streaming services will provide better margins and more predictable monthly revenue. "As the opportunities continue to grow in all of our key market sectors, the Board is confident that 7digital is well positioned to take advantage of what will be a significant demand for new streamed music and radio services globally," said chief executive Simon Cole. Its clients include BBC, Onkyo, Guvera and Christian music streaming service The Overflow.

The BBC is, unsurprisingly, the company's largest client. Accordingly, the U.K. accounted for 39.4% of revenue, up from 31.2% in 2013. As a share of 7digital's revenue, U.S. declined to 17.5% from 24.2%. The rest of the world basically dropped slightly to 43.1% of revenue from 44.7% last year.