Speaker 1: Hello, and welcome to another episode of the Odd Lots podcast.
Speaker 1: I'm Joe Wisenthal and I'm Tracy Allaway. So, Tracy, we
Speaker 1: don't really talk about it that much on the show,
Speaker 1: but if there's one thing I know about you and
Speaker 1: your career, you're very into sort of like weird asset classes,
Speaker 1: weird income streams that get packaged and resolved, A lifelong
Speaker 1: fascination of yours. Yeah, I guess. I guess you could
Speaker 1: broadly say I'm interested in the financialization of various assets.
Speaker 1: But in recent years there have been some pretty amazing ones.
Speaker 1: I think one of the weird things about this is
Speaker 1: that nowadays, when you hear it, it doesn't actually sound
Speaker 1: that weird, But when these things were happening just a
Speaker 1: couple of years ago, it was really strange. So I remember,
Speaker 1: for instance, there was a solar panel securitization a few
Speaker 1: years ago, and everyone thought that was nuts because bankers
Speaker 1: were securitizing Sunshine into an investable bond. But nowadays that
Speaker 1: seems very very normal. And then some of the other
Speaker 1: ones that have come up are franchise rights and sort
Speaker 1: of brand values from restaurants. We've had a bunch of
Speaker 1: those and the latest one that everyone is kind of
Speaker 1: going nuts over is music rights. Yeah, exactly right. So basically,
Speaker 1: anything that throws off some sort of predictable or semi
Speaker 1: predictable ers, um, you know, future cash flows can theoretically
Speaker 1: be turned into a product, into a financial product that
Speaker 1: can be sold. And of course one thing that we
Speaker 1: know uh FROs off cash is music rights. And so
Speaker 1: this year, um, there's been a budge but a couple
Speaker 1: of artists that sold the rights to their catalog. Bob Dylan,
Speaker 1: someone bought Bob Dylan's future cash flows. So all the
Speaker 1: I guess, I don't know all the music that all
Speaker 1: the streaming revenue, and U said, commercials and movies and
Speaker 1: all that he got got got a big check in
Speaker 1: advance for that. Shakira is another one who just I
Speaker 1: think a few weeks ago, a few weeks ago, sold
Speaker 1: her song catalog. So this is a hot area. I mean,
Speaker 1: I think there's actually like, weren't Bowie Bonds a thing
Speaker 1: a long time ago? That's like basically the Joe there's
Speaker 1: an aw thoughts episode on this. There's actually a very
Speaker 1: very early Yeah, that was right after David Bowie died.
Speaker 1: But I have to say, probably the most interesting thing
Speaker 1: that happened in the music rights or royalty space last
Speaker 1: year was someone not selling um their music rights, and
Speaker 1: that was Taylor Swift, who famously has you know, lost
Speaker 1: the rights to her master, her old masters, her catalog
Speaker 1: of back music, and then it was bought by it
Speaker 1: or Braun, which is kind of her like arch nemesis
Speaker 1: in the music world, and then he sold those on
Speaker 1: to a private equity firm called Shamrock Capital, and Taylor
Speaker 1: Swift had a lot to say about that entire process,
Speaker 1: which I'm sure we're going to get into. I gotta say,
Speaker 1: someone actually emailed me saying that we should get Taylor
Speaker 1: Swift on the podcast to talk about all these Um, yeah,
Speaker 1: why haven't we yet? I can't believe that's so obvious.
Speaker 1: Why haven't we just had Taylor Swift on our podcast
Speaker 1: you know one day. Um, we'll get her next week,
Speaker 1: we'll get her next year. So obviously we don't have
Speaker 1: Taylor Swift today. UM, We'll be upfront about that, but
Speaker 1: we do have someone who knows all about this space. Yeah,
Speaker 1: and there are so many questions that we need to
Speaker 1: get answered, like why now, how do you value these
Speaker 1: uh income streams of these catalogs. Given the ongoing changing
Speaker 1: nature of the music business. I mean, these days, obviously
Speaker 1: streaming is a really big thing, but that wasn't obviously
Speaker 1: anticipatable a few years ago. We don't know what the
Speaker 1: music industry is gonna be like ten years, So so
Speaker 1: many questions why now how you value these catalogs. So
Speaker 1: I'm very excited we're going to be speaking with someone
Speaker 1: who is a a music consultant in the business of
Speaker 1: valuing exactly what we're talking about. We're going to be
Speaker 1: speaking with Alistair Moen of Moan Music, an expert in
Speaker 1: the music valuation business, to answer all these questions. So, Alistair,
Speaker 1: thank you so much for joining us. Of course, thanks Jo.
Speaker 1: So um you know why now, I mean, let's start
Speaker 1: with that. I mean, we have seen a number of
Speaker 1: really big artists selling the rights to their work. They're
Speaker 1: turning their work into an asset that can be sold. Obviously,
Speaker 1: this isn't totally new, It's been going on for a while,
Speaker 1: but it seems to be really gathering steam. So what
Speaker 1: is uh, what's happening right at this moment that suddenly
Speaker 1: is making this a hot asset? Class you sort of
Speaker 1: mentioned in your introduction, dere and obviously streaming has increased
Speaker 1: the recording music industry and especially the narrative around the industry.
