Interesting August article from BillBoard Magazine
Navarre Confab Finds Firm Beginning To Turn Around.
Chris Morris
08/15/98
Billboard
Page 67
COPYRIGHT 1998 BPI Communications
MINNEAPOLIS--To put it succinctly, the outlook was sunny at
Navarre Corp.'s 1998 music sales convention, held July 22-25 here.
The New Hope, Minn.-based distributor weathered a rugged year in
1997. In March, the company reported a loss of $6 million for the fiscal
year; music accounted for only a quarter of the company's net sales. Its
music division underwent two major overhauls during the year, and staff
attrition was high. Some key labels, including Moonshine, Thump, and
Velvel, deserted Navarre .
However, the '98 sales confab, held at the Hyatt Regency in Minneapolis,
was an upbeat affair, as the company celebrated a rebound from the
dispiriting days of 1996 and 1997.
Just before the start of the convention, the company announced a profit of
$27,000 for the first quarter of the '99 fiscal year-not an earth-shattering
sum, perhaps, but major progress nonetheless, considering that the
company lost $1 million in the same quarter the previous year.
Other strides were quickly apparent during the sales meeting. With
veteran Arista and CBS/Sony exec Jim Chiado installed in March as VP/
GM of distribution, the company has attracted a promising new roster of
labels, many of them in the R&B genre. Its sales staff has been stabilized
and has been enhanced by a new marketing division headed by Terri
Bonoff, the former head of Navarre s computer software division;
Robert Redd also signed on as R&B label development manager.
During the convention, chairman! president/CEO Eric Paulson announced
that the company would be setting up a Canadian music distribution office
and that Net Radio, its Internet broadcasting division, would mount an
initial public offering (IPO) (BillboardBulletin, July 28).
Reflecting Navarre 's positive attitude, Chiado says, "Our theme [for the
convention] this year is 'Nobody does it better.' We're not there yet, but
we aspire to be there."
For the '98 fiscal year, which ended in March. Navarre 's music division
logged 30%, or $59 million of the company's net sales of $196 million.
Music was up 20% from the $49.8 million the company rang up in '97.
Paulson attributes the increase to such new labels as seasonal music titan
American Gramaphone, which arrived at the distributor just in time for
Christmas.
Paulson says, "Our formula really works the best, as a company, when
[the division of sales between software and music] is 60/40, and it doesn't
matter which one of the divisions is 60 and which one's 40... If we can
keep a balance, the profit formula for the company works best."
He adds, "My goal is to have 20 labels that each do $20 million a year,
and that's certainly a direction that we're headed in-[toward] larger. More
established labels with the financial wherewithal, with the management
style to really compete in today's music market."
In the interim, Navarre has made a big incursion into the R&B arena,
bringing on board such companies as Celestial Breakaway Supreme
Team, Un-D-Nyable, 404, and Starbound.
Chiado says, "It's an expanding area of music; it happens quicker, faster,
and, as a distribution company, I think we can turn quicker and faster on
this kind of product."
However, the company maintains a diversified roster: Other new labels
include Kenny Rogers' Dreamcatcher Records, Charlie Daniels' Blue Hat
Records, and punk rock stalwart Triple X Records
Paulson says, There's really two reasons that we've tried to maintain a
diversified label base. One is, we don't as a company want to be solely
dependent on one genre of music, in case tastes in radio or tastes in the
buying consumer change.
"The other thing that's really important, and it's more of a strategic issue:
With the consolidation of retail and [individual] retailers becoming larger
and larger, the way they've structured themselves is with buyers that buy
specific categories of product. I think it's important that Navarre
maintains a relationship with every music buyer in the country, whether
he's buying classical music or new age music or urban music or
contemporary alternative music.. . Once you have that relationship. you
can maintain it, and that relationship helps you as they move around from
company to company"
The Navarre sales staff, which was pared last fall with the elimination of
positions in Southern California and Atlanta, is now being bolstered. A
new Orange County, Calif., rep has been hired, and Chiado intimates that
a new rep in Atlanta is in the offing. Field sales personnel have taken on
some of the responsibilities of field marketing reps and are making store
calls. They may also do some promotion work in the future.
More staffers will come on board when Navarre opens up its Toronto
office this fall. COO Guy Marsala is overseeing the company's push into
the Great White North.
Paulson says of Navarre 's Canadian strategy. "Our biggest competitor
up there, from an independent standpoint, is Koch. Koch has a real
quality operation up there, and [president] Michael [Koch] always runs a
quality operation, and he's good competition, and that's going to make us
better.
"With the disarray of the major labels, especially in the area of [PolyGram
Group Distribution] and Universal and what's happening with that
potential merger... the opportunity of fallout is going to be
tremendous--here in the United States, as well as in Canada and in many
areas around the world. Besides the labels we take as a distribution
company up there, there's going to be some opportunities with Canadian
labels that may not be pleased with the current level of distribution they
have or where they fall within the priority list in their distribution channel
right now."
In terms of capitalization for the future, Navarre is in good shape, having
raised nearly $20 million with a preferred stock issue in May
"In connection with the preferred stock, there are also warrants." Paulson
says. "Those warrants, if they're exercised fully by the warrant holders,
will bring another $26 million in fresh capital into Navarre . If yon look at
the alternatives of NetRadio , there's another source."
Paulson declines any fu her comment regarding NetRadio , since
securities regulations forbid any statements by officers during a pre-IPO
"quiet period" because they may affect a company's stock price.
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