Animal Spirits Podcast - Talk Your Book: Investing in Music

Starting point is 00:00:00 Today's Animal Spirits Talk Your Book is brought to you by music. That's M-U-S-Q. Go to M-U-S-Q-E-T-F.com to learn more about the M-U-S-Q-E-F and how you can invest in the music industry. That's M-U-SQ-E-TF.com. Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing, and watching. All opinions expressed by Michael and Ben are solely their own opinion and do not reflect the opinion of Ridholt's Wealth Management. This podcast is for informational purposes only and should not be

Starting point is 00:00:34 relied upon for any investment decisions. Clients of Ridholt's wealth management may maintain positions in the securities discussed in this podcast. Welcome to Animal Spirits with Michael and Ben. Michael, you said something kind of funny in our interview today. You said that we literally never talk about music on the show. And that's probably true. Like in our recommendations, we talk about what we watch and stuff, but we never talk about music. And I think you want to know why, because we're washed and we're middle age and we're past the point of giving recommendations for new music.

Starting point is 00:01:04 I don't think I've listened to any new music in 20 years. I don't listen to a ton of new music. Most because it's so easy to listen to old music right now. Listen, I like what I'd like. Yes, it's easy to stay in that lane. I will say, in the last year or so, the majority of my music listening has gone to Zach Bryan. And I was never a country person.

Starting point is 00:01:24 He's kind of a, he kind of straddles a line, I guess, between country and non-country, like country pop these days. days, but the guy puts out a new album like every six months. So he's my new favorite. But other than that, I never really thought about the fact that the music industry could be undervalued. Because I think a lot of people, when I remember Napster and those types of services coming into my life in late high school, early college years. And it was kind of like, okay, this is it. The music industry is toast. And they went through all the legal battles

Starting point is 00:01:57 and they figured it out. And now it's like, well, okay, we have streaming. And I talked about this a couple of weeks ago on the podcast, the Columbia thing where I had, you'd spend one cent to buy a CD or something, and they'd send it to you in the mail, and how much easier life is now just having music available at your fingertips. And I was saying that we should all be thrilled with that,

Starting point is 00:02:17 never thinking that, like, oh, wait, now that they've got us locked in, like, they're going to start raising the prices on this stuff. They kind of have to, right, or they should. Or they should, because I'm not going to give up those music services. now that I have the ability to have a new album anytime I want or any old album I want to see anytime I want or tell my Alexa to play anytime I want, it is kind of hard to think that music is in such a better place than the streaming video wars right now because it's not like competing services. They don't, you know, there are a handful of services, but it's, it's

Starting point is 00:02:47 Is music recession resistant? I'm sure that ticket sales, live tickets definitely ebb and flow with the economy, right? Like, that's, that's expensive. That's easy to cut. If you're not doing well, that's probably going to get whacked really hard. But something like Spotify, where you're paying 10 bucks a month, I think Oswald de Moten was talking about, like, Netflix is a consumer staple. It's like the last thing to go. I wonder what goes first. Netflix are music. Netflix or Spotify. It's probably easier to get rid of, I would think it would be easier to get rid of Netflix than it would be. And I also think the concert thing coming out of the pandemic. So more people are working from home than ever and not having as much contact. I think that

Starting point is 00:03:25 that shared experience of going to something with 10,000 different people or 100 different people, however big or small the venue is, I think that that mindset has shifted since the pandemic. And I think that's something that's going to stick. I don't think it's going to be crazy, huge tours like we're having with Taylor Swift every year. But I think more people are willing to go to a live show to experience it with other people than they were in the past. Did you see videos over the weekend of The Sphere in Vegas? It did look pretty awesome. That's the kind of thing that you'd pay up for just to say that you did it and share the pictures. To experience it.