Speaker 1: So the year two thousand and two thousand and fourteen,
Speaker 1: there was continuing decline in the sale of recording music
Speaker 1: as physical sales dropped. Since two thousand and fourteen, you've
Speaker 1: seen a streaming growing a rate of forty per year,
Speaker 1: which is really encouraging. And the other thing which is
Speaker 1: really encouraging by that story is the nature of the consumption.
Speaker 1: Where obviously, in a physical environment, um, you sold a
Speaker 1: lot of CD s, it's sort of a one off transaction.
Speaker 1: But we're streaming, you've got sort of repeatable consumption and
Speaker 1: it's very much um yeah, but a lot of interest
Speaker 1: from investors in the data is a lot better than
Speaker 1: traditional sales data, and also the underlying consumption there's more
Speaker 1: of a There seems to be a lot more repeatable
Speaker 1: consumption which people are confident they can model. So I
Speaker 1: think definitely that strong narrative around the recording music industry,
Speaker 1: a lot of education in the market with the lacks
Speaker 1: of hypnosis and primary wave doing a lot of funding rounds,
Speaker 1: and definitely sort a low interest rate environment is have
Speaker 1: a lot of people looking for for assets of field
Speaker 1: long term yield, and music catalogs there's sort of been
Speaker 1: a really really in vogue opportunity for that recently. So
Speaker 1: when we see a headline like Universal Music Publishing buying
Speaker 1: Bob Dylan's catalog for a reported three million dollars, what
Speaker 1: does that actually mean, Where does the price come from,
Speaker 1: and what does the catalog actually entail in terms of
Speaker 1: rights and cash flow? Sure, so that's a very good question. Um.
Speaker 1: First of all, when you're talking about a catalog, that
Speaker 1: can mean different types of rights. So really broadly, you've
Speaker 1: got the master rights, so that's the actual recording copyright,
Speaker 1: and then you have the publishing copyright, which is the
Speaker 1: underwriting underlying song or the underlying composition, And it gets
Speaker 1: a little bit more complicated around with you by the
Speaker 1: right to have control over that income. But those are
Speaker 1: sort of two general classes. And when Universal we're valuing
Speaker 1: that transaction, they'll be looking at the income streams historical
Speaker 1: income streams from whatever rights that buying, and they'll also
Speaker 1: be looking at how long they have those rights will
Speaker 1: last for and then sort of trying to project those
Speaker 1: rights going forward and as I sort of mentioned, you know,
Speaker 1: for example, publishing copyrights last seventy years plus the life
Speaker 1: of the offer, so it's a very long term cash flow.
Speaker 1: So most of these investments are looking for low yield
Speaker 1: and sort of projecting ten to fifteen years of cash
Speaker 1: flow with a terminal value. So it's is very much
Speaker 1: a long term horizon of looking at the past history,
Speaker 1: how long you're those rights for, and sort of how
Speaker 1: confident you are and predicting those future cash flows. You know,
Speaker 1: you mentioned, um, the high quality of the data that
Speaker 1: we're streaming, these assets can be analyzed in a way
Speaker 1: that they haven't been. It hasn't been so easy in
Speaker 1: the past, like maybe when people are buying CDs and such.
Speaker 1: But on the other hand, streaming as a phenomenon hasn't
Speaker 1: really been around that long, and we know that you know,
Speaker 1: it's right, there's always potential for technological disruption, So how
Speaker 1: do people or how do you go about essentially modeling
Speaker 1: the risk that the business just dramatically changes again like
Speaker 1: another sort of like napster or something could come along
Speaker 1: in theory and people stop paying for music, or the
Speaker 1: amount of people pay for music plunges, Like how do
Speaker 1: how do those risks get incorporated into what people are
Speaker 1: willing to pay. So that's a really interesting question. And
Speaker 1: historically before the recent boom, publishing catalogs or have the
Speaker 1: master catalogs but sort of considered a lot more lower risk.
Speaker 1: And for that for the very reason you mentioned that
Speaker 1: UM in terms of of the royalty is coming from
Speaker 1: B to C income, so from sales or streams. That's
Speaker 1: something which does change over time. But what's often quite
Speaker 1: prominent in music catalogs, which is on the publishing side,
Speaker 1: is B two B licensing, so licenseseing revenue from radio
Speaker 1: play or from the background usage of music and stores,
Speaker 1: or from the background usage of music and bars, and
Speaker 1: as well as sort of licensing for TV and film,
Speaker 1: and going forward, I guess there's a lot of hope
Speaker 1: that you know, new technologies such as AI et cetera,
Speaker 1: to be also licenses for that. So that's one of
Speaker 1: the reasons why particularly publishing is which has more of
Speaker 1: those diverse income streams typically is sort of considered more
Speaker 1: lower risks, So that's very much a consideration, and looking
Speaker 1: at the types of incumbent it's sort of quite surprising
Speaker 1: is how many diverse income streams can come from one copyright.
Speaker 1: So Joe just mentioned the idea of the business model
Speaker 1: changing and how might that impact master right. So, one
Speaker 1: of the really interesting things about the Taylor Swift saga
Speaker 1: that I mentioned in the intro was that after her
Speaker 1: Old Masters were sold to this private equity firm, she
Speaker 1: basically said that she was going to re record her
Speaker 1: old songs um in order to like get control back
Speaker 1: over them. I have to say, like, this is an
Speaker 1: area that I'm not familiar with, but what does that
Speaker 1: actually mean? And how is she allowed to do that?
