Houlihan Lokey Music Industry Update

In recent weeks, COVID-19 (better known as coronavirus) has globally sent shock waves through markets and captured the attention of the world. Since mid-February, the outbreak has accelerated and infections have become widespread, resulting in significant market volatility that is expected to continue for the foreseeable future. Substantial disruption to business operations has occurred, and all sectors of the economy have been impacted, including the music industry.

At this point, it is impossible to know how long the outbreak and shutdown will last or the lingering effects on businesses, the economy, and the credit and M&A markets, but despite temporary disruption of live events, we believe that once business resumes, the music industry will continue to see high levels of activity as companies respond the impacts of COVID-19. We have included industry insights to help you stay ahead in this dynamic and constantly evolving sector. Driven by growth of streaming music, the sector has seen continued consolidation (such as Tencent’s acquisition of a stake in UMG and Pandora’s investment in SoundCloud) and evolving dialogue around artist remuneration. Despite the current disruption, we expect activity to remain high for the foreseeable future as the sector continues its evolution, the key players refine their strategic goals, and artists continue to fight for their share.

We understand the anxiety created by these uncertain times, and we are here to share our perspective based on our real-time conversations with industry executives and our comprehensive views on the markets—M&A, public equities, and credit. We will continue to monitor this rapidly evolving situation and look forward to staying in touch.

Regards,

Roy Kabla Daniel Gossels William Eide Managing Director Managing Director Director Global Co-Head of the Technology, [email protected] [email protected] Media & Telecom Group 212.497.7979 415.273.3645 [email protected] 212.497.4193

Brian Marler Josh Rothstein Andy Shu Director Vice President Analyst [email protected] [email protected] [email protected] 310.712.6548 310.788.5388 310.789.5780 1 Select Recent Music Transactions

Houlihan Lokey’s professionals have unparalleled experience in advising music companies.

has been acquired by

has been acquired by has been acquired by has been acquired by has been acquired by A portfolio company of

Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor

$50,000,000 has divested its equity stake in has been acquired by Financing has completed a financing has exchanged stations with hasconsisting confirmed of a Chapter 11 Plan of Reorganization, restructuring approximately$24,000,000 $450 million of debt Series D to Convertible Preferred Stock

Second Lien NoteholderPlacement Advisor Agent Financial Opinion Financial Advisor* Financial Advisor* Financial Advisor*

has been acquired by has been acquired by investment from has raised equity from Wood Creek has been acquired by Capital to acquire

Financial Advisor* Financial Advisor* Financial Advisor* Sellside Advisor Financial Advisor*

has been acquired by has been acquired by has completed a financing has acquired a portfolio investment of consistinghas completed of a financing transaction in connection with its $24,000,000acquisition of Series D Convertible Preferred Stock

PlacementFairness Opinion Agent Financial Advisor* Financial Advisor* Financial Advisor* Valuation Opinion

*Selected transactions were executed by Houlihan Lokey professionals while at other firms acquired by Houlihan Lokey or by professionals from a Houlihan Lokey joint venture company. 2 Tombstones included herein represent transactions closed from 2011 forward. Streaming Driving Growth Across Music Ecosystem

Continued boom in streaming, now more than 50% of recorded music revenue, causing growing complexity and increased diversification of business models and artist/label relationships; likely driving continued disruption and business model innovation.

Global Recorded Music Revenue (2014A–2022E)

($ in billions) Projected

$26.0 $23.9 0.3 $22.0 $21.5 0.3 0.3 0.5 $19.1 $17.4 0.4 $16.2 0.4 $14.7 0.4 $14.3 17.9 0.4 15.5 0.3 11.9 13.1 6.7 8.9 1.9 2.9 4.7

4.0 3.8 3.2 2.6 2.3 2.0 1.4 0.9 0.5 1.9 2.0 2.3 2.4 2.7 2.3 3.1 3.3 3.6

6.0 5.8 5.6 5.2 4.7 4.7 4.1 3.8 3.6

2014 2015 2016 2017 2018 2019 2020E 2021E 2022E

Physical Performance Rights Digital (excluding streaming) Streaming Synchronisation Revenues

U.S Music Publishing Revenue (2014A–2022E)

($ in billions) Projected

$5.8 $5.7 $5.6 $5.5 $5.3 $5.4 $5.2 $5.3

$4.9

2014 2015 2016 2017 2018 2019 2020E 2021E 2022E

Sources: IFPI, Global Music Reports, UBS Research, April 2018. Wall Street estimates, IBISWorld Industry Report dated August 2017. Note: Figures represent revenue received by labels and artists, net of intermediary distribution 3 costs. Situation Update: Impact of COVID-19 Not Yet Clear

Audio music streams were down the week of March 13 while video music streams showed an increase, consistent with overall increases in video consumption during this period.