Starting point is 00:04:02 Yeah, that's what I mean, yes. But that's what I'm saying. I think the music experience is part of it. And I know you're still a movie theater guy, but I don't think going to the theater is so much different than just the ability to watch it at home on a huge screen TV these days. It's a little better to go to the theater, but not much. But going to a concert versus listening to music at your house. that's a totally different experience than you get anywhere. Like, I don't have nearly as much fun watching a stand-up on Netflix as I do going to the crowd

Starting point is 00:04:32 and watching a stand-up while there. I think music is that same, similar experience. I saw a tweet that I don't know if it's accurate, but the sphere costs $4 billion. By the way, that's a publicly trading company. We didn't get into that with David. But the sphere costs $4 billion to build and to advertise on it. I think the tweet said for a day is like $500,000 or something like that. And after the one concert, the stock popped 15% or something the day after, when it opened the day.

Starting point is 00:04:59 So we talked with music CEO and founder David Schollhoff all about the music industry and how he thinks it's totally undervalued. And he created a fund, MUSQ, which stands for music, nothing else, to invest in the music industry across a bunch of different companies. And I thought one of the most interesting parts was just the fact that this is a global fund. Hang on. I have to defend my honor. On the show, David called M-U-S-Q an acronym. I'm sorry. I raised my hand and took the loss. I was right. An acronym is the National Basketball Association, the NBA. That's an acronym. M-U-S-Q, I understand what he's doing. It doesn't stand for anything. It's music. M-U-S-Q. I don't know what the word is for that, but it's not an acronym. It's just a, yeah, it's a different way of spelling. I thought this talk was fascinating.

Starting point is 00:05:50 I'm seeing this through the lens of my nine-year-old daughter who has been obsessed with Taylor Swift for the last 12 months. And honestly, like once a week I have to say, can we please not listen to it anymore? I just, I need a break. I need you to find a different artist to listen to and she won't. And she's a super fan. So here is our talk with David Shulhoff, founder and CEO of music. We're joined today by David Shulhoff. David is a founder and CEO of music.

Starting point is 00:06:19 I'm told that's a four-letter acronym, M-U-S-Q. David, welcome to the show. Hey, thanks a lot, guys. So I want to know what the acronym stands for, but are you coming to this industry? What's your background? Are you a music guy? Are you a finance guy? Is there overlap?

Starting point is 00:06:36 Yeah, no, I'm definitely a music guy. I mean, I've been in the industry for 25 years, Michael. You know, my first job was working at Disney overseeing music for a lot of the studios. They were producing tons of soundtracks. I was the head of music for Miramax and Dimension Films, produced a lot of music soundtracks, ran our music publishing company. And then I left and started my first music. I started a company called Evergreen, and I bought the rights to a lot of acts.

Starting point is 00:07:00 Tupac Shakur, Michael Jackson, Eric Clapton, Joe Cocker, Roy Orbison. We actually had one of our early writers was Liz Rose, who was the early writer for Taylor Swift. So we published her material, too. So I come out of the world as a producer and as a music publisher. So you've personally invested in the music industry in the past, it sounds like. What's the thesis here between what you're trying to get out of this fund? Yeah, well, you know, so, you know, I've operated and started a lot of public and private companies. And about a year ago, I wanted to design something for the public market, for investors,

Starting point is 00:07:36 to capture all the growth and innovation around music. I mean, music today is on steroids, right? Every aspect of music. Streaming, content, live music, ticketing, equipment, technology. So I wanted to design a fund that gave investors total liquid exposure to the whole industry. So that's what MUSQ is. What does MUSQ stand for? No, I'm saying it's just music. No, music was just, it's just the ticker. It's the ticker. All right. Well, listen, this is my, this is my lack of, listen, I didn't go to Ivy League's college. I thought an acronym stood for

Starting point is 00:08:07 something. So that's how many hand up. Doesn't acronym stand for something? Either way. Either way. So the music industry is on fire. I'm not a huge music guy. So that is, that is news to me. When you say the music industry is on fire, is this, is this the Taylor Swift phenomenon or is it bigger than that? No, I mean, Taylor, Taylor Swift is just a part of it, right? That's live music. Music today, let's start here, right? Which kind of goes right into the investment thesis. Music today is the most overlooked, undermonetized media asset. Okay. And that's not just me saying that. That's JP Morgan saying that. That's Goldman Sachs saying that. Okay, music is cheap compared to other media assets.

