What does the future hold for Guvera?

With Guvera limping on despite mounting debts, executive departures and a failed bid to float, Steve Jones looks at how it got into this position and what the future holds for the brand-funded Aussie streaming service.

Speaking to former staff members and creditors of Guvera it’s clear the company has been struggling to pay its suppliers for several months. But where did it go wrong for the company which was founded on the Gold Coast with ambitions to take on the world?

Melbourne-based media agency Media Partners has been named as one of the major creditors of Guvera, owed $235,000, while PR company Edelman and Tennis Australia are also amongst creditors.


According to one former member of staff, alarm bells started ringing as suppliers began chasing Guvera for unpaid invoices at the back end of 2015. Soon after, staff discovered their super had not been paid.

“The wheels started to fall off towards the end of last year when suppliers were calling about unpaid invoices,” the former employee said. “Then someone noticed their super had not been paid. We all checked and realised we were all in the same boat.”

The news came as it emerged chief executive Darren Herft has quit as chief executive, with founder Claes Loberg taking over on an interim basis. Herft will remain on the board, according to Loberg.

Departed: Darren Herft

Departed: Darren Herft

Guvera’s financial woes were laid bare last month after the Australian Securities Exchange refused it permission to list. In doing so, it wrecked Guvera’s plan to raise up to $100m through an initial public offering (IPO) and left the operation teetering on the brink.

The Gold Coast-headquartered streaming firm subsequently placed Guv Services and Guvera Australia in the hands of administrators, and cut around 40 jobs from its local operation.

Since then, management have been attempting to draw up a rescue plan via a Deed of Company Arrangement (DoCA), in a bid to keep the company afloat.

Administrator Deloitte Restructuring told a creditor’s meeting earlier this month it will support a DoCA “if it is able to provide a better and more certain return to unsecured creditors than a liquidation scenario”.

The DoCA – should one be forthcoming – will be put to the vote at a second creditor’s meeting on August 1.

Media_PartnersAlong with Media Partners’ $235,000, other creditors include music licensing and royalty administrators, the Australasian Performing Right Association (APRA) and Australasian Mechanical Copyright Owners Society (AMCOS) which together are owed $928,713.

PR firm Edelman is owed almost $34,000 while tech business NextFaze, which developed Guvera’s app and has been working with them since May 2012, is chasing $462,615.

Media Partners founder and managing director, Paul Tadich, told Mumbrella his firm worked on Guvera’s sponsorship of the Australian Open Tennis championships in January, and one other smaller project.

“We received some payment but not a lot. The $235,000 is pretty much the majority of what was owed from the beginning,” he said. “The Australian Open was a decent spend. We haven’t had any correspondence from Guvera and are sitting here waiting with a long list of other people.”

Tennis Australia is also among the listed creditors, to the tune of $285,000, according to documents filed with the Australian Securities and investments Commission.

Guvera has embarked on a PR and marketing offensive in the wake of the IPO rejection, with management looking to rebuild investor and advertiser confidence through a series of ‘This is Guvera’ YouTube videos.

It has also gone cap in hand to investors in a bid to raise $20m in a round of funding regarded as critical to the company’s survival.

It is unclear how investors have reacted, although one, who ploughed $100,000 into the venture but preferred not to be named, said: “I bet no-one is coughing up. They want us to give them more money? I have already invested a significant amount.

It’s not an extreme amount but I’m just an average Joe so it’s enough to think, ‘fuck, that’s not the sort of money I want to lose’.”

A picture of mounting debt

Any reluctance by its 3,000 investors to stump up further cash will come as little surprise given the precarious financial situation of a business that has already swallowed $180m since it was founded in 2008.

Revenue in the 2015 financial year hit a paltry $1.2m with losses of $81m, up from $29m the previous year. In the first nine months of the 2016 financial year it lost a further $80m, according to the IPO prospectus.

Not that Guvera among the music streaming firms has been alone in struggling. Spotify, Pandora and Deeza have all limped along financially, as Guvera chief executive Darren Herft reminded viewers in one of the YouTube videos.

“Lots of others are facing challenges in delivering profits,” he said.

While undoubtedly true, observers will point out than none have put subsidiaries into voluntary administration.

Guvera founder Claes Loberg

Guvera founder Claes Loberg

Guvera’s capital raising was conducted by AMMA Private Equity, a company founded by Herft in 2008, the same year Guvera was launched by Herft and Claes Loberg, who lists creative director at ad agency Cocojambo among his previous roles.

