FSOL - HOT STOCK ON THE MOVE
An Ahead of the Street (http://www.aheadofthestreet.com/) research report.
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NEW INDEPENDENT RECORD LABEL SET TO BE MAJOR PLAYER IN THE FASTEST GROWING SEGMENT OF THE MUSIC INDUSTRY.
One music genre has rocketed forward in recent years, more than doubling its market share. Rap music sales constituted only 4.2% of the market in 1988, but have since grown to more than 10%. Even more impressive is the combined market share of Rap and R&B. Together these two genres make up 21.3%, more than 1 in 5 dollars spent on music.
Demographic trends, music tastes, and economic trends heavily favor further growth in market share and great opportunities for record labels in this market.
So how can an investor capture a share of the profits from the segment of the music industry with the most promising future?
FILTERED SOULS ENTERTAINMENT, INC. (FSOL - otc bb)
5111 Sante Fe Suite 219
San Diego, CA 92109
Tel: 619-274-3013 Fax: 619-274-3055
filteredsouls.com
Recent Price: $1.84
Bid/Ask: $1.82 / $1.84
Total Shares Outstanding: approx. 3,125,000
Market Cap: roughly $5.76 million
Initial Float: 625,000
Float resulting from recent 504 financing: 1,250,000
Total Float: 1,875,000
Restricted (144 stock): 1,250,000
Filtered Souls Entertainment, Inc. is a new independent record label with talented artists, great management, and a roadmap to become a major player in the industry, concentrating on the development and marketing of Rap and R&B artists.
Peter Lynch is a great advocate of buying what you know. This investment approach has proven wildly successful for him, but Peter Lynch also looked to what his children knew and bought for investment ideas. You may know nothing about rap, except that you do not personally like it, but millions of teenagers and young adults do. If you have children, grandchildren, or neighbors who are teenagers or young adults, odds are very good that Filtered Souls artists will soon be in their CD players. Investors have a chance to profit from this knowledge well ahead of the crowd, while the potential for parabolic profits still exists.
First some background on the music industry and then details why Filtered Souls is such an exciting investment opportunity within the business.
MUSIC INDUSTRY FACTS
Music sales make up a significant part of entertainment dollars and discretionary income in the U.S. Music sales are a growth industry, with strong unit sales through mid 1998 (latest available data).
According to the Record Industry Association of America, net number of audio and video units shipped in the U.S. increased from 470.7 million units at midyear 1997 to 502.5 million units in 1998, an increase of 6.8%. At suggested list price, the total 1998 midyear shipments were valued at $5.8 billion, an 11.9% increase over the $5.2 billion spent by midyear 1997. Considering the 6.8% unit volume increase and inflation between 1-2%, music sales appear to be one industry resistant to price pressures evident elsewhere in the economy. Many industries are experiencing outright deflation, but the music industry has managed to increase prices per unit over and above inflation. That is an impressive trend.
Another impressive trend that relates to Filter Souls is the recent changes in music tastes.
Although Rock remains the dominant music genre, it has steadily lost ground over the last 10 years, from 42.6% to 32.5%, about one-third its market share. During that same time period, Rap has more than doubled its 1988 share of 4.2%. Rap has made strong gains over the last three years, increasing its share to 10.1% in 1997, up from 8.9% in 1996. 1998 figures were not yet available, but a positive upwards trend appears to be in place. R&B has risen from 1988's 9.1% to 11.2% in 1997.
There are many factors that support continuing growth of R&B and Rap music sales. Once seen as a passing fad, Rap has solidly broken into the mainstream music audience. These two market segments are very popular among younger music listeners. In 1997, 25.7% of all recorded music was purchased by those younger than 20 years of age. Consumers age 20-24 accounted for 13.8%, while three age groups -- 25-29, 30-34, and 35-39 -- each represented approximately 11% of the market. So the under 30 demographic accounted for 50+% of music sales.