Starting point is 00:08:47 Go look at what you pay for Hulu, for Netflix, for HBO. Okay, it's 45 or 50% of that, right? And so music's undermonetized. Streaming is under monetized. And the industry, right now there's, I think, 7 billion cell phone users. Only 11% are paid music users, okay? So if you look at the recent report from Goldman Sachs, from JP Moore, the music streaming business is about to double to 1.2 billion paid subscribers in the next

Starting point is 00:09:19 six or seven years. The industry is doubling to 152 billion by 2030. Live music is up 10 times from pandemic. Taylor Swift represents, it's not just her, it's Ed Shearin, it's, you know, it's Harry Stiles, it's Elton John. People want to be out. They want to buy tickets. They want to experience music. So everything about it, and we can go on into details around, asset of it, but all the way to AI and blockchain. Everything's changing about it. Today, it's all about streaming. 87% of all music revenues today are coming from streaming. AI and blockchain are completely transforming the way consumers discover music, the way artists and songwriters get paid. So everything has been digitized today. The whole industry is now, you know,

Starting point is 00:10:08 is about to explode. And I wanted to really design a fund that captured all of those companies. So if you look at all the companies in our fund, I broke it down into five different buckets. Okay, we have streaming, we have content and distribution, we have live music and ticketing, we have equipment and technology and satellite and radio. We have 48 companies in the fund across the entire music ecosystem. Forty-five percent of those companies are domestic, 55 percent of those companies are foreign. So this gives an investor access globally to the entire music ecosystem. David, explain, I have a few questions on the streaming side of things because, first of all, that number you gave that only 11% of mobile users have

Starting point is 00:10:48 a streaming subscription is way low to me. Pay, yeah, I can't believe how low that is. Ben, do you pay for Spotify? I have Apple Music. I'm a boomer, I'm a boomer as far as music got. I do that because it goes across all my Apple products. David, am I right? What? This guy pays for Apple Music? What a dwee? Well, I pay for four services. Yeah, no, actually, I pay for Apple and Amazon, actually because Amazon music only works with my Alexa, it's easier. So anyway, I pay for two of them, and I don't pay for Spotify yet. So here's my question, though, on the streaming thing, because the way that, like, streaming works for video is Netflix or Amazon or Apple or whoever

Starting point is 00:11:25 pays for a movie or a show up front, and then they can stream it as many times as they want. They're not paying going forward. They're paying everything up front. But with streaming, isn't it true that they have to pay the royalties with every song player or whatever, and it doesn't scale nearly as well? Who ends up winning? Because I thought the reason that so many... artists were going to concerts now and making so much of their money on concerts is because

Starting point is 00:11:44 they don't make as much money on the streaming anymore. So who's making money on streaming for music? Right. Okay. So you're right. Like artists are making a lot of their money on streaming. So streaming today, they pay, you know, the big companies, Apple, Amazon, Google, Spotify, they pay anywhere from, you know, 0.003 to 0.05 cent per stream. Okay. But now there's a combination of streaming revenues that they also pay. So there's really a combination, right, that the way that the payments have been structured with the labels, and it's basically an oligopoly today, okay? You have Universal Warner's and Sony controlling the lion's share of the global recorded music market. Artists and songwriters are getting a combination of some of that paid

Starting point is 00:12:26 revenue, some of that advertising revenue, and some of that stream revenue. But here's the part of it that's really interesting is that there are only about 600, 6 to 700 million paid users today. Okay, and that's going to 1.2 billion. It's basically close to doubling by 2030. It's still a fraction of cell phone adoption worldwide, right? So I don't know a single person that has a cell phone that doesn't use or consume music in some way. So when you think about the cell phone penetration for music, these numbers are very conservative. Also, we're just scratching the surface right now.