Speaker 1: Because I thought the whole point of Old Masters was
Speaker 1: to basically preserve the copyright on the music. And then lastly,
Speaker 1: would that vastly change the value of the songs that
Speaker 1: this private equity firm, Shamrock Capital just bought for millions
Speaker 1: of dollars? Of course sure. So before I went to
Speaker 1: the music industry, I was actually a trained lawyer, and
Speaker 1: it's become really in handy because as well as valuing
Speaker 1: these royalty cash flows and analyzing it, you've could be
Speaker 1: got to be really familiar with the legal um stipilations
Speaker 1: of these contracts. So when I spoke about the master
Speaker 1: recording and the and the publishing composition. The other difference
Speaker 1: there is that, um, if you write a song and
Speaker 1: you do it, someone else does a cover version of it,
Speaker 1: someone else can always see another cover, but you can't record.
Speaker 1: You can't write the same song again, So that publishing
Speaker 1: contract always remains unique, but you could always For example,
Speaker 1: Taylor Swift is effectively covering her own songs. So typically
Speaker 1: the record label when it scien Taylor Swift, there be
Speaker 1: provisions and those contracts saying that she can't cover her
Speaker 1: own songs for a specified period of time. So that's
Speaker 1: what's going on there, is that she is effectively covering
Speaker 1: her own work, and that's something which, yeah, there's stipulations
Speaker 1: in the contract. The second part of your question is
Speaker 1: really interesting because the short answer is it's un tested. Um,
Speaker 1: there's being sort of people in the past, prominent artists
Speaker 1: such as Prince who have had fell out with the
Speaker 1: record label and always used this as sort of a
Speaker 1: part of the negotiation. We're saying, well, I'm going to
Speaker 1: rerecord my entire catalog, and usually that goes around the
Speaker 1: negotiation of perhaps giving those masters back or increasingly share
Speaker 1: of the income the arts takes. So there's actually something
Speaker 1: relatively untested because there's a few examples of some smaller
Speaker 1: ats doing it, but it's always been used as a
Speaker 1: negotiation tactic, a sort of nuclear option, and no one
Speaker 1: until Taylor has actually sort of pulled that option. So
Speaker 1: it will be interesting to see because it does raise
Speaker 1: a mini questions. So just I'm Taylor Swift real quickly.
Speaker 1: In theory, if she were to re record all of
Speaker 1: her own all of her old albums, and theoretically she
Speaker 1: would like I don't know, release them as new albums,
Speaker 1: albums or something, the fans might stream those, in which
Speaker 1: case she would get some streaming revenue from that. But
Speaker 1: then the owner of those original masters would get some
Speaker 1: sort of licensing revenue, as they would from any other cover.
Speaker 1: So yeah, they whoever owns the end lining publishing assets,
Speaker 1: and typically in the industry, um the artist retains ownership
Speaker 1: or at least for long and the long term, the
Speaker 1: artist will retain any ownership of those publishing interests. And
Speaker 1: this is what you might see a lot of these headlines,
Speaker 1: is that a lot of the big catalogs being sold
Speaker 1: a people even heard before because they're actually the songwriters
Speaker 1: behind these songs and that's the sort of the really
Speaker 1: unique I p and that's some sort of the more
Speaker 1: the air of the music industry which is not as prominent,
Speaker 1: which is but we're on the very valuable ap is.
Speaker 1: So actually, Alis, this would be a good spot because
Speaker 1: you mentioned you are a lawyer, but or you were
Speaker 1: previously a lawyer. What do you just tell us sort
Speaker 1: of real quickly for listeners, how you got into this
Speaker 1: space and the sort of like broad trajectory of how
Speaker 1: you got here in this moment to be a MU
Speaker 1: consultant and expert in music valuation. Sure, so, I was
Speaker 1: actually originally a corporate lawyer in New Zealand, where I
Speaker 1: grew up, and I moved to New York about eight
Speaker 1: years ago to study music business at n y U.
Speaker 1: And while I was at n y U, I actually
Speaker 1: had a lot of spent a lot of time in
Speaker 1: the music publishing industry, including one publisher that was sort
Speaker 1: of acquiring a lot of copyrights, and eventually after moving
Speaker 1: back to London working on the legal side at Universal Records,
Speaker 1: I worked at a company for the about three years
Speaker 1: called twenty three Capital, which was lending into the space
Speaker 1: um leaning against back catalogs rather than purchasing, and I
Speaker 1: had the sort of experience of doing the analysis of
Speaker 1: the royalty statements and yeah, to provide a little bit
Speaker 1: of detail that these statements that you know, half in
Speaker 1: your statements around could be a thousand line a thousand
Speaker 1: lines of excels. So the very detailed and sort of
Speaker 1: specialist and then like knowledge needed to go for these.
