Acquisitions Anonymous - #1 for business buying, selling and operating - Investing in Music Royalties: The Truth About IP Deals

Starting point is 00:00:00 Valuing a catalog like that, I think is really something for experts to try to do, but it is interesting. Or in this case, that, like, it will remain popular for a long period of time, and Spotify will get you royalties back. It's like a really hard thing to guess at, I feel like. Maybe you should go spend a month and learn everything you can about this space because maybe there's something here. I'm pretty sure they're trying to compare. They're like, look, our hit rate is better than Universal Sony or Warner. This is an acquisition anonymous. Another episode of Acquisitions Anonymous.

Starting point is 00:00:33 We don't have 100% beard anymore. And thumbs downing on just the plus inventory alone. Michael here. Welcome to Acquisitions Anonymous. Internet's number one podcast about buying and selling small businesses. Today we were joined by our friend, Travis Jameson, of Capital Pad. You should check it out if you're looking to invest in small business deals. But anyway, today's episode, super fascinating, Mills brought perhaps the craziest deal we've seen in a long time.

Starting point is 00:01:00 So check it out. Pretty short episode, but let us know what you should think of the deal wherever you listen to this or if you saw on social media. We had a lot of fun doing it. Check it out. Hey, everyone, it's Bill. And I want to tell you about maybe the most exciting sponsor we've had in a long time on the pod. It's called CapitalPad. And it is the thing that I wish existed when I started my journey of operating and investing in small businesses.

Starting point is 00:01:25 So CapitalPad is a marketplace for acquisition entrepreneurs that is people. who want to buy a business and need capital to list their deals and solicit capital from other people who want to invest in acquisition deals. So if you want to back somebody buying a small business, CapitalPad is a place to do it. And if you want to buy a business and need capital, you can go on CapitalPad to be introduced to investors. So the really great thing, too, from the investor side is that CapitalPad takes care of all of the details that can get hairy with small business acquisitions. They handle standardized terms, standardized governance, standardized distributions all up front in black and white. Basically, CapitalPad professionalizes

Starting point is 00:02:12 investing in small businesses. And the returns can be really, really good. I'm so stoked they exist. It's founded by my friend Travis, who is a phenomenal entrepreneur in his own right. So if this sounds like something that is appealing to you, if you want to buy a small business and need capital, or if you want to invest in small businesses, go check out. capital pad.com and tell them that acquisitions anonymous sent you. How's what you doing? Hey. Fantastic.

Starting point is 00:02:40 How are you doing? We brought the big guns in today, Travis. Brought the big guns in today. I'm good. I'm excited here. So, okay. So I click record because you started talking about this crazy deal you found Mills. So that's what we're here for.

Starting point is 00:02:52 So I'm going to share. I'm going to share my screen. I wish there was more info about this, but this is on deal stream. And it's, it caught my eyes. It is a catalog of master recordings in New York, New York. The price is $67,461,840. It's a very weird number because it also says it's 60 million euros, and they're converting it for us. But listen to this.

Starting point is 00:03:21 For sale, a catalog of Russian-produced recordings of classical music established in 1991. It controls world-exclusive perpetual master recording rights in any format for the largest outside of Russia catalog of Russia-produced recordings of classical music. That is a mouthful, but I'm going to keep going. The music catalog is the only record label in the world where Russian classical music is presented by a well-known Russian composer in good English. look at the albums by, I don't know any of these names, Glinka, Balakerev, Borodin, Scrib, a bunch of different names. It says percentage of recordings by Grammy Award winners in this music catalog is higher than in catalogs by Universal, Sony, or Warner Music.

Starting point is 00:04:19 This is a solely owned intellectual property asset, not a business, has no debts, no lawsuits, no employees on payroll. and we have no information other than what I just told you. We don't know anything about the sales or the cash flow, but they want 60 million euros for it. Heather came in late. She's like, what just happened? Is it fun of it? What just happened?

Starting point is 00:04:40 We're buying music? Heather, I just said, I have a deal that is not episode worthy, but it is at least very interesting to talk about for a minute. It won't be a whole episode. But I don't know where you came in, Heather, but do you see this description? Yeah, I do. And I have, being that I have been a banker in the Los Angeles area my whole life, I definitely know bankers who did music syndication deals. You know, artists could sell them, but they could also borrow against their catalog.