Starting point is 00:13:02 price hikes, okay? Music is cheap. That was back to my first comment. You're paying $11 for access to 150 million songs. It's going to go up. The rates are going to go up by 10 to 20 percent every two to three years, okay? It's still 45 percent of what Netflix charges. So all the streamers are going to raise rates. That makes sense to me. I told Michael this a few weeks ago. We used to buy CDs back in the day for one song or for two songs. And now, like, I do agree that the amount of music you can get for paying a monthly fee is, 1990s me would have been blown away by the amount of choice. I have a brand new album comes out.

Starting point is 00:13:36 I'm a big, Zach Brian is my newfound love of music. Love Zach. He had two new albums in the last month, and they're just immediately, like, overnight, they're on my phone. And I didn't have to do anything but pay a monthly subscription. Ben,

Starting point is 00:13:50 what was your first record that you bought? Oh, I don't know. Something back in the 90, probably like MC Hammer or Vanilla Ice. I mean, it was a tape because that tape. I remember mine. There were cassettes. Mine was throwing copper.

Starting point is 00:14:02 Okay. live, not bad. So, by the way, you just hit on a really good point, Ben. Consumers today are paying 40% less than they paid 10 or 15 years ago when CDs were around. So that's my point, too. Not only can rates go up even more with little churn, right? You would pay $12 for $150. So who's the winner besides, like, Spotify and Apple here?

Starting point is 00:14:20 Or is that the easy answer? No, the content, well, they are a big winner, but so are the content owners. Like I said, because they benefit from the revenues and growth. They don't just, that's how streaming royalties are being calculated, right? There's a percentage of the revenue from the streamers, and that gets attributable down to the artist depending on how many streams they have. As you mentioned, I never really thought about it the way that music is so underpriced relative to streaming TV and movies.

Starting point is 00:14:51 Do you think Spotify and the likes are like 10 years behind where Netflix was when they launched their streaming? There's no question about it. and 10 years behind where the video game business was, too. I mean, if you listen to Lisa Yang's new report music in the air, which she wrote, I mean, this is expected to grow in line with the video game business, right? Rates are going to go up every 10% every 2 to 3 years. We're just scratching the surface right now on price hikes.

Starting point is 00:15:18 And in a macro environment, by the way, when shit hits the fan, right, and there's a recession, like people are going to quit video before they stop audio, right? This is a much cheaper alternative to consumption, right? So I think music's in a really good place right now. It's very under-monetized. People are spending less than they used to. I think this summer with live tours, they've proven that they want to go out. It was the summer of funflation.

Starting point is 00:15:42 They wanted to spend money. They were spending $7 to $800 for Beyonce tickets. They were spending $5,000 for VIP packages. So they want to see their favorite artists. They want to go out. I mean, look at this venue. They just opened in Vegas, this sphere. Sick, dude.

Starting point is 00:15:57 Sick, dude. Apparently, that's like state of the art, AI. I didn't go for the opening. That's like just an example of some of the stuff that's like happening out there with live music. You can't, like, you can't replace that with goggles, you can't replace that on TV. So I think live music's, that's what I'm saying when the whole thing is on steroids, streaming is growing, live music is out, and then AI and blockchain is just changing the way, you know,

Starting point is 00:16:22 artists get paid and songwriters get paid. That's a great point on streaming being recession. proof because you're right. You can hop in and out of Netflix from one of these streaming videos because you want to watch a show on HBO and then you binge it and it's done and then you cancel it. But with music, it's ever-present. And people are, I mean, younger people now are listening to stuff their parents did or other generations did before anything else because they can find that, you know, their catalog is is endless, basically. But who makes the most money on the concerts? Because my wife and daughter went to see Taylor Swift and I agree with you

Starting point is 00:16:55 that people want that shared experience, and they haven't stopped talking about it since. They went two or three months ago in Detroit, and it was like a life-changing event for them or something. They just, they still talk about it so fondly to this day. Michael and I have talked a lot about like Ticketmaster and Stub Hub and these ticket venues. Why is that one not been, why has that one not been cracked yet where you still have to pay so much in fees for these ticket places? How come no one has figured this out yet? Well, okay. Well, first of all, you're touching out, you're touching on a lot of really important topics. So, look, Live Nation is under pressure right now, right? They own ticket master and these bots that are buying the tickets and then arbitraging them and making a