Speaker 1: So I've sort of had the royalty analysis siety as
Speaker 1: well as having an understanding of the contractual relationships. So
Speaker 1: at twenty three Capital I was doing a lot of
Speaker 1: analysis of the underwriting essentially of these catalogs, and a
Speaker 1: lot of music education, a lot of music education seminars
Speaker 1: to our investors um and yeah, no, I'm just sort
Speaker 1: of doing it on a freelance basis and in particular
Speaker 1: working with a lot of artist teams who are suddenly
Speaker 1: catalog to get a sense of value and to sort
Speaker 1: of put the materials to give in a nice way
Speaker 1: to seek interest because a lot of the diligence and
Speaker 1: financial and these catalogs are very not only very specialized,
Speaker 1: but very large, and that's sort of something which has
Speaker 1: been understood in the industream. We have found a good
Speaker 1: niche in the last last year or so. So you
Speaker 1: mentioned working with artists teams, and I'm curious if in
Speaker 1: your mind there seems to be a sort of shift
Speaker 1: in sentiment towards selling catalogs. So my understanding is that,
Speaker 1: you know, selling your catalog used to be something that
Speaker 1: artists were told never to do unless absolutely necessary. But nowadays,
Speaker 1: because there's this sort of growing financial infrastructure around music assets,
Speaker 1: artists are starting to feel a bit different and they're
Speaker 1: starting to feel if they sell the rights to their
Speaker 1: music they could still get some income, but maybe a
Speaker 1: specialized player could do a better job of promoting the
Speaker 1: catalog or you know, selling it for commercials and things
Speaker 1: like that and make money that way. Do you sense
Speaker 1: that that shift underway? Definitely see that shifts. So I
Speaker 1: think when I first started the industry and artist selling
Speaker 1: the catalog was it was your typical dift divorce Texas
Speaker 1: scenario where there was a very immediate need for liquidity,
Speaker 1: and that was usually the reasons where is artist Kellogg's
Speaker 1: for salt. I think now there's a lot more interest
Speaker 1: in the in the in the space um. Artists are
Speaker 1: getting probably a lot more fairer prices for their catalogs
Speaker 1: and it's sort of made artists and their managers think
Speaker 1: about things like a state planning and a lot of these,
Speaker 1: especially all these older artists, it's almost like a legacy
Speaker 1: management scenarios. So one really good example is a company
Speaker 1: called Primary Wave, which has worked with board interests in
Speaker 1: the likes of Ray Charles and states like that, where
Speaker 1: they actually sort of it's sort of a way to
Speaker 1: the buy, They sell a partial interest, and that company
Speaker 1: takes over the marketing and the social media and sort
Speaker 1: of the legacy management of those catalogs. So it's definitely, um,
Speaker 1: the interest is sort of let those people, artists and
Speaker 1: managers make those decisions from you know, I'm effectively selling
Speaker 1: my my pension plan, but is it better for me
Speaker 1: to have this cash right now? And I think it's
Speaker 1: made that more of an optional decision round of than
Speaker 1: a last you know, worst case scenario decision, where that
Speaker 1: was sort of typical reasons for natis was suddenly a catalog, right,
Speaker 1: So previously it was a sort of desperate thing or
Speaker 1: some some liquidity need a divorce or something like that,
Speaker 1: and now it's just oh this, you know, it's more
Speaker 1: cash in hand versus you know, you know, one in
Speaker 1: the hand too in the bush, I guess kind of thing.
Speaker 1: Is there any artistic loss with this? So like someone
Speaker 1: like Shakira or Bob Dylan selling their catalogs, do they
Speaker 1: take any artistic risks? Do they still retain any control
Speaker 1: over how their music is used? Like what? What? Or
Speaker 1: is it just a financial transaction. So that goes back
Speaker 1: to the legal question I was talking about, by what
Speaker 1: rights you buying? And you can buy the rights, you
Speaker 1: can buy a passive interest and the cash flows coming
Speaker 1: from a catalog, but you can buy the end of
Speaker 1: laying copyright. So in theory, if you bought anout of
Speaker 1: sunderline copyright without any specific provisions, you could license set
Speaker 1: out to whatever TV show you wanted, you could you know,
Speaker 1: put out a deluxury issue with all of the sessions.
Speaker 1: So it's that's why it's quite an issue of are
Speaker 1: they buying control? And that's obviously the positive for an
Speaker 1: investor because they might see ways to increase you income
Speaker 1: from from that catalog. But it's also a manner of
Speaker 1: negotiation for the clients trying to the artists, trying to
Speaker 1: retain sort of sort of control about how that catalog
Speaker 1: is exploited. Um, so that's sort of the the legal
Speaker 1: rights being purchased is a really important when the artist
Speaker 1: is considering that. So one thing I'm really fascinated by
Speaker 1: and we've touched on this already, but going back to
Speaker 1: the valuation question, Um, you know, it's it's one thing
Speaker 1: to try to estimate the cash flows from I mean,
Speaker 1: all of these are called esoteric securitizations. When we're talking
Speaker 1: about intangibles like franchise and brand rights things like that.
Speaker 1: It's one thing to estimate the cash flow from a
Speaker 1: restaurant or you know, maybe fast food franchises, things like that,
Speaker 1: other exotic um assets. But it's kind of different to
Speaker 1: try to estimate cash flow from a song. When the
Speaker 1: popularity of music and you know, what's trending and what
Speaker 1: isn't tends to change quite quickly. How how do people?
