Initiating Coverage of Max Sound Corp. (MAXD) with Speculative Buy $2.50 2014 Target
At NBT Equities Research we are always looking for the game-changing next big thing technology or company—it’s what we do.
When I first listened to the MAX-D technology for bringing high definition sound to digital media, I knew we had found a winner. Their patented technology (they hold 48 patents pending in total) brings mind boggling high definition audio and substantially reduced digital media files to every music/gaming/movie/video—in short MAXD converts digital music files to sound “high def” like live music sounds like in the studio or on stage.
Blue-Ray vs. DVD? DVD vs. VHS? Video quality has improved amazingly in last 25 years…NOW it’s time for audio quality to join the “high definition” world.
How does MAX-D accomplish this magic? We’ll get to that quickly…but the short version is its due to the genius of founder/inventor Lloyd Trammel…who built the first working surround sound system and sold it to Hughes Aircraft. That became Hughes Audio and eventually became SRS Labs (which in turn was purchased by DTSI for $148 million or 5X 2011 revenue in 2012). Trammell was also a major part of the creation of MIDI—the now standard for Musical Instrument Digital Interface.
Trammell was also voted as The Top 4 Sound Engineers in the World by his peers at Electronic Musician… for a reason.
The Technology: MAX-D and The DNA of SOUND
Quick review: A digital device can only play the quality of the signal it receives. Most streaming or audio download technology today (MP3/AAC) delivers a low quality and over-compressed signal vs. live music or even CDs.
MAX-D technology 1) analyses what content is missing from a compressed audio signal 2) dynamically restores it to the highest quality in real time and 3) maximizes the output potential of the device. Dolby/SRS/Beats audio technologies don’t do ANY of this magic. Not only does MAX-D restore lost sound harmonics and natural sound fields…it does so without increasing file size OR requiring anyone to change equipment or infrastructure.
Now…think of sound as DNA—let’s talk the “DNA of Sound” if you will. In nature, the DNA of sound is comprised of three elements:
Magnitude: also known as amplitude or the measurement of maximums and minimums
Frequency: the treble, midrange and bass fundamental that combine to create harmonics
Phase: the relationship between the sound waves—which allows direction, distance and space which makes EACH sound unique. Let’s call Phase the “Geography of Sound.”
The MAX-D Breakthrough
What makes MAX-D a serious technological breakthrough is - it’s the first audio technology to simultaneously rebuild all three components of the “DNA of Sound” in ANY playback environment in real time.
Structurally, when audio files are compressed, the files are converted into square waves, which tend to irritate the ears. Max Sound converts the square waves back to their original wave formats in the same compressed space, regenerating the waveform in such a way as to restore missing frequency and dynamic range, from 48K down to MP3 or AAC.
MAX-D solves a fundamental problem with digital audio that SRS/Dolby/Beats Audio does NOT—MAX-D technology “sees” the data that is “there” but lost in the transition from original recording compressed to digital ones and zeros and back to an analog sound wave. Technically, MAX-D technology reshapes the sound’s DNA data in order to produce the full audio wave range of the original recording—i.e. the listener gets the true “uncompressed sound” from audio files that are in fact still VERY compressed.
Isn’t that what Dolby/SRS Does?
No…Dolby/SRS/Beats sound technologies are all a static process. Dolby requires encoding and then decoding which separates the audio into channels at the consumer end. 5.1, 7.1 and SRS Surround are routing systems, which tell audio which speaker to play out of and Beats boosts bass in a static fashion making music sound louder.
When MAX-D is applied to Dolby encoded audio or Beats driven speakers it creates a more “Live” sound due the fact that the Max-D process is, in effect, restoring the original DNA of audio that was digitally recorded but removed during the compression or encoding process.
MAX-D performs its magic by “seeing” what data is missing in any compressed file and then adding it BACK to the sound wave. Said simpler: Dolby/SRS/Beats audio are simply static algorithms that miss a LOT of the original recorded sound. They MISS a lot of the audio harmonics and natural sound fields included in recorded audio… because their technology does not have the technological “horsepower” to use that data.
But there’s more! When you convert MP3 or AAC files to Max-D files—your audio not only sounds a LOT better… the file is converted and remains in its original small file size!
The Proof is In the Listening
Listen to the difference on this CNBC interview playing “Dream Weaver” with and without the MAX-D process. Listen with good speakers, headphones or ear buds from your PC or laptop or smartphone! The file is a video on YouTube. After the original audio was compressed, it was again compressed when it was uploaded to YouTube, yet the MAX-D process works so well that it still sounds amazing.