Less “On-the-Go” Behavior May Impact Music Streaming Habits

(weekly streams in billions) Audio Video Total On-demand

18.7 18.9 18.2 18.5 18.2 18.0 18.3 17.8 17.9 16.7 17.9 16.6

15.5 15.2 15.1 15.3 15.0 15.2 14.5 14.2 14.6 14.6 13.9 13.2

3.6 3.7 3.6 3.4 3.7 3.7 3.5 3.3 2.7 2.7 2.8 2.7

Dec 27 Jan 03 Jan 10 Jan 17 Jan 24 Jan 31 Feb 07 Feb 14 Feb 21 Feb 28 Mar 06 Mar 13

4 Source: Music Business Worldwide. YouTube Dominates D2C Music Streaming…

Music accounts for 5% of YouTube’s videos, but represents 20% of its views.

(% Time Spent Streaming Music by Platform Type) 5% Non-YouTube Video streaming

28% 47% Paid Audio Streaming

20% Free Audio Streaming

Total Users Paid Subscribers

(in millions) (in millions)

2000 124

644 60

55 400

40 271 35 175 20 (1) 152 7 104 6 100 3

64 1

21 1

14 1

Sources: IFPI Music Consumer Insight Report 2018, Forbes, Company filings, Music Ally, Variety, SNL Kagan. 5 (1) Includes Google Play Music paid subscribers. …But Is a Less Valuable Platform for Artists Than Peers

YouTube’s ad-supported model (and lower payout rates on video streaming) leads to lower payments despite more users.

Spotify vs. YouTube: Not All Users Are Created Equal

Illustrative Per-User Payout to Rightsholders(1) Total Payout to Rightsholders (2019)(2) ($ in actuals) ($ in billions) $18.23 $3.5 $3.0

$1.50

Illustrative Average Per-Stream Payout Rate(3)

($ in actuals) $0.0004

$0.0009

$0.0013

$0.0015

$0.0016

$0.0032

$0.0044

$0.0055

$0.0056

$0.0080

$0.0099

$0.0106

$0.0120

Sources: Digital Music News, The Trichordist, Soundcharts, YouTube announcement, Company filings, Music Ally. (1) Per-user payout is calculated by diving total revenue paid out to music rightsholders by the monthly active users. (2) YouTube annual payout includes subscription and advertising revenue for both publishing and royalties. 6 (3) Per-stream rate represents how much an independent artist is paid per play. Labels and Platforms Currently Keep Approximately 70% of Every Dollar in the Music Ecosystem

While incumbents are focused on “protecting their turf,” there will be significant opportunity for next-generation business models focused on the long tail of the ecosystem and putting artists first.

“Article 13 plans to address the so-called ‘value 17% gap’ between the revenues that online content- Artists sharing platforms generate from enabling users to upload and consume copyright-protected works and the value returned to rightsholders” April 2019 12% (1) 48% Others Platforms(2) “We do not find it justifiable in a world in which record companies no longer have the costs of pressing, handling and delivering physical product for them to try to hold on to the lion’s share of streaming revenues.” 23% Jan 2020 Labels

Independent Creator Revenue Significantly Outpacing Industry Overall

($ in millions)

$873.0

$643.1

$477.9 $375.4 $256.7

4.1% 2.8% 3.3% 1.7% 2.4%

2015 2016 2017 2018 2019

Artist Direct Revenue Share of Recorded Music Revenues

Sources: Citi: Putting the Band Back Together (2018), PWC, Global Entertainment and Media Outlook, Statista, Wall Street Research, MiDia Research. (1) Others include concert cost, manager, concert agent, retail margin, collection fee, concert promoter, and record producer. (2) Platforms represent EBITDA of music platforms and cost of running music platforms (FM, 7 Sirius XM, Spotify, YouTube). Growth of Streaming Globally Leading to Consolidation and Expected to Be Key Driver of M&A

Due to increasing smartphone penetration in emerging markets growing at 5% CAGR, emerging markets will overtake developed markets in number of users by 2025.