Speaker 1: How do people go about doing that? Because I mean
Speaker 1: I think few people were Joe is gonna hate me
Speaker 1: for saying this, but I think few people. For instance,
Speaker 1: we're expecting Fleetwood Mac to make this big comeback on
Speaker 1: streaming because people are sort of rediscovering the music. There, Um,
Speaker 1: there are other wh Why was I going to hate
Speaker 1: you for saying that because you like Fleetwood macr Oh, yeah,
Speaker 1: I like that, But I thought I thought you'd be
Speaker 1: offended at the idea of people rediscovering them. Okay, fine,
Speaker 1: and then no, I'm happy people are and then I
Speaker 1: guess they can go the other way as well. Right,
Speaker 1: So Michael Jackson kind of um fell from favor due
Speaker 1: to well we all know why. And so you can
Speaker 1: see artists who are sort of unexpectedly unpopular at times.
Speaker 1: So how do people go about doing that kind of analysis?
Speaker 1: So it's sort of similar to looking at a company
Speaker 1: where effectively you do a quality of earnings reports. So
Speaker 1: these reyalty statements can go back, um, you know, and
Speaker 1: get five to ten years of royalty history. Usually you
Speaker 1: get three to five. And what you're trying to look
Speaker 1: for in those earnings as what is what is the
Speaker 1: repeatable recurring income And as you mentioned, as are people
Speaker 1: still listening to this artist in the very repeatable way?
Speaker 1: Given the nature of streaming, we're seeing a lot the
Speaker 1: calogs of the likes of the Fleetwood Maker, likes of
Speaker 1: those those Legacy X have actually experienced growth, which is
Speaker 1: really encouraging. Because of the sort of streaming environment, it's
Speaker 1: very much a case by case basis, but I think
Speaker 1: genuinely it's around the quality of the artists that a
Speaker 1: lot of those quality artists are experiencing growth. But one
Speaker 1: thing which is I guess the most difficult part of
Speaker 1: doing such analysis is more recent content. So for example,
Speaker 1: if you've got a new release from a from a
Speaker 1: track album and that you've got three years of earnings,
Speaker 1: what's second to earn in the next ten years and
Speaker 1: what's the sort of decay there. That's been the really
Speaker 1: difficult part because if you've got a long period of
Speaker 1: three to five earnings, we see what you do see.
Speaker 1: A lot of these legacy care logs are very repeatable,
Speaker 1: recurring income, which is growing of the industry. That you
Speaker 1: can get confidence of that. But it's quite difficult, um
Speaker 1: when you've got more recent content because I guess so
Speaker 1: historical earnings aren't necessarily reflective of the few consumption. So yeah,
Speaker 1: it's very much um a numbers game and sort of
Speaker 1: going into the analysis. And also I guess there is
Speaker 1: some sort of creative or a and our touched with
Speaker 1: the acquira might like theatist and might think they're relevant.
Speaker 1: They might think that being underpromoted recently and they might
Speaker 1: think that they've got some cultural relevance going forward and
Speaker 1: they think they can sort of bring that back by
Speaker 1: using their own marketing and distribution. I think, you know,
Speaker 1: Jamie Powell over at ft Alphabelle has written about this.
Speaker 1: So you mentioned, like Drake, we don't really know like
Speaker 1: in ten or twenty years, the degree to which people
Speaker 1: will be listening to him. Someone like Bob Dylan. People
Speaker 1: have been listening to him for decades. But you know,
Speaker 1: like when I was a kid and my parents would
Speaker 1: like listen to a Bob Dylan cassette in the car,
Speaker 1: And now I personally am a huge Bob Dylan fan.
Speaker 1: But on the other hand, when I'm in the car
Speaker 1: with my daughter, she probably has headphones on looking at
Speaker 1: something on her tablet. So do you worry about that
Speaker 1: like that like historical like patterns of these sort of
Speaker 1: legacy acts. We're sure just these huge cultural forces that
Speaker 1: maybe like after a while, they just you know, do
Speaker 1: people worry like there's no my generation isn't going to
Speaker 1: hand down Bob Dylan the same way my parents generation
Speaker 1: did to me. Yeah, And that's to be honest, it's
Speaker 1: the most interesting part of doing this valuation worker is
Speaker 1: sort of steeping back and thinking about the artists and
Speaker 1: thinking about how confident you are they're going to remain
Speaker 1: um culturally relevance. Going back to what I said before,
Speaker 1: one interesting angle was also consider the the business licensing
Speaker 1: aspect of a catalog. So for example, um, you know
Speaker 1: a song like U Be My Baby? How often is
Speaker 1: that used in the film? Or how often is Sweet
Speaker 1: Dreams used in eighties film? And there's sort of were
Speaker 1: those those songs which have a market period of time
Speaker 1: through often news a lot and those sort of um circumstances,
Speaker 1: and that sort of we might be getting your confidence
Speaker 1: in that in that recurring income, or might even be
Speaker 1: more sources like commercial or rock radio, which you know
Speaker 1: still plays you know, sweet chearld of Mine all the time.
Speaker 1: It's sort of looking at those different sources and getting
Speaker 1: a story. But but ultimately, after sort of doing all
Speaker 1: the analysis, that's what you're asking yourself is that would
Speaker 1: do I have it? Do I feel confident that this
Speaker 1: is an artist is going to remain significantly culturally relevant
Speaker 1: and you know, teen to twenty years time, because you
Speaker 1: really are looking at the long term of these assets.