DEMOGRAPHIC AND ECONOMIC TRENDS
Several demographic and economic trends favor Filtered Souls' market focus. The growth in minority (non white) population is one demographic factor that favors future R&B and Rap music sales. But these two genres have become increasingly popular across all races. Filtered Souls artists also have characteristics which make them more likely to appeal to wider audiences.
A second demographic wave is entering an age range very favorable to music sales. An echo boom of baby boomer children is concentrated among 10-20 year olds. These youth have grown up with Rap and R&B as a dominant musical influence. Additionally, Hip-hop has become a significant cultural influence and this generation has whole heartedly embraced traditionally black music. According to the 1990 census, the 1-11 year old age group (Now the 10-20 year old age group) represents a consumer block of more than 40 million individuals. This block of consumers accounts for 1/4 of all music sales.
For more information on US demographics: census.gov
The force of 40 million consumers has, or soon will experience, several economic trends which favor increased music consumption. For the younger segment of the group, allowance and purchases by parents are the dominant components. The baby boomers are entering their peak earning years, which likely means higher allowances and purchases on behalf of their kids. The same holds true for the older teenagers, but they also have earnings of their own. Because of higher minimum wages and higher employment of younger workers, especially urban minority youth, this demographic will have even more spending power. The increase in discretionary income will translate into higher music sales.
FILTERED SOULS (FSOL)- An Opportunity To Cash In On The Music Industry
BACKGROUND
Filtered Souls is the first camp of artists to enter into a joint venture with Skyline Records, Inc. The public company was established to raise funds to promote the artists within the Filter Souls camp and fulfill terms of the joint venture with Skyline Records. Filtered Souls has completed the financing for the funds necessary to promote the first two artists on the Filtered Souls label.
Filtered Souls started out as a two-man production team with one major goal… to be a fully functional and internationally effective entity in the business of music. Today, with Hip-Hop and R&B as the focus, Elow Zapata and Jesse Perez (Shysti) are taking San Diego's music scene to new heights. With over fifteen years of industry experience as artists, producers and promoters, this company (of now more than 20 associates) is well on its way to worldwide success.
Filtered Souls founders/producers, known as Elow and Shysti, were finding it very hard to keep the stores and the street teams stocked with product to sell and it became evident that they would have to seek the help of a record company. What started out as a few small projects evolved into a platinum potential family that is also completely self-contained, produced, managed and promoted.
STRUCTURE
Filter Souls has entered into a joint venture agreement with Skyline Records, Inc. The terms of the deal call for the Company to earn a fifty percent interest in the net revenues (after artists' royalties) from sales proceeds received from the independent, national and international distributors and sales through the internet for the initial album, "Filtered Souls: Family Business". This album is a compilation of five individual artists, known as the group "Filtered Souls". The Company will also participate in the first solo album of each of the artists, for a total of six album commitment. The Company has also received the first right of refusal for a fifty percent partnership on additional four albums by each artist, for a total of another twenty albums.
BACKGROUND ON SKYLINE RECORDS, INC.
Skyline Records, Inc. was founded in 1996 and incorporated November 3, 1997. Skyline is positioning itself to be a micro major in music, television, and film. The company will focus initially on the music division, concentrating on increasing the visibility of Skyline and it's artists. Skyline is positioning itself to meet the needs of the entertainment industry and demands of the consumer in the next millennium.
MISSION
Economically increase urban music market share by offering sub-label deals to those who possess the ability to react quickly to the demand of the market.
Plans to excel far and beyond the average independent record label, by imitating the success of UNI, SONY, BMG, Polygram, WEA, and EMI- the leaders in the $25 billion industry.
Generate revenues from multiple sources: video, retail stores, Mom & Pop stores, Publishing, Internet, and entertainment software.
SOURCE OF REVENUES:
After distribution fees, manufacturing, and various royalties are paid, Filtered Souls Entertainment will net approximately $2.50 per unit sold, including publishing royalties.
