Executive Summary / Key Takeaways

• Reservoir Media's disciplined off-market acquisition strategy generates superior returns by sourcing catalogs outside competitive auctions, with management noting the pipeline is "populated with more off-market deals" and that "substantial deals are a result of off-market relationships."
• The Recorded Music segment is scaling rapidly with 21% growth and 51% OIBDA margins in Q2 FY26, creating a higher-margin revenue mix shift that materially enhances overall profitability compared to the traditional publishing business.
• Emerging market expansion through PopIndia and PopArabia de-risks U.S. concentration while capturing better ROI and less competition, with India alone offering a 13% CAGR through 2027 and over 175 million streaming listeners.
• A material weakness in the Recorded Music royalty system remains unremediated as of September 2025, creating execution risk that could undermine financial reporting reliability and management credibility if not resolved.
• Management's consistently conservative guidance approach—explicitly excluding projected hits and one-time audit recoveries—has created a reliable pattern of outperformance, with FY26 guidance raised to $167-170M revenue and $70-72M Adjusted EBITDA.

Setting the Scene: The Independent's Advantage in a Consolidated Industry

Reservoir Media, founded in 2007 and headquartered in New York City, operates as an independent music company in an industry dominated by three majors that collectively control approximately 70% of market value. The company makes money through two primary segments: Music Publishing (68% of Q2 FY26 revenue) generates income from composition usage across streaming, performance, sync, and mechanical royalties, while Recorded Music (29% of revenue) monetizes master recordings through digital platforms, physical sales, and licensing. This dual-segment structure creates a unique value proposition—unlike pure-play publishers, Reservoir can capture both sides of a song's economic value.

The industry structure fundamentally favors scale, with majors leveraging massive catalogs to negotiate preferential terms with streaming platforms and sync partners. Yet this concentration creates a structural inefficiency: valuable but non-core catalogs often get neglected, creating acquisition opportunities for nimble independents. Reservoir's strategy exploits this gap through disciplined capital deployment, targeting catalogs with untapped potential in emerging markets or underutilized sync value. The company's history reflects this approach, beginning with music publishing acquisitions before expanding into recorded music via the 2019 Chrysalis Records and 2021 Tommy Boy Records deals—foundational moves that built infrastructure for the current scaling phase.

Demand drivers are shifting favorably for Reservoir's model. Streaming growth continues globally, with recent Spotify (SPOT) price increases expected to benefit both segments. More importantly, catalog streams represent over 73% of U.S. on-demand audio consumption, valuing longevity over virality—precisely the asset class Reservoir curates. The rise of superfans, now 20% of paid U.S. streaming subscribers, creates premium pricing opportunities for deep catalog engagement. Meanwhile, immersive entertainment—a $133 billion market growing to $473 billion by 2030—opens new sync and experiential revenue streams that leverage Reservoir's IP.

Strategic Differentiation: Off-Market Deals and Global Arbitrage

Reservoir's core competitive advantage lies in its off-market acquisition pipeline. Management explicitly states that "substantial deals are a result of off-market relationships" and that they "try to stay away from" auction processes. This matters because it directly translates to better economics—avoiding competitive bidding means paying lower multiples while acquiring assets with higher intrinsic value. The recent Miles Davis acquisition exemplifies this: purchased ahead of his 2026 centennial, the deal includes publishing, master rights, and name/likeness—creating multiple monetization vectors through reissues, sync placements, and brand partnerships that a less sophisticated buyer might miss.

The company's boots-on-the-ground international expansion amplifies this advantage. PopIndia's launch in Mumbai and PopArabia's MENA deals (first Iraqi and Kuwaiti catalogs) demonstrate a pattern of successful international expansion.