Here are a number of demos of the “with and without” MAX-D process…pretty amazing. The Maroon 5 song “One More Night” really shows the difference…wow! The Wall Street clip is also pretty amazing because you can actually hear the “throat of the motors” in the Ducati motorcycles racing through the woods.
http://www.maxsound.com/maxd-demos/
The Business Model Is MORE Outstanding
How can one small audio technology company be so important to so many huge technology and ecommerce companies? That, my friends, is the billion-dollar question (hint—look at valuations of Dolby Digital DLB and DTS Labs DTSI).
With 5 billion NON-Apple smartphones to be sold in the next 5-10 years…2 billion tablets…billions of laptop and desktop PCs…it’s hard to measure what amount of license fees we are talking about (at say $1-$2 per Qualcomm chips or DSP chip).
But MAX-D’s technological breakthrough is powerful enough to become an important brand-within-a brand for digital media…like “Intel Inside” or “Powered by Dolby.” Sound quality is the LAST differentiating frontier in quality of consumer experience….4k LED displays and OLED video displays are coming to video quality…but SOUND technology is still commoditized.
More important for investors: when I spent time with CEO John Blaisure to understand their branded licensing business model for mobile phone and PC OEMs and their value proposition for brick and mortar/ecommerce retailers with MAX-D digital music stores…I knew we had a winner on our hands.
The reasons are simple: the entire digital media world is in an existential battle for survival with Apple/iTunes and Samsung/Android and Amazon. Moreover:
#1 In a world where Apple and Samsung make 100% of ALL the profits in mobile handsets and tablets…their digital competitors need every technological weapon they can get to fight back to keep/gain market share. Samsung especially is committed to adding IP (intellectual property) to their Galaxy smartphones and tablets that Apple CAN’T replicate.
There has not been a significant change to digital audio technology in the last 25 years. Dolby 5.1 separates sound waves into 5 different speakers—but the process reduces the quality and dynamics of the original audio recording via the encoding/decoding process. Ditto SRS Labs or Beats Audio—only MAX-D “sees” the original sound data from the original recording and turns that data into a LIVE sounding wave form. THAT is a killer value proposition when fighting a battle to the death against iPhone/iPads.
#2 In a world where Apple (iTunes) has gained over 60% market share in paid music and video downloads (and 250 million customers worldwide)—the major digital media retailers and bricks and mortar stores need a killer value proposition to fight back against the “iTunes Deathstar”. MAX-D makes all audio sound significantly MORE real and “live” than ever possible before—THAT is a killer value proposition.
Add in MAX-D’s Liquid Spin digital music store (with no DRM or authorization scheme like iTunes and a higher revenue customer retention model for its White Label retailers) and MAX-D’s partnership with InComm (the privately held multi-$billion industry leader in selling digital music across retail USA and internationally) and NOW the Targets/Wal-Marts of the world finally have a viable reason to dump iTunes and run their own music store with superior sound using MAX-D HD Audio player Apps and ZERO digital rights management issues (remember Best Buy bought Napster for this very reason).
With MP3 digital music sales in the USA passing the $1 Billion (and $16 billion worldwide according to the latest data from IFPI) MAX-D is positioned for massive consumer adoption and carving out a major part of this Billion dollar MP3 sales pie that is growing at 17% a year.
#3 In a world where Google’s Android based operating system battles Apple’s iOS system, Android based digital media products need every weapon they can muster to fight against the “iOS Deathstar”.
Max Sound…with their revolutionary high definition audio technology AND their Liquid Spins digital media distribution platform AND MAX-D integration into Qualcomm’s next generation S4 DSP processor (the world’s most popular chip for smartphones and tablets)…has quickly become a KEY weapon for
- Qualcomm Vs. Competing 4G-LTE Mobile Chips—MAX-D technology is already in process of testing into Qualcomm Snap Dragon chips…the dominant Android system chip
- Android OS vs. iOS battle...which is really Samsung vs. Apple
- Retail/Ecommerce digital media battle against iTunes/Apple
- The entire Music industry battle against iTunes and streaming music “rental” services like Spotify and Pandora
Wired reports in their latest survey that 91% of music lovers want to OWN their music and not “rent it” via Spotify or Pandora. IF music lovers could own their music AND get measurably superior sound quality without DRM hassles, why not own instead of rent?
If music labels and bands could sell their MAX-D records directly to consumers with markedly superior sound and NO DRM hassles, why wouldn’t they? Why give so much of the pie to Apple and iTunes? Until now the reason was there was no viable alternative.
The Time is Now: MAX-D is rapidly moving from development stage to operating company in 2013—they are in what we call the “Traction Zone”. We only work and recommend technology companies who are ready NOW to generate new business and revenues NOW…as in the next 90-120 days.