Speaker 1: So I just popped up Bob Dylan Royalties and Wall
Speaker 1: Street into Google, and I magically came up with an
Speaker 1: article that I had forgotten i'd written, but from two
Speaker 1: thousand twelve, and the headline is gold Goldman rethinks Dylan
Speaker 1: Royalties bond and the lead has a really bad um
Speaker 1: music joke in it. But it's investors have thought twice
Speaker 1: and decided it's not all right to take up an
Speaker 1: unusual bond offering back by royalties from songs and by
Speaker 1: Bob Dylan. So this was back in two thousand and twelve, Alistair.
Speaker 1: What do you think changed between now and then to
Speaker 1: make in Masters and Wall Street more comfortable with these
Speaker 1: types of structures and deals. I think, in particular, as
Speaker 1: we mentioned the sort of the state of the positive
Speaker 1: growth in the recorded music industry, one area which is
Speaker 1: sort of again in the details, is that, especially in
Speaker 1: the publishing side, these realities are very heavily regulated and
Speaker 1: they're actually prescribed by law how much you get paid
Speaker 1: per stream or how much you get paid per radio play,
Speaker 1: and those rates are actually being they get decided for
Speaker 1: a five year period and they've been sort of moved
Speaker 1: upwards in recent times. So there is a lot of
Speaker 1: very confidence around that, and I guess, um, yes, it's
Speaker 1: very much the state of the industry. And I guess
Speaker 1: there's been some some early players in the game who
Speaker 1: have really proven the success of this model, because I
Speaker 1: think before, as you mentioned of the Bowie Bonds and
Speaker 1: the bobbed In an example, was very much sort of
Speaker 1: very esoteric, and there was always just sort of one
Speaker 1: of them. But I think the number of players and
Speaker 1: also the well the education around that the sets combined
Speaker 1: of the positive industry has really got people a lot
Speaker 1: more comfortable. And to be honest, I've got people wanting
Speaker 1: to invest their time to understand all of the incasies
Speaker 1: of these assets. So we don't what's your guests, I mean,
Speaker 1: we don't actually know an official price tag I think
Speaker 1: on the Bob Dylan catalog. We don't know if an
Speaker 1: official price tag on the Shakia catalog. What do we
Speaker 1: know about how much these are valued? What do people
Speaker 1: say and what is your sense of how big this
Speaker 1: business is right now? In total? What do we know
Speaker 1: about dollars here? Sure? I think um in terms of
Speaker 1: how they're valued that a multiple approach is often used
Speaker 1: as a shorthand end. You've seen multiples go from five
Speaker 1: years ago the range of ten to sixteen for publishing
Speaker 1: to twenty plus, so I think the range has gone
Speaker 1: up significantly. Um in terms of the overall market side
Speaker 1: is you sort of have to make a distinction. So
Speaker 1: you've got the major labels, which are very much have
Speaker 1: big catalogs but also are in the game of new releases.
Speaker 1: And then you've got the calog acquirers, which the major
Speaker 1: labels referred to as chickbook publishing. And I think that
Speaker 1: space is actually quite limited because here's only so many
Speaker 1: Bob Dylan's, He's only only so many Neil Young's, and
Speaker 1: I don't think these caloggs. I don't think these many
Speaker 1: calogs of you know, the report of three million dollar
Speaker 1: price range. So I think it's sort of there is
Speaker 1: a limitation to the size of the industry. I haven't
Speaker 1: sort of done the over analysis myself, but I think
Speaker 1: if you compare it to avorestic classes that it would
Speaker 1: be a sort of a smaller niche. So, given the
Speaker 1: evolution that you just described, music rights going up in
Speaker 1: value by quite a lot, do you think that the
Speaker 1: business case for streaming this idea that you know, music
Speaker 1: might be worth more because we can all listen to
Speaker 1: it on Spotify and platforms like that. Do you think
Speaker 1: that's fully price into music rights now or do you
Speaker 1: think there's further to go. I think that's being priced
Speaker 1: in at the moment, and people are anticipating growth. Where
Speaker 1: the number were the historical numbers back that up. So
Speaker 1: continued growth from the streaming market and that you know,
Speaker 1: a physical sorry, a catalog which Hays for example, is
Speaker 1: streaming that in two or three years time, that's going
Speaker 1: to go to sixty to eight percent. That streaming is
Speaker 1: going to become the dominant form of revenue generation. So
Speaker 1: I think that's what has been priced into these um
Speaker 1: large acquisitions and these larger multiples, is that people are
Speaker 1: you know, the large multiples represent large people's anticipated growth.