Starting point is 00:05:09 So I have talked to bankers before about these deals. And yeah, it totally depends on what the revenues have been and what you think they're going to be, like how popular are these kind of songs that are really, you know, classics that we expect people are going to be listening to forever or are they kind of pop music that might fade away and, you know, that valuing a catalog like that I think is really something for experts to try to do. But it is interesting. I have an acquaintance who started a some sort of like royalty sharing platform specifically for like music rights and stuff like that. And I thought it was a really neat idea. But the problem I had with like investing and things like that,

Starting point is 00:05:52 and with like the a lot of the alt space in general, which is, you know, like the Rolexes and trading cards and stuff like that. Like there's just no real way to value it to me. You're just like guesstimating that someone's going to pay you more for it in the future. Or in this case that like it will remain popular for a long period of time and Spotify will kick you royalties back. It's like a really hard thing to guess at, I feel like. I think to both of your points, I mean, the folks who I know, I know, know somebody who sold a portfolio.

Starting point is 00:06:25 They sold the rights, the perpetual rights to all of their music, to somebody who does kind of roll up. It's an income stream. It's basically like a bond, but they can underwrite it in a really specific way. And there are these weird, like outlier things that happen.

Starting point is 00:06:42 Like, there could be an obscure song that all of a sudden is used, like, in a modern day movie or television show. And then, like, your, you know, your revenue goes off the charts. So they kind of underwrite the long tail of the income, but also the potential upside. And as an artist, you go, okay, I might be getting, you know, $150,000 a year in, you know, income from my songs. I could monetize that and get $9 million today or whatever the number might be. And I don't know what these things trade for.

Starting point is 00:07:11 But it can be kind of interesting. It runs to me of Morgan Housel's book. I think it was in his book talking about one of the great art dealers who just collected, like, the most amazing artist over several decades and just turned out that he like hit hit after hit after hit but the secret wasn't that he was great at picking art the secret was that he was good at just buying batches of everything and eventually there would be winners in that so i wonder if like music is is the same way you just buy big batch of stuff and then eventually it'll be in a hit movie and everybody will listen to it for a while or it'll be a tic-tock song and everybody will download it for a while and go from there it's the white combinator strategy to art and music figured it out, guys. It's sort of fine. I talked about it with a friend this morning that, you know, I don't know if you guys have looked this, but this guy that ran FTX, SBF, has like one of the best returning

Starting point is 00:08:03 angel portfolios of all time, basically just by just getting really high. And whenever people asked for money, he gave it to them. So he ended up like in cursor, like all of these like deca deco unicorns. He also ended up in jail. Yeah, I was going to say, isn't he in prison? Okay. Heather, it's no nitpick Tuesday. Right.

Starting point is 00:08:21 Okay. All right. I'll calm down. Yeah. That's one of his big claims right now is like, hey, no one lost money. In fact, we've made money. So it's like, where's the, where's the harm? I mean, that's his claim, not mine. What about the catamy manufacturers? Who's going to look out for the little guy? Go ahead, Heather. Sorry. No, I said, I'm not going to nitpick it. I mean, he's right. So you made money. I guess it's okay. We're all good. Hi, Heather here. When I'm not breaking down deals with these guys, I'm helping people get the right SBA loans for their business acquisitions. Because when you're buying a business, the best financing isn't one size

Starting point is 00:08:55 fits all. There's the best rate, fastest to close, the specific loan structure that you need, or a little of all of those things. That's why my company, Vizo Business Capital, works with over 30 different lenders to find you the best funding in less time and with less friction so you can focus on the deal. Sign up for a free live Q&A session on SBA loans at Vizoccap.net. Then click Zoom sign up in the top right corner. That's V-I-S-O-C-A. app.net and click zoom sign up. So I understand this. This is, okay, let's parse this out. Russian produced recordings of classical music. So this is like they went and recorded in Russia, a bunch of Russian orchestras playing Russian classical music. And this is not the music itself.

Starting point is 00:09:42 This is the rights to the recordings. And it's this particular, well, yeah, a well-known Russian composer in good English. Yeah, that's a question. Like, what does that mean? Is there like singing and is that singing in English or like, what does the English have to do with it? Yeah, yeah, I'm confused there. I wish I knew, but I know less than nothing about this. You guys got all the info I have and maybe a little bit more.

Starting point is 00:10:05 What did you do, Mills? Well, and then it's funny that they compare, like I didn't think that Russian classical music won Grammys, but I'm pretty sure they're trying to compare. They're like, look, our hit rate is better than University. universal Sony or Warner, which I find, you know, really hard to wrap my arms around. Okay. Can we talk about the, can we talk about the communist, the communist in the room? I was trying to make a joke around elephant in the room.

Starting point is 00:10:32 Can we talk about the communist in there? The listing's been up since November 9th, 2023. It's 18 months old. Oh, I'm so glad you caught that. I didn't see that detail. And I feel like the people who would buy music catalogs don't go cruising around on the internet looking for them. You know, it's probably a pretty close.