Through accountants affiliated with AMMA, shares were sold to investors who, Herft conceded in an interview with Mumbrella last July, could be described as “mum and dad investors”.

But many, he added, were “very wealthy individuals”, while large investment funds were also coming on board. However, a flagged $100m investment from JP Morgan fell over, leaving a gaping hole in its finances.

The strategy, Herft said, was to rapidly build a huge customer base that would not only bring value to shareholders but “substantially increase the value of our business more than people in Australia can understand”.

“That is our focus. Behind that growth comes revenue, then profit,” he said at the time. “We obviously understand that the business model we are putting forward needs to have a planned strategy and model to be very profitable in the future, which we believe we have.

“But is profit something we are going to strive for in the next two to three years? No, because that would be to the detriment of growth and value to our shareholders.”

If nothing else, no-one can disagree with Herft’s assertion that revenue and profit were not Guvera’s priority.

With Guvera set on increasing the number of users, Herft needed to spread the word, and in 2015 signed a partnership with Channel Nine’s The Voice to market the platform to the masses.

One source with knowledge of the deal described such commercial partnerships as “cost neutral” for Guvera, but it did succeed in elevating brand awareness.

“There was good sentiment in the industry after The Voice. It made people sit up and take notice and it seemed to be heading in the right direction,” the source said.

But there were underlying concerns around the business model which ultimately led to occasional users being downgraded to a service that required Guvera to pay less money to record labels and artists.

Revenue, meanwhile, only dribbled in compared to the huge costs of buying content.

One shareholder, Richard Kratochwil, who invested in 2014, believed there had been “a little bit of deception” when AMMA representatives encouraged him to buy shares.

“I wouldn’t say it was fully deceptive, more a stretching of the truth you might say,” he told Mumbrella.

We were being told there would be an IPO towards the end of the year (2014) and they kept making comparisons with the likes of Facebook and Twitter and saying how all the tech giants started small. The sky was the limit.

“In my view, they tried to move into other countries too quickly. Wouldn’t it have been prudent to make Australia successful, move into New Zealand and then Indonesia instead of trying to build this worldwide company? The reality was that it was building a house of cards.”

Some of Guvera’s top investors were put up by AMMA for two nights in the lavish Versace Hotel on the Gold Coast last year and presented with Guvera’s vision, as well as being told of other AMMA investments, which now include Kwickie, an app which promises to connect fans with celebrities.

Herft, who is a director of Kwickie, has overseen the investment of more than $160m for mobile, internet and digital media companies since 2014.

“Darren Herft was there and we were told they wanted 50m users by Christmas,” one attendee said.

The Blinkbox debacle and declining user experience

In Guvera’s IPO prospectus, which has been removed from its website, the company said it had 14m users across 10 countries, with India – regarded as a pivotal market – responsible for almost half of those.

Kratochwil said clear mistakes have been made, notably the decision to acquire Blinkbox from British supermarket Tesco, a deal designed to provide a foothold for Guvera in the UK.

Within six months of the acquisition, Blinkbox had gone into administration with Herft admitting a planned restructure would simply have drained too much cash.

That acquisition subsequently spiralled into a bitter and messy legal dispute between Guvera, former Blinkbox staff and Guvera’s UK director Michael De Vere, with Herft claiming De Vere “executed an agreement” to acquire Blinkbox “without lawful authority”.

According to sources, another fundamental issue for Guvera has been the declining quality of the user experience which, once highly regarded, has fallen away after two major product updates.

Initially, Guvera offered two free services; Play+ which offered music on-demand, and Play, which allowed users to stream in a shuffle, or “radio-like environment”.

The first change saw Play+ users downgraded to the inferior Play service if they listened to fewer than 10 hours of music per month.

By way of explanation, Guvera said Play+ attracted a larger fee per customer compared to Play.

“Currently, we have to pay the rights holders the same PLAY+ fee whether a PLAY+ customer streams hours of music per month, or streams just one track,” the company said. “To ensure that we are paying rights holders the larger fee for active customers on PLAY+, we now require members to stream a minimum amount of 10 hours each calendar month.”

Then, on July 1 – after the failed IPO – Play+ was scrapped altogether with Guvera offering just Play and an ad-free subscription model, Platinum, costing $9.99 per month.


While stating a “free music service to our customers has been a priority”, Guvera said “the time has come for us to refine our product offering in Australia in order to ensure long-term sustainability”.

The result of the updates was a host of angry users who lost playlists and who were suddenly being forced to pay for what had previously been free. It is believe the number of users has sharply declined.