MAX-D executives report being in MANY mid-to-late stage licensing deals with EVERY player (ex-Apple of course) in the smartphone/music/movie/gaming/tablet/MP3 world. Similarly they are in various discussions with major retail and online digital media companies and all the record companies and movie distributors to use their Liquid Spin Platform to open online music/video stores with Max-D HD Audio player Apps to compete with iTunes.
Here is their pitch in a nutshell.
#1 Selling point—MUCH better sound.
#2 Digital rights free—no more “authorizing” and de-authorizing your movies or music for your families digital devices—another reason why people like me HATE iTunes.
#3 You get much better sound and DRM free files that are SMALLER than iTunes!
#4 NO need for new equipment or infrastructure—MAX-D works with ANY operating system.
Most important, MAX-D solves a fundamental problem with the audio that SRS or Dolby or Beats does not and cannot recreate. MAX-D makes Beats or SRS/Dolby Digital audio sound better because Max-D protects the originally recorded aspects of sound that is lost in the analog-to-digital and digital-to-digital compression process.
Target Markets include:
- Smart Phone and tablet OEM’s – Licensing Royalty Per Chip Set
- HD Audio Branded Apps – Paid Upgrade Apps Marketed by Celebrities and Major Retailers
- Music Retailers – Shared Revenue from White Label Music Stores
- Audiobooks – 50/50 Split on Retail Sales and Paid App Upgrades
- Home Entertainment/Smart TVs/Cable Boxes – Per Unit License Fee
- Motion Picture industry – Per Movie License Fee
- AEG Live Events – Concert Broadcast Fees and Branded Apps
MAXD 2013 Milestones and Catalysts
Q1 - Demonstrate MAX-D technology on Qualcomm’s Snapdragon DSP - S4 processor and Q2 - expand licensing partnership with Qualcomm to gain access to its 86 OEMs and an estimated 2.5 billion chips by 2016.
Q1 - Further expand availability of MAX-D HD Audio App (currently available on Google Play for the Android platform). Complete and launch Apple iOS and Windows platform Apps.
Q1-Q2 – Secure major deals to launch White Label Music Stores, White Label MAX-D Apps and Gift Cards into the majority of InComm’s biggest and best retailers and an InComm White Label for its 400,000 plus retail locations worldwide.
Q2 - Launch offering branded MAX-D HD App with audiobook inventory from some of the largest publishing houses on 50/50 split onto the Liquidspins.com site and approved White Label Retail Partners.
Early in Q3 - Created enough traction in various business segments to be able to forecast growth for 2013-2014-2015.
EVERY deal MAXD reaches is going to move the income and EPS needle for MAXD—that is the beauty of the licensing model. We expect MAXD to make dozens of “move the needle” partnerships and licensing deals—THOSE will also serve as catalysts for the stock in our opinion.
Summary
It’s too early to forecast revenues for MAX-D…which is WHY this is the time to buy the stock BEFORE major deals get announced. Here are the comparable companies:
- Leading microprocessor core licensor ARM Holdings is valued at $20 billion with less than $1 billion annual revenues.
- Dolby Labs is a $3.2 billion market cap with $900 million in revenues.
- SRS Labs—purchased by DTSI for $148 million or 5X 2011 revenue in 2012
Bottom-line…the value of the owing a piece of this technology and a world-wide brand at this valuation is just too tempting to ignore…that’s why MAXD in our #1 consumer technology play for 2013.
Strong Buy up to .50 a share
Don't miss our exclusive interview with CEO John Blaisure of Max Sound Corp.
Part 1 Part 2
About Max Sound Corporation
Endorsed by such superstars as Pitbull and Mick Fleetwood, MAXD’s Max Sound® technology is to audio what HD (High Definition) is to video. The MAXDTM Audio Process makes everything sound better and can convert any audio file to high definition quality without increasing file size. Max Sound is publicly traded under the symbol MAXD
About Liquid Spins
Liquid Spins is an established digital media distribution company who has secured contracts with all major record labels in the United States including Sony, Universal, Warner, Emi, Red and Curb. Liquid Spins has secured partnerships with major brands and well-known brick and mortar retailers as well as nationwide restaurants chains. Its QR portals can appear anywhere; an event, a concert or an establishment for the immediate purchase of a song or album. Learn more at http://www.LiquidSpins.com
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Founder and Editor-in-Chief for NBTEquitiesResearch.com. Contributor and Anchor for the Fox News Channel and Fox Business Network 2000-2013. Chairman & CEO of NBT Group, Inc., a boutique private capital investment bank and investor relations organization.
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