Speaker 1: And I think that the theory is, you know, and
Speaker 1: I think some people go early in the game, maybe
Speaker 1: three or three or four years ago, I have seen
Speaker 1: that they're paid to sixteen effectively with the revenue growing,
Speaker 1: it's now via twelve times multiple. So I think at
Speaker 1: the moment it's definitely being priced into the into the numbers. Well,
Speaker 1: let me ask you, you know, as a consultant, Hey,
Speaker 1: do you do work for both the seller musicians as
Speaker 1: well as buyers and b what's the first thing so
Speaker 1: someone says some bands is all right, alistair, we want
Speaker 1: to sell our our catalog. What do you do? Tell
Speaker 1: me how like you you begin your process and sort
Speaker 1: of how you how you get to work? Sure, So
Speaker 1: I work on both the buyer and sales side. So
Speaker 1: I work with a lot of artists teams who are
Speaker 1: looking to sell their catalogs and also do food party
Speaker 1: work for acquirers. So it's useful obviously to see both
Speaker 1: sides of that. And what I've seen from the last
Speaker 1: my experience the last few years is a lot more
Speaker 1: interests UM and a lot more bigger prices being paid UM.
Speaker 1: The second part in terms of what you ask for
Speaker 1: is yeah, the first question, UM, what what parts of
Speaker 1: your kalog do you own? Which revenue streams do you have? UM?
Speaker 1: Do you have your master's or get paid at royalty?
Speaker 1: Do you do you write your own songs? Have you
Speaker 1: got your publishing And the next sort of point to
Speaker 1: go is to look into the the royalty statements that
Speaker 1: each of those income streams UM pay pay the artist
Speaker 1: and sort of aggregating that and getting a sense of
Speaker 1: the overall annual income, what titles are generating income, what
Speaker 1: source of income is at radio? Is it streaming? And
Speaker 1: then I guess if you progress you go into the
Speaker 1: fun time. We're looking into the contracts to double check
Speaker 1: they actually own those rights and getting a sense of
Speaker 1: as I mentioned before, what are they selling. Are they
Speaker 1: selling the control of their catalog or they're selling a
Speaker 1: pass of rights and what are they comfortable with losing
Speaker 1: control over? Is there any prospect in your review of
Speaker 1: a sort of um, someone has to be working on this,
Speaker 1: But essentially retail ownership, either in the form of a
Speaker 1: listed equity asset that perhaps held a bunch of these
Speaker 1: or you know, there's all these platforms that I always
Speaker 1: see advertised on Instagram. It's like buy a share of art,
Speaker 1: or buy a share of a race car, buy a
Speaker 1: share of a classic sneakers, is anyone doing buy your
Speaker 1: share of Dylan's song catalog or anything like that? For
Speaker 1: imagine a lot of like this could be a popular
Speaker 1: retail class. Sure. So in the UK you've got both
Speaker 1: Hypnosis and Rental who are publicly listed. Now, so that's
Speaker 1: sort of um, I don't write that. Yeah, they're both
Speaker 1: publicly listed, So that's and that's the first time that
Speaker 1: I guess you've got a pure exposure to music catalogs
Speaker 1: because you can buy shares in um Vindy, which owns
Speaker 1: Universal Music. But again Universal Music is you know, in
Speaker 1: the business of releasing new releases as well. UM. There's
Speaker 1: also smaller platforms where called one called Ruyalty Exchange, where
Speaker 1: you can buy and sell very small um, you know,
Speaker 1: lessan a million dollar royalty rights. So there's there's an
Speaker 1: emerging space, but it's one which is given the sort
Speaker 1: of the complications around the legal understanding and the royalty details,
Speaker 1: which is I think quite a tough break because it's
Speaker 1: quite hard to um to make it very streamlined. But
Speaker 1: on the public market's both hypnosis and round tour leaving
Speaker 1: the charge, and I wouldn't be surprised to see in
Speaker 1: a few more joining that camp. So is there anything
Speaker 1: else I mean in terms of like what's next or
Speaker 1: what you're watching for the industry, anything else we should
Speaker 1: know about or pay attention to. UM, it's a good question. UM.
Speaker 1: I think yeah that this is one thing which I
Speaker 1: think the the I p O has been especially in
Speaker 1: the UK. I'm not sure the specific reason. Maybe it's regaltory,
Speaker 1: but there's I think definitely UM investors looking for an
Speaker 1: exit apropate most of these UM One interesting elements of
Speaker 1: the of the industry is who are the investors behind
Speaker 1: these companies, And there's a lot of people have long
Speaker 1: term money. Is a lot of pension funds, So for example,
Speaker 1: the state Pension Fund of Michigan is has a founder
Speaker 1: of a company called Concorde which brought the imagined Dragons catalogs.
Speaker 1: So there's often quite surprising owners of these assets who
Speaker 1: have those sort of long term that need for long
Speaker 1: term yield and pinsion funds and sort of very long
Speaker 1: term money is often what is behind these assets, and
Speaker 1: I guess being predominantly a family office pinsion fund pe
Speaker 1: sort of mark and I guess looking for the retail markets.
Speaker 1: The next step one for I was gonna one thing
Speaker 1: I was gonna say, I saw that you are a
Speaker 1: fan of the Bakersfield Sound, and is very surprising who
Speaker 1: are who who who ends up owning these assets? So
Speaker 1: Will Haggard's some of his Masters is actually owned by
Speaker 1: Hasbro effectively, really how did that happen? So they acquired
Speaker 1: a company called Entertainment one UM recently which quite a
Speaker 1: one of the label which had rights to that, so
Speaker 1: effect to Lee Hasbro, you know, just Transformers owns Mill
Speaker 1: Haggen Masters and actually the biggest sort of headliners. They
Speaker 1: actually owned Defro Records, which is sort of two packing
Speaker 1: sneep time. That's why I knew that was familiar with
Speaker 1: Hasbrow and music, and I couldn't remember. I knew it
Speaker 1: was like some really discordant thing that's hilarious. So they
Speaker 1: own all the death Row records. They do, so it's um,
Speaker 1: it's often quite interesting where those sets end up in
Speaker 1: the sort of there's investors actually behind the company which
Speaker 1: is investing in it. And I guess one thing with
Speaker 1: my more sort of learning the financial market side of
Speaker 1: it more recently is I think that, yes, my retail
Speaker 1: market might be next, because it's always sort of been.