Paid Music Streaming Subscribers by Geography (2016A–2030E)

(in millions) Emerging Markets Developed Markets

830

732

320

587 303

424 285

230 263 510

429 159 302 111 194 84 104 27 2016A 2019E 2022E 2025E 2028E 2030E

8 Source: Akazoo Investor Presentation. Sector M&A Activity

Demand for IP and further consolidation in D2C likely to drive value as strategic players plot their course post COVID-19.

D2C Music Streaming

($ in millions) TEV/LTM Revenue

Date Closed May 14 Jul 14 Jan 15 Nov 15 Jul 16 Sep 17 Mar 18 Jul 18 Aug 18 Sep 18 Jan 19 Feb 20

Target TEV $500 $100 $56 $75 $2,700 $50 $197 $600 $975 $3,500 $469 NA(1)

17.1x

2.5x 3.3x Median 2.4x 1.4x 2.1x 2.3x 2.4x NA NA NA NA NA Buyer

Target

Record Labels/Music IP

($ in millions) TEV/LTM EBITDA

Date Closed Mar 15 Jan 17 May 17 May 18 Jan 19 Mar 19 Apr 19 Jul 19 Apr 20

Target TEV $392 $1,200 $700 $5,140 $280 $200 $232 $370 $3,360

28.8x

20.6x

Median 13.0x 11.8x 13.0x 13.0x

NA NA NA NA

Buyer MBO

Target

Sources: S&P Capital IQ, public filings, other publicly available information. 9 (1) Represents minority investment. Public Market Music Sector Performance

Some companies have seen multiple compression, but not to the degree of overall market.

Pre-COVID-19 Market Disruption (as of 1/6/2020)

Implied TEV/2021E EBITDA Multiples

14.5x 13.9x Median 13.9x

7.2x

NM

Post-COVID-19 Market Disruption (as of 4/1/2020)

Implied TEV/2021E EBITDA Multiples 14.8x

10.8x Median 10.8x

5.0x

NM

10 Sources: S&P Capital IQ, public filings, other publicly available information. COVID-19 Considerations

Volatile market conditions have created many questions for businesses. Houlihan Lokey’s significant product and end-market expertise positions us to help review a variety of strategic alternatives.

How have the Syndicated loan markets sold off to 90% of par, and new issuances syndicated loan have slowed to a trickle. Private market issuances are open, but on a case-by-case basis. Lenders are willing to provide financing, but are markets been affected starting to seek higher yields and more structure on terms (i.e., by COVID-19? covenants and definitions).

Can/should I refinance Due to current market volatility, opportunistic refinancing transactions my existing capital have been shelved as issuers and underwriters opt to wait to structure? What about understand how the financial performance will be impacted and for other options, such as stable markets. Despite recent outflows, market liquidity remains a dividend stable and opportunities to refinance will be available once volatility cools down. recapitalization?

What should I do if my covenants are There are a number of alternative capital providers willing to engage tightening or my in refinancing discussions. Please reach out to us directly to discuss lenders are being your particular situation. difficult?

Our relationships in the music industry, along with Wall Street’s best private equity coverage group, give us unmatched, real-time insights What should I do if I’m into current buyer sentiment and potential diligence and other considering a sale? concerns related to COVID-19 that directly inform our ability to construct a sale process roadmap to maximize value.

As companies analyze inorganic growth opportunities, it’s important to understand risks to target businesses posed by COVID-19, in What should I do if I’m addition to understanding the ideal structure for a potential acquisition. Now is a great opportunity to accelerate M&A dialogue. considering an Our substantial buyside expertise and leading Capital Markets Group acquisition? position us to provide guidance and capital in the current environment.

