Submitted by Morgan Smith as part of our contributors program.
Transparency/Disclaimer: I was compensated by CMG Holdings to write this article. While I have vetted each company, researched it thoroughly and I’ve done my own due diligence, my due diligence is not a substitute for your own.
If you’re looking for something different in the small-cap stock arena, you might check out CMG Holdings (CMGO). CMG, or Creative Management Group, is in a number of different, but closely related businesses, including event management, a talent agency, and commercial rights.
CMG is hard to describe, which makes it unique and could give it a moat around its business. Nobody else seems to do what Creative Management Group does. It acts as a literary agency for authors, represents top athletes, and manages brands. If that wasn’t enough, it also manages events and even owns a catering company.
CMG operates in four different divisions, the most interesting of which is Marquis Hospitality. Marquis Hospitality is in event management, which is one of those profitable little business areas you’ve never heard of. When a large organization such as a corporation or a union holds a big event, it needs somebody to manage it for them.
Marquis comes in and handles every aspect of the event, from booking the convention center to hiring the caterers. That way, the sponsor doesn’t have to deal with all those details. Marquis has handled some gigantic events, including NFL football games, World Cup Soccer, and even the Olympics. One of its specialties is catering at such events.
CMG will come in and do everything needed to stage an event. It has an Implementation Division that does all the paperwork, and even a world-class security team. It also has an interesting subsidiary called the experimental agency, which stages promotional events for organizations. Its customers include the USA and Bravo TV networks, ILLY, and UNICEF. One of the experimental agency’s specialties is guerilla marketing, which is a growing field.
Among other things, the experimental agency sets up premieres for movies and TV shows. Many experts think that such non-traditional marketing is the future of advertising, and CMG is already a leader in it. One of Creative Management’s specialties is arranging the sponsorship for such events.
The most impressive thing about CMG could be all the companies that turn to it for branding, licensing, and sponsorship services. These include Google (GOOG), General Mills (GM), and Pfizer (PFE). These companies wouldn’t be turning to CMG unless it had something to offer.
The really interesting thing about CMG Holdings, from a value investment standpoint, is that it doesn’t seem to have any competitors, or at least any publicly listed competitors. Nobody else seems to be doing what CMG is doing, or at least doing as well.
That means this could be that rare creature, a company with a real moat around it to protect its cash flow and customer base. We’ve all heard about it, but how many of us have ever seen such a thing? Well, this just might be it, and you can buy stock in it.
A Field with Growth Potential
Part of the reason why CMG may have no real competition is that it is offering a unique service designed to capitalize on today’s media environment. Traditionally, fields like publishing were dominated by a few large corporate players.
If an author wanted to get published, he hired an agent in New York that peddled his manuscript to a few large publishing companies. If the publisher bought the book, it handled all of the promotion and publicity for the author, from the book tour to the advertising. Today, most authors have to be successful and established before a publisher or agent will talk to them.
CMG will handle both the publicity and the representation for the author. It would provide an agent to get his book published and organize the required publicity. That would help an author keep most of the profits from the book in exchange for branding and publicity.
It’s not just authors that CMG could do that for. It can do it for anybody, including athletes, actors, movie stars, singers, and any other celebrity. It helps establish celebrity brand names and cashes in on them. In the future, most companies and wealthy individuals may need services like this. Nobody else seems to be offering this kind of marketing services.
For those that have a hard time grasping new concepts, we can take a look at some good old fashioned numbers. At the close of business on June 29, 2012, CMG stock was up 15.27%, and that’s good for a penny stock. It still had a long way to go because the price was just 4¢ a share. Still, that’s a bargain for a totally unique asset that has no real competition in its industry.
Some Big Risks
There are some big risks associated with CMG Holdings. It is so different that it is hard to compare it to anything else. The closest comparison might be with Clear Channel (CCMO), a diversified entertainment and communications company that does some talent management. Clear Channel owns and operates radio stations, has a digital radio service, owns billboards, and produces Rush Limbaugh’s radio show among other businesses.
Clear Channel does generate a lot of cash, and it has some sources of revenue that CMG lacks, namely advertising. Yet it has one thing in common with CMG: it is completely different. There is no other company out there that has both a digital radio service and a billboard company.
Like Clear Channel, CMG is complex, and it is hard to see exactly how much cash it generates. That makes it a little risky, but there’s nothing obvious to look at like sales or advertising figures. That, of course, makes it difficult to predict performance here. Much of CMG’s revenue is obviously tied to its clients, such as authors. If they do well, it makes money.
One growing stream of revenue for CMG Holdings could be a cut of royalties. Royalties are now very big business in this age of digital media. The nonprofit SoundExchange has collected around $1 billion in digital royalties from companies such as Sirius XM and Pandora on behalf of musicians. Forbes reported that the organization paid out $108.6 million in royalties in the first quarter of 2012 alone.
The huge revenues from royalties are important to CMG because it is also a talent agency. It gets a cut of the gross, and increasingly, a cut of other profits that an entertainer or celebrity is making. Clear Channel has agreed to pay royalties to Taylor Swift every time it broadcasts one of her songs on one of its stations. Obviously, Ms. Swift’s agent is going to get a cut of that deal.
This means CMG Holdings stock might just be a way for investors to buy a piece of royalties. The media landscape is changing, and celebrities and others are getting more aggressive about demanding their share of the profit. CMG is in a position to help them get that share.
Creative Management Group is an interesting opportunity, but it could also be a risky one. The company’s business is secretive by its very nature, and little is known about its cashflow. That means this is an interesting, but risky play.
If you’re looking for something out of the ordinary, check out CMG Holdings. It’s something new and completely different.