Fat Beats, Inc.

1. Fat Beats, Inc.

2. What is it?

3. History • Retail basement store open in 1994 • Owned by Joseph Abajian (DJ, B-Boy, and producer DJ Jab) • Fat Beats, Inc. • Headquarters in Brooklyn • “The Last Stop for Hip Hop” • Niche DJ market

4. Vertical Integration • Production: Fat Beats Records • Distribution: Fat Beats Distribution • “premier international independent distribution company specializing in vinyl” • Retail: Fat Beats and Fatbeats.com • “destined to corner the market in on-line hip hop sales”

5. So, Fat Beats Can??? • Produce content • Distribute its content to retailers • Sells its content at its retail locations • Promote its artists through in-store signings/performances • Creates…??? • Synergy!!! Of its commodities by selling albums, CDs, tee shirts, DVDs • Who does this sound like???

7. Production • “much attention from major labels eyeing Fat Beats as an A&R source in hopes of landing the next big artist”

8. Distro • Opened in 1996 • worldwide clientele for wholesale and mail-order selections of various independent releases • Clients= “crucial mom & pop retailer or dj store” • “Independent record stores are vital to keeping this music we all love alive”

9. Distro Cont’d • “Decidedly not a one stop”…? • “distributing and marketing” artists • $4M in distro sales in 2003

10. Labels Distributed

11. Retail • NYC • Los Angeles • Formerly • Amsterdam • Atlanta • Web

12. Employees • “Fat Beats employees are likely to be top area DJs” • a “true representation” of the customer visiting the store

13. Competition • Production • Distribution • Retail • “destined to corner the market in on-line hip hop sales”

14. The Alliance • Newly formed alliances with companies such as Loud, Tommy Boy, Interscope, Caroline, and Koch • October 30, 2007 KOCH Entertainment Dist. signed an exclusive physical and digital distribution deal

15. The Deal, YO! • “Fat Beats’ successful brand of true underground hip hop will further strengthen our status as the No. 1 physical and digital supplier of urban music”~Michael Rosenberg, President KED • “Over the years both companies have grown and come back full circle to work together again. Whereas Fat Beats once lent a hand in showing KOCH the hip hop scene, KOCH can now reciprocate and help Fat Beats artists…get into more markets”~DJ Eclipse, NYC Store Mgr/artist

16. So, What’s Up??? • Matt, Fat Beats A&R: • “Unfortunately, we cannot release any confidential information about our company…” • “Sorry man, I can’t really help out” • Private Company!!! • Maybe, now major corporate interest= shhhhhhhhh

17. KOCH Entertainment LP • “is vertically integrated and distributes its own content” • Music Distribution • Record labels/affiliated labels • Video distribution • Music Publishing • Michael KOCH/1987/ One of 6 “Indie” reps on RIAA

18. KOCH Records • Rap and Children’s music • America’s largest independently distributed record company. • 1999, got its start distributing Death Row Records • Jim Jones A&R • WWE (F), Terror Squad, DJ Unk • $40-50M in revenues • 240 titles • #5 Rap Label, 5% market share for rap • .65% market shart

19. KOCH Entertainment Dist. • Most $$$ “arm” • $175M in revenues (33%=digital sales) • 25,000 titles/280 labels • Ship, market, process music: • “gives us a higher degree of control” M.K. • May 2007, $6.5: • 2.7% market share • 3.3% • 2.6%

20. Other Subsidiaries… • KOCH Vision • Distributes for 400 film companies • KOCH Music Publishing • 2,500 song catalog

21. 2005, Row Entertainment (Entertainment One), buys KOCH for $80M • Canada’s largest video/music distributor • $700M Revenues in 2008 • Ships 30K-60K pieces a day • Publicly Traded on London AIM market • “expanding content exploitation”; “exploit cost synergies”; “capitalise on cost synergies”; and “consolidate geographic position”

22. Publicly Traded on London AIM market • 1.3M public shares, 67.31% of stock is private • March 2007, Marwyn LLP buys Ent. One for $160M • Through Marwyn’s capital, Ent. One made many international film/music distro purchases

23. London-based hedge fund • Specializes in…? • buyout • consolidation strategies • Incorporated in…? Cayman Islands • $2B in acquisitions in 3 years • 79% is privately held

24. Diversification??? • hazardous waste plants • alcohol and drug abuse laboratories • global laboratories • online betting services • construction training • environmental safety consulting • snack foods industry

25. Hedging???: • reducing the risk of loss through short-term investment in derivatives; that is, buy today and sell tomorrow for a profit. • Corporations and banks invest in derivatives to “hedge their position, essentially buying a kind of insurance” • Derivatives?: • offset “the risk involved in other securities position…” and “mitigate those losses by selling short” ~Marwyn

26. January 22, 2009 • E1 Music= • KOCH Records • E1 Entertainment= • KOCH Ent. Dist. • E1 Music Publishing= • KOCH Music Pub • E1 Entertainment U.S. • KOCH Vision • E1 Music Publishing= • KOCH Music Publishing • No mention of Ent. One

27. Some Questions/Analysis… • 1) Since the majority of KOCH Records’s sales are hip-hop or rap music, what does this mean for companies like Fat Beats? • 2) What does KOCH Entertainment really mean by independent? • 3) What does “independent” really even mean anymore?

28. Cont’d • 4) Is there truly any competition in the recording industry? Especially in terms of distribution? • 5) Can independent music/underground hip-hop and hedge funds coexist? • 6) What does this relationship w/ hedges and off-shore trading mean in terms of the artists’ messages? • 7) If “indies” supposedly subvert the dominant system (music and in general), are they, in fact, just reinforcing that system/status quo?

29. If 80% of the music sold in America comes from the “Big Four” and 10% from the independents (ADA, RED, KOCH/E1) what “choices” do we have? • Does this really even matter in the age of digital capitalism/music???