EXPENSES:
Filtered Souls will pay approximately $15,000 per month in overhead and administrative expenses. That figure represents 50% of the budgeted administrative expenses of the joint venture. Filtered Souls will also contribute $250,000 per album to the joint venture for marketing, promotion, and video production.
THE BOTTOM LINE: Free Cash Flow
Once an album sells roughly 100,000 copies, all other revenue generated by the album is free cash flow. Collectively, the revenues from several albums will cover the administrative expenses for the year. If the initial success of an album warrants additional marketing expenses, then expenses beyond the initial $250,000 will be split by Skyline and Filtered Souls. Free cash flow generated by the early album sales will cover the additional expenses incurred by Filtered Souls.
PROJECTIONS
Projecting music sales can be difficult, but the first two artists the company plans to market, Secret Service and Mad One, have proven themselves in a competitive local market and both are starting to attract national attention. When the national promotion begins, with air play on 15 P1 radio stations (1 million + potential audience each), record sales are expected by the company to reach platinum (1 million copies). Filtered Souls is equally enthusiastic about the prospects for the next three artists, Johnny Rouke, Big Maine, and Black Mikey. In the words of Dan Tartaglia, President and CEO of Skyline Records, "Personally I won't be satisfied unless every one of them goes platinum."
On a per album analysis, projected revenues and earnings are as follows:
Number of
Albums Sold Total Revenue Total Cost Earnings
300,000 $750,000 $250,000 $500,000
500,000 $1,250,000 $250,000 $1,000,000
750,000 $1,875,000 $300,000 $1,575,000
1,000,000 $2,500,000 $350,000 $2,150,000
Using these projections and total shares outstanding, the following are estimates of earnings per share and hypothetical price targets using reasonable price-to-earnings ratios of 15X, and 20X (both discounts PE of general market) the 1999 projected earnings for just the first two artists. An annualized expense of $180,000 for overhead and administrative costs has also been deducted from the earnings below.
Total Number of
Albums Sold Earnings Earnings P/E Suggested
(Both artists) per share Applied Target
800,000 $1,320,000 $0.422 15X $6.33
800,000 $1,320,000 $0.422 20X $8.44
1,000,000 $1,820,000 $0.582 15X $8.73
1,000,000 $1,820,000 $0.582 20X $11.64
1,500,000 $2,970,000 $0.950 15X $14.25
1,500,000 $2,970,000 $0.950 20X $19.00
2,000,000 $4,120,000 $1.318 15X $19.77
2,000,000 $4,120,000 $1.318 20X $26.36
If one of the first two artists does as well as expected and one only does half as well, then Filtered Souls would earn nearly $3 million dollars after subtracting administrative expenses and allowing for increases in the marketing budget. The company plans to market the other three artists in 30-60 day increments, following the releases of Secret Service and Mad One's albums this Spring. Additionally, the company is currently negotiating with other artists who may produce albums before the end of 1999.
Keeping in mind that other artists will likely add to earnings in 1999 and the positive local results of Secret Service in San Diego, a target price reflecting the range of 1 million to 1.5 million albums sold and a PE of 15X appears justified. This would represent a 12 month price target of $8.73 - $14.25. This target range will be adjusted as initial sales figures for the first two albums are released and as additional artists release their albums.
MARKET ANALYSIS
Looking to enter Joint Venture with one of the big six distributors. Six companies account for 90% of sales to wholesalers and retailers in the U.S. music market. Filter Souls and Skyline Records are currently negotiating a global distribution agreement with one of the big six.
Other Independent/Big Six Deals:
LaFace Records 5 year $100 million deal with Arista.
Death Row/Interscope $250 million deal
Cash Money $30 million deal with Universal
Bad Boy Entertainment 5 year $100 million deal
Big six have embraced sub-label deals, because of increased fragmentation of music market and inability of big six to react quickly to new music trends and changes in consumer tastes.