“I was puzzled,” Kratochwil said. “Why spend all that money building a great platform, one that was easy to use, and then turn around and trash the brand in Australia?

“They have always been at pains to point out they want to grow users, but people have turned away because the content is just not there anymore. Why would you do that? That’s just dumb.

It would seem to indicate that they just couldn’t afford to operate the previous model and now need subscriptions.”

While subscriptions for an ad-free experience have always been available, the fundamental difference now is that users are being forced to subscribe for services that were previously free.

It is something the recent PR offensive has largely failed to address.

Herft, in the second of two YouTube video updates, spruiks how Guvera can connect brands to customers on mobile through branded channels.

“Guvera has built a very unique music platform. It’s a platform where any brand in the world can build their own music channel….specifically for their own customers and also to attract new business and new customers,” he said.

Herft added that such a branded channel strategy allows Guvera to build a “stronger and more sustainable financial model” by charging brands for a “mixture of services” including brand strategy, brand channel curation and development, monitoring and reporting.

That, he said, will be supplemented by revenue from traditional digital advertising, revenue that will pay music labels and artists for the content.

“That has been questioned in other music streaming services as to their ability to build sustainable long term revenue due to the high costs of being involved in the music industry,” he said.

In the only reference to subscriptions, at the very end of the three minute video, Herft said the revenue strategy will “sit alongside what we can do in the subscription music space”.

In Loberg’s YouTube video, posted on June 28, three days before the end of Play+, he says: “Guvera is a music streaming business but it’s not in subscription. It is in a bigger market of brand funded.”

One recently-departed staffer said Guvera’s self-proclaimed position as the champion of free content – designed for the 95% of people who “don’t want to pay for a subscription service”, according to Loberg – has been fatally undermined.

“Guvera says we know people don’t want to pay for music and that’s what they are still marketing. That was their point of differentiation, their selling point. But the free service is basically a shuffle. That’s what you get as a new member, and existing members have been downgraded, unless you subscribe. I don’t know how you come back from this.”

One former Guvera staffer described the upbeat and positive PR campaign as “hideous and insensitive” given the Sydney workforce, and at least 20 people in the Gold Coast office, had been made redundant.

The source added that former staff were incensed by a social media post by Claes Loberg just 24 hours after they were told they no longer had jobs.

“Claes got a new tattoo and posted it on Instagram with the phrase “here’s to feeling good”. I’m sure the 60 or so staff who were suddenly out of work weren’t feeling too good. It was completely insensitive.”

Loberg, in his YouTube video, continues to push Guvera’s different approach to that of competitors, describing it as a “unique beast”.

He insists that through its branded channels “advertisers become the curator of content rather than the disruptor of content”.

He also compares it to Ikea.

We do stream music sure, but just the same way Ikea sells hotdogs.They’re not a hotdog company, and we’re not a streaming company,” he adds.

But the worry now for Guvera is whether advertisers will stick with the platform in light of recent events.

Virgin Mobile, which signed a 12-month commercial deal last October offering 1GB of data to customers who use Guvera, said it remained “committed” to the offer, which ends on November 2.

“We are asking Guvera to keep us updated as and when they have more news,” a spokeswoman said. “Obviously we are keen to know exactly what is going to happen in the future. At the moment we are still committed to providing that offer to our customers.”

Joe Olds, Australia and New Zealand marketing manager for travel company G Adventures, said a recent ad campaign had worked well.

“The G Adventures music channel was launched in March 2016 and our advertising campaign with Guvera has just concluded,” he said in a statement. “The channel shall continue to be active on the app and we hope to continue to support it later in the year with further investment.

“The activity has proven very successful for engaging existing customers and new potential travellers, which has helped drive more brand awareness of G Adventures and our small group tour experience.”


Another key advertiser, Priceline Pharmacy, said it did not comment on commercial arrangements but was “aware of the current status of Guvera”.

Loberg and Herft have spent eight years developing Guvera, with the former declaring in the YouTube video that, despite recent setbacks, “music is just the start”.

“We are about to introduce more content, more features around social, film and television,” he said. “We have a long journey ahead and we are still as committed on that path today as we were one week ago and eight years ago.”

A report from Deloitte into the company was sent to creditor’s yesterday ahead of the August 1 meeting. Whether it contained details of the proposed rescue package is unclear.

But while they may want to see expand the service to other areas such a rescue package is very likely to determine whether Loberg and Guvera’s journey has, sadly, come to a premature end.


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