We met with Atrinsic $ATRN in 2011 after they attracted attention by acquiring music property Kazaa late in 2010. Back then the shares were trading in the $3-range versus the current $0.08.
At the time company was working on adding to the senior management team and board at the same time they were hoping to secure agreements with music content providers (the “labels”) to grow the service.
Picking through all the filings it kind of looks like the company got what it wished for. The only problem is that the content costs are high so that the Kazaa subscription revenue generates losses instead of profits.
Our old friend Michael Robertson (of MP3.com fame) mentioned this problem in no uncertain terms when we published a note on Pandora $P.
It appears that Atrinsic is running out of cash and lacks enough runway to get their music subscription business in the air. They have recently sold a few none-core mobile and online properties but that only raised a little over $600K.
The company seems to be painted into a box. The current CEO, Nathan Fong, needs to work with the board and map out some kind of strategy. Since content costs are unavoidable it makes it hard to fathom what they might do.
We think the endgame for some of these distribution companies is acquisition by the content owners since the businesses would be instantly profitable if you didn’t have to pay the content fees. In that case $ATRN would be worth much more than the current share price.
Problem is you don’t have any power to bargain with. You’re sitting at the power table with nothing and everyone can see your cards.