Starting point is 00:10:50 network of trading that goes on. If you're out on the internet with this stuff, there's a reason probably. Is this like Russian oligarchs who have fled? Maybe it's just like a great money laundering scheme or it's a way to get money out of Russia or something. This is like that episode where I got afraid that that episode we did where we decided that it was kind of a money laundering website of some kind of I'm getting that vibe. It was the gift cards.

Starting point is 00:11:16 Yeah. There's the gift cards. You know. Bill's like, I know exactly what this is. and we cannot touch it with a 10-foot bowl. Okay, so this was a mini episode. We've basically exhausted everything we can say about it, but thanks for tuning in.

Starting point is 00:11:31 Well, no, like, I think there's something else interesting about this, which is I think you can use listings like this as like a breadcrumb trail to go potentially find other stuff that's interesting. So stuff like this, like that seeps into this, it's where you can be like, oh, like I didn't know this type of space existed. Let me go spend three weeks a month and go do some expert calls, network to a bunch of people and see, like, is there something here? You know, I did a similar exercise at one point with old video games, like Long and the Tooth video games. Turns out not much there.

Starting point is 00:12:04 But I spent three weeks learning everything about it. And I also learned all those people are crazy. And they don't make much money, but they're crazy. So anyway, that was my, that's why I thought this was cool. It's like, oh, like maybe you should go spend a month and learn everything you can about this space. because maybe there's something here. Not this deal probably, but there's,

Starting point is 00:12:23 there's, there's, there's, there's, there's, there's, that does bring up an interesting point. I may have talked about it on the podcast before,

Starting point is 00:12:28 but I met a guy at Capital Camp, who was providing like really unique, kind of non-bankable financing for these kind of weird income streams. And one of them was somebody who was buying, uh, YouTube channels with like a long tail. Like I think one of the most Google search things is like how to tie a tie or something. You know,

Starting point is 00:12:48 it's like kind of these things. that are, it's not like how to decorate, you know, for like some seasonal thing. It's not transient. They're kind of permanent. Like people are always going to be like, I can't remember how to tie tie. So somebody was going to the YouTube creators, the people who actually own the videos and was consolidating them because they had an income stream. They had data to say, yeah, this ebbs and flows over time, but it, you know, trends in this

Starting point is 00:13:15 direction and it makes you think you know what other kind of perpetual income streams whether it's digital or like this is just intellectual property yeah there are some breadcrumbs there michael to your point it's got to be more and more popping up too like i know somebody doing the youtube thing and they they evaluated it and there's like basically like two types of youtube channels that are made from monetization one is kind of like we'll say mr b style but things that are made to catch lots of attention, catch the algorithm, and like send you off. And the others just like basically like SEO essentially, like how to tie a tie, how to tie shoes, like this type of thing that will just continually build up more and more views over the long term.

Starting point is 00:13:57 They build a portfolio of a thousand videos of that and you're doing pretty good. Well, and Michael, I think you had even tweeted today about the, is it outdoor boys? Was the YouTube creator who, you know, kind of. I did not tweet about them. I did post a meme featuring them. I think that's what it was. Yes. You know, you have a guy like that who's like, hey, look, you know, I'm just tired of this personally.

Starting point is 00:14:19 But his videos will probably continue to get watched, right? He's going to continue to make a certain amount of money. And maybe the algorithm doesn't favor him as much because he's not, you know, doing things that kind of self-select into a better ranking. But people are probably still going to, you know, look up his stuff. And people are always going to look up like, you know, how to hang a picture, how to hang a curtain, like how to start a fire in your backyard. Like whatever just perennial things. You see it a lot in the like digital photography space. These channels are insane.

Starting point is 00:14:48 And they cover every little tiny detail because, I mean, even this camera in front of me, I mean, you can spend days figuring it out. So there's a million long-tale keywords that they can target. Oh, I have. Yeah. I have. You're speaking to a fellow nerd, Travis. Well, when you get into the camera and audio visual stuff, like you just, you'll see the person

Starting point is 00:15:08 before and after. And I've seen friends come ask me. They're like, okay, where do I get started? What do I do? And I'm like, okay, you can do this, do this. And then they come back a month later and they're like, they have like the thousand yard stare like they were traipsing around like Southeast Asia with a rifle. They come back and they're like, I figured it out, man.

Starting point is 00:15:24 I've been in the videos. I've seen it all. And now wear elephant pants. On that note, this is a good one, Mills. Yeah, I just, thanks for entertaining me, guys. I had a lot of fun finding this. This is where we should cue the Russian classical music. We need to let the producer know.

Starting point is 00:15:43 Our outro is Russian classical music. Great deal, Mills. You should definitely do this one. Thanks. I'll let you know what I find. Thanks, everybody. And we'll see you next time.

Acquisitions Anonymous - #1 for business buying, selling and operating - Investing in Music Royalties: The Truth About IP Deals

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