ARTISTS
Three of the five Filtered Souls rising stars have released their music locally. Big Maine, Black Mikey and Mad One have all had regional projects that have made a lot of noise and earned them the slots in the Filtered Souls camp, regarded as one of San Diego's best. These artists, along with Secret Service,- a Puerto Rican duo who performed their way into the family, have sold-out every Hip-Hop venue in San Diego and even sold-out nights at the biggest clubs in Tijuana, Mexico (one of the worlds most popular "party spots'), including Baby Rock and Club XS.
SECRET SERVICE - East meets West with a touch of Latin flavor
Secret Service uses a unique fusion of Spanish, Puerto Rican and Mexican rhythm and style to create a new and refreshing vibe in Hip-Hop music. Their style of music has proven to be very popular in the first market tested. "Secret Service" album, "TOP SECRET" first hit, "Tonite's Groove" reached top 20 on San Diego's #1 R&B/Hip Hop radio station, Jammin' Z-90 (XHTZ). Their second hit has done even better. "Unfadeable" rose to #1 on Jammin' Z-90's charts and remained the most requested song for 4 weeks. The popularity of this duo in the second largest city in California is a very good barometer of the group's success nationally when the major marketing campaign begins.
More info about Secret Service: filteredsouls.com
MAD ONE
San Diego is long over due for a spot on the Nationwide map of Hip-Hop strongholds. Mad One is a Chicano, a direct product of the streets of this border town, and his lyrics bring fresh topics and stories to Hip-Hop listeners of all ages and races.
"Mad One" recorded the theme music for the WCW's popular wrestler, "Konnan." This exposure brings a heartland audience to urban music scene. The single, "Psycho," has been aired on TNT, TBS, and pay per view. There will be a follow up release by Mad One and Konnan entitled "Bow Wow Wow" this summer. The airing of the theme song is priceless free publicity.
More info about Mad One: filteredsouls.com
BIG MAINE
This MC has a vocal tone and delivery that will surely earn him the luxuries his lyrics suggest. From the streets of South San Diego and Inglewood, California, he has mastered the art of turning his urban-life stories into rhymes of survival.
More info about Big Maine: filteredsouls.com
JOHNNY ROURKE
Johnny Rourke was born in Halifax, Nova Scotia, Canada. As the newest recruit of the Filtered Souls family, he carries himself as a natural MC destined to be heard through hip-hop. As a youth, he participated in and won several break dance competitions in his hometown. As Hip-Hop grew very rapidly in Canada, it became a part of his soul. Johnny Rourke's debut single "Still Got Me" has a mainstream flavor that will earn him platinum status in his home country of Canada. Skyline Records filmed a high budget, 35mm gloss video for "Still Got Me" directed by Fortress Entertainment and shot on location in downtown San Diego, California. Johnny Rourke is currently working on his solo project to be released by summer 1999.
More info about Johnny Rourke: filteredsouls.com
BLACK MIKEY
Black Mikey fell in love with Hip-Hop at an early age. Inspired by musical pioneers like the Sugar Hill Gang, George Clinton, Grandmaster Flash, and Afrika Bambaata, he began writing rhymes as a way of expressing his feelings about true life experiences. You might describe Mikey's style as a mixture of old and new school rap that Mikey has absorbed over the years.
More info about Black Mikey: filteredsouls.com
EXPOSURE/DISTRIBUTION
Major record chains, such as: Wherehouse, Sam Goody, and Tower Records will give Filtered Soul artists and albums prominence usually reserved for major record companies. This includes point-of-purchase displays, playing videos in stores, and establishing the album at listening stations.
The Filtered Soul project has proven successful at the local level and is now ready for national and international marketing. Skyline is in the process of hammering out a global distribution deal with one of the big six music distribution companies. They are in the final stages of negotiations and an announcement is imminent.