Speaker 1: I have a really long term money p money or
Speaker 1: sort of a very weird entertainment media slash company which
Speaker 1: happens to have which happened to sort of buy a
Speaker 1: catalog by buying by effectively you know, Hasboro trying to
Speaker 1: buy Um, it's a pepper Peak and Records just part
Speaker 1: of that deal. So it seems very pepper Peg and
Speaker 1: death Row Records exactly. It's it's a great combo perfect well. Alistair,
Speaker 1: thank you so much for joining us, and I've been
Speaker 1: you know, I've been following this for a while. So
Speaker 1: great to get these questions answered. Yeah, Pivott, thanks so
Speaker 1: much of your time. And as I mentioned, so before
Speaker 1: we get twenty three capital ahead of me to the
Speaker 1: finance space. So I found your podcast sery helpful to
Speaker 1: sort of love who instant answer the market, and it's
Speaker 1: sort of been been very helpful. Thank you so much,
Speaker 1: Thanks Joe, Thanks Tracy, Thanks alast That was really interesting, Tracy.
Speaker 1: I really feel like there's the retail the end, like
Speaker 1: you know, the song exchange, Like it seems like an
Speaker 1: obvious thing for people to just buy steaks and their artists.
Speaker 1: You could even imagine like artists doing like a partial
Speaker 1: spinoff like selling or something like that, because I just
Speaker 1: feel like that's totally the thing these days, that like
Speaker 1: someone would just like want to buy on their phone.
Speaker 1: I think we should start a US equivalent of hypnosis
Speaker 1: and then we should start the all blots back and
Speaker 1: merge with it by it, you know, I know, we joke.
Speaker 1: Would that be fun? I mean, it would be very fun.
Speaker 1: You know what, um we joke about like it's totally
Speaker 1: irrelevant to the question we just had, but just watching
Speaker 1: the number of like people starting specs now, it's crazy,
Speaker 1: like everyone we know, we're like the only people that
Speaker 1: happened the amount of money people are make anyway. Well, also,
Speaker 1: this wouldn't be the most unusual spack of the current
Speaker 1: cycle by any means m even if we were focusing
Speaker 1: on what was once considered an esoteric asset. But this
Speaker 1: is also what's quite interesting about the conversation is again
Speaker 1: like I'm looking at work from eight years ago, and
Speaker 1: when people talk about music rights and music royalties, it
Speaker 1: all comes up under the umbrella of esoteric abs. It's
Speaker 1: supposed to be an unusual asset class that's getting bundled
Speaker 1: and securitized, And now I think it sort of makes
Speaker 1: a lot of sense, and it's becoming increasingly normal among
Speaker 1: a certain subset of investors. And the other thing I've
Speaker 1: been thinking quite a lot about is so much of
Speaker 1: esoteric A b S is about valuing cash flows from
Speaker 1: sort of intangibles, so things like the value of a
Speaker 1: fast food franchise, UM, a catalog of movies and music,
Speaker 1: as we've just been discussing, and you can kind of
Speaker 1: see in a modern economy, I guess, where so much
Speaker 1: of the economy is predicated on those sorts of intangibles.
Speaker 1: That kind of makes a lot of sense, Like you
Speaker 1: can see why that would be a growth category as
Speaker 1: opposed to securitizing the cash flow from you know, like
Speaker 1: a factory that's actually making things or a more traditional laundromat.
Speaker 1: Yeah exactly, No, I mean it totally makes sense. And
Speaker 1: it's like it's highly intuitive that intellectual property that can
Speaker 1: be licensed, and especially licensed on platforms that can collect
Speaker 1: very predictable data. Like it's you know, like it makes
Speaker 1: sense to me why this asset class is sort of
Speaker 1: this particular one anyway, has really been associated with the
Speaker 1: rise of streaming, because you get that is the type
Speaker 1: of transaction, that is the type of thing where you
Speaker 1: can just sort of very easily translate a monthly check
Speaker 1: or a quarterly check into something that could be diced
Speaker 1: up and sold. Yeah, exactly. Do we leave it there? Yeah,
Speaker 1: let's save it there. All right. This has been another
Speaker 1: episode of the All Thoughts podcast. I'm Tracy Alloway. You
Speaker 1: can follow me on Twitter at Tracy Alloway and I'm
Speaker 1: Joe Wisn'tal. You can follow me on Twitter at the Stalwart.
Speaker 1: Follow our producer Laura Carlson. She's at Laura M. Carlson.
Speaker 1: Follow the Bloomberg head of podcast, Francesca Levi at Francesca Today,
Speaker 1: and check out all of our podcasts unto the Handle
Speaker 1: and Podcasts. Thanks for listening