Do I need to discuss Yes. COVID-19 is part of the world we now live in. It is crucial to have COVID-19 as it relates a clear description of COVID-19 protocols in place, a plan of attack to to due diligence in a ensure employees are safe, and an understanding of potential sale or financing business impacts from COVID-19 moving forward. process?

11 Sources: S&P LCD, LFI Weekly. How Houlihan Lokey Can Help

Our firm is extremely well equipped to help our clients navigate uncertain times. We respond quickly to challenging situations and are constantly helping clients analyze, structure, negotiate, and execute the best possible solutions from both strategic and a financial perspectives.

What We Offer Corporate Finance We are widely recognized as a leading M&A advisor to 1 Corporate Finance the middle market and have long-standing relationships with capital providers, including commercial banks and other senior credit providers, insurance funds, asset Mergers and Acquisitions managers, and mezzanine fund investors. Few other investment banks maintain the breadth of relationships Capital Markets and capital markets intelligence that we do.

Private Funds Advisory Financial Restructuring Board Advisory Services We have the largest restructuring practice of any global investment bank. Since 1988, we have advised on 2 Financial Restructuring more than 1,000 restructuring transactions (with aggregate debt claims in excess of $2.5 trillion). We served as an advisor in 12 of the largest 15 Company Advisory bankruptcies from 2000 to 2019.

Financial Restructuring Financial and Valuation Advisory For nearly four decades, we have established ourselves Distressed M&A as one of the largest financial and valuation advisory firms. Our transaction expertise and leadership in the Liability Management field of valuation helps inspire confidence in financial executives, boards of directors, special committees, Creditor Advisory investors, and business owners we serve.

3 Financial and Valuation Advisory Why We’re Different Portfolio Valuation and Fund Advisory ✓ Dominant in Special Situations and Restructuring

Transaction Opinions ✓ Significant Experience With Financing Markets

Corporate Valuation Advisory Services ✓ Senior-Level Commitment and Dedication

Transaction Advisory Services ✓ Deep, Industry-Specific Expertise

Real Estate Valuation and Advisory ✓ Superior Work Product/Technical Abilities

Dispute Resolution Consulting ✓ Creativity, Imagination, Tenacity, and Positivity

12 Sources: S&P LCD, LFI Weekly. Houlihan Lokey is the trusted advisor to more top decision-makers than any other independent global investment bank.

. 1,300+ Employees . ~$1 Billion of Revenue . 23 Offices Globally . ~$3 Billion Market Cap

Corporate Finance Technology, Media, and Telecom

2019 M&A Advisory Rankings All U.S. Transactions Adv isor Deals

1 Houlihan Lokey 184 2 Goldman Sachs & Co 167 3 JP Morgan 141 4 Morgan Stanley 122 5 Evercore Partners 112

Source: Refinitiv (formerly known as Thomson Reuters)

No. 1 U.S. M&A Advisor Top 10 Global M&A Advisor Leading Capital Markets Advisor

Financial Restructuring Financial and Valuation Advisory

2019 Global Distressed Debt & Bankruptcy 20142000- 2019to 2019 M&A Global Advisory M&A Rankings Fairness Restructuring Rankings U.S.Advisory Technology, Rankings Media, Entertainment & Telecom Transactions Under $1 Billion Adv isor Deals Adv isor Deals Adv isor Deals 1 Houlihan Lokey 76 1 Houlihan Lokey 1,057 1 Houlihan Lokey 198 2 PJT Partners Inc 43 2 JP Morgan 929 2 Goldman Sachs & Co 162 3 Moelis & Co 36 3 Duff & Phelps 734 3 Raymond James Financial Inc 155 4 Lazard 29 4 Morgan Stanley 621 4 Morgan Stanley 154 5 AlixPartners 19 5 Bank of America Merrill Lynch 612 5 Evercore Partners 144 Source: Refinitiv (formerly known as Thomson Reuters) Refinitiv (formerly known as Thomson Reuters). Announced Source:or completed Refinitiv transactions.(formerly known as Thomson Reuters)

No. 1 Global Restructuring Advisor No. 1 Global M&A Fairness Opinion Advisor Over the Past 20 Years 1,000+ Transactions Completed Valued at More Than $2.5 Trillion Collectively 1,000+ Annual Valuation Engagements 13 Disclaimer

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