"Musicow Advertising Costs Bigger Than Revenue... Operating Losses in the 10 Billion Won Range"

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[Asia Economy Reporter Ji Yeon-jin] MusicCow, a 'music copyright fractional investment platform,' recorded an operating loss in the 10 billion KRW range last year as it spent far more on advertising than its total sales.

According to MusicCow's audit report on the Financial Supervisory Service's electronic disclosure system on the 27th, the company spent 17.47548 billion KRW on advertising expenses last year. During this period, sales amounted to 13.35267 billion KRW, meaning advertising costs exceeded 130% of total sales. Founded in 2016, MusicCow's membership surged from 10,000 in 2018 to 910,000 last year. It is currently reported to have surpassed 1 million members. Over the same period, the annual transaction amount also grew from 1 billion KRW to 274.2 billion KRW. This growth was thanks to raising awareness by featuring popular singers such as Yoon Jong-shin and Sunmi as advertising models. However, such advertising spending worsened the company's profitability. Last year's operating loss was 10.2318 billion KRW, nearly double the 5.37482 billion KRW recorded the previous year.

MusicCow's subsidiary, MusicCow Asset, purchases copyrights from creators and entrusts them to the Copyright Association. Based on the rights to receive copyright royalties, it issues 'Copyright Royalty Participation Rights.' MusicCow then divides these into 'Copyright Royalty Participation Claims' and auctions them to investors. The revenue from selling these copyright royalty participation rights last year was 7.73465 billion KRW, accounting for nearly 60% of total sales. User market sales were 1.52364 billion KRW, and copyright royalty income was 1.49407 billion KRW. The company classifies 36.3973 billion KRW worth of copyright royalty participation rights, which have not yet been sold through auctions, as other non-current assets and borrowed 16.92096 billion KRW against them from the 'Hanwha-MusicCow Cultural IP Specialized Investment Private Special Asset Investment Trust No.1,' which holds an 8.98% stake in MusicCow. MusicCow's short-term borrowings amount to 24.5 billion KRW.

MusicCow investors do not receive music copyright income directly through the Copyright Association but claim it from MusicCow. This fragile financial structure could make recovering investments difficult in the future. On the 20th, the Financial Services Commission's Securities and Futures Commission classified MusicCow's copyright royalty participation claims as securities and demanded the implementation of seven measures to restructure the business, including establishing protection mechanisms for investors' assets (claims, deposits, etc.). Meanwhile, MusicCow has treated 6.7 billion KRW, including investor deposits and profits from selling copyright royalty participation claims, as deposits to be paid upon investors' requests.

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