Public Relations/ Publicity Strategies
Public Performances
Concert Tours
Club Appearances
TV & Radio
In-store Appearances
Charities
Historically, promotion and subsequent airplay were the leading factors in the creation of a hit record. In recent years, publicity and public relations has come in to its own in that it can make the difference between a hit and a monster smash. Promotion and public relations also maintain the viability, name recognition and momentum of an artist and its label between releases. Skyline's legal affairs department is presently finalizing a contract with a globally recognized and respected entertainment public relations firm. Details to be announced shortly.
Filtered Souls and Skyline Records will use "Right Track" computer software to track incremental revenue generated from advertising, promotion, distribution and publicity efforts.
RISKS
1) Skyline missed the window for this particular genre/style for music.
2) The market does not accept the product.
3) Failure to meet consumer demand.
4) Competition- Major Labels, Sub-labels, Joint venture deals between major labels and other independents
SUMMARY
Filtered Souls has a talented line up of artists and is well positioned to market and promote these artists to a growing market of music consumers. Demographics, economics, trends in music tastes, and popularity of the first two artists in local markets all point to a very bright future for Filtered Souls. Based upon album sales projections at 1 million to 1.5 million albums and resulting earnings to the company, a price target of $8.73 - $14.25 in 12 months has been estimated for Filtered Souls (FSOL- otc bb).
Disclaimer
Business Financial Network is not a Registered Investment Advisor or a Broker / Dealer. This communication reflects opinions from Filtered Souls, Inc. Readers are advised that this electronic publication is issued solely for information purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy.
The opinions and analysis included herein are based on sources believed to be reliable and in good faith but no representation or warranty, expressed or implied, is made as to their accuracy, completeness or correctness. This information is not intended to be used as the sole basis of any investment decisions, nor should it be construed as advice designed to meet the investment needs of any particular investor. The foregoing discussion contains forward-looking statements which are based on current expectations and differences can be expected.
The information contained herein has been provided by the Company to Business Financial Network for information purposes only; in addition, the information contained in this report is not intended to be a complete discussion of information regarding some of the current and/or intended business activities of the Company.
Readers are urged to consult with independent financial advisors with respect to an investment in the shares mentioned herein. Investors should review a complete information package on Filtered Souls, Inc. (the "Company"), which should include, but not be limited to, the Company's annual report, quarterly report, press releases, as well as all regulatory filings. All information contained in this report should be independently verified with the Company mentioned herein. Any opinions expressed in this report are statements of judgment as of the date of publication and are subject to change without further notice, and may not necessarily be reprinted in future publications or elsewhere. Neither Business Financial Network nor its officers, directors, partners or employees / consultants accept liability whatsoever for any direct or consequential loss arising from any use of this report or its contents.
Business Financial Network will be paid a fee of $24,000 from Twin Towers Financial on behalf of Filtered Souls Entertainment, Inc. for consulting services including, but not limited to, research, project analysis, and electronic dissemination of this report and other updates on The Company. The principals of Business Financial Network will take this compensation in the form of 30,000 free trading shares of Filtered Souls Entertainment, Inc. Employees and/or principals of Business Financial Network may purchase shares on a voluntary basis in the open market and may buy or sell shares in this company or others without prior notification depending on market conditions and personal financial circumstances.
Prior to Business Financial Network disseminating this information, Filtered Souls Entertainment reviewed and approved the contents hereof.
THE READER SHOULD VERIFY ALL CLAIMS AND DO THEIR OWN DUE DILIGENCE BEFORE INVESTING IN ANY SECURITIES MENTIONED. INVESTING IN SECURITIES IS SPECULATIVE AND CARRIES A HIGH DEGREE OF RISK.
We encourage the reader to review the investing information available with the Securities and Exchange Commission ("SEC") at sec.gov and / or the National Association of Securities Dealers ("NASD") at nasdr.com. Readers can review all public filings by the Company at the SEC's EDGAR page. The NASD has published information on how to invest carefully at its web site.
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