Starting point is 00:17:34 shitload of money. Like, that's an issue right now, right? It's an issue for Springsteen fans. It's an issue for Taylor Swift fans, for Beyonce fans. Look what they're doing with Olivia Rodriguez on her guts tour. Now you can't even reserve a seat when you buy the ticket, right? You have to pick it up at Will Call and there's going to be no seat assignment there. What year is this? Right now, This is happening on her guts tour, it's starting in February. Exactly. And you would think like they should have done this a long time ago. So the ticketing companies have benefited.

Starting point is 00:18:00 They really haven't had an incentive to fix it. You know, in our fund, we have all the concert promoters and the ticketing companies like vivid seats and Live Nation. So we just like to, we want to capture all the growth that's happening. But there's changes happening. There's policies that are being put in place. They're making it, the pre-registrations are more difficult. You know, like I said, the seats, you know, so Seekek and Stubhub, they can't trade in

Starting point is 00:18:22 flip it. But look, the artists are still getting very big guarantees. They have big pieces of the back end. You know, Taylor Swift and Beyonce, they're each going to probably do over a billion dollars in revenue from these two tours, okay? It's amazing. And forget the impact to the overall economy. What they've done is not only economically amazing, it's culturally amazing too, right? They've really kept like businesses out of a recession, right? Look at the impact on hotels and on lodging. You know, they come into a city and hotel occupancy rates that were like 33%, they're now like 95% when they're there. So, you know, there's huge benefits to these artists on tour. And I think that, you know, their currency is going to just continue to go up. You know,

Starting point is 00:19:05 they're going to get bigger guarantees from companies like Live Nation, which is in our fund. And, you know, and people are, and the cost of tickets are going to continue to go up. David, if you could buy a slice of Taylor Swift's current market cap, Ben and I were talking about this the other day, and you could own a piece of her future income in perpetuity, what number would you pay? Is $5 billion too low? Is that too high? Well, you know, look, I probably own her publishing over her recordings, right? First of all, if you want to split up that because the publishing, you get a benefit when anybody else sings that song, you get a royalty from the publishing, right? And we have all those royalty trusts in our fund. too, by the way. That's what music publishing is about. It's about collecting revenues from other artists. So you want to own her publishing catalog. Who owns that right now? Is that? I know there was a... She does. No, what happened was with her recording catalog. The issue there quickly was that she had... She was an early artist. She signed to Scott Borchetta, Big Machine. Big Machine

Starting point is 00:20:03 and Taylor's manager. They then got with Carlisle and they bought it and she got all pissed. And now it's owned by Shamrock, right? This is a private equity firm in L.A. So she doesn't own the recordings, but because she was out of her re-recording restriction, she then re-recorded Taylor's version of all the songs. It's like when you fork something on the blockchain. Well, it's basically you get the, if you're out of your re-recording restriction, you can make your own version of it, and then you force people to use it because they still need the other license to publishing so they can block it, right? So if there's a new movie out by Paramount or Sony, and they want to license a Taylor's song, she could force the publishing. Anyway,

Starting point is 00:20:38 so to answer your question, what would I pay? I don't know. It's worth a lot. The publishing is worth a lot. Her catalogs got 250 songs. She's a songwriting machine. I don't know. Mick Jagger just turned down $500 million for his catalog. I have no idea what what Taylor's catalog. He doesn't have them many years left. I mean, Taylor's got 60 years on him. So, but getting back to the, the blockchain thing, you mentioned that blockchain and I are going to transform this industry. I've spoken about like, I think NFTs, uh, not the pet rocks or anything, but like as, as a somebody that goes to a sporting event, for example, it would be great. If you, it would be great. I had evidence, not just to sell, but for myself, of all the games that I went to, I don't have

Starting point is 00:21:18 any, I have, like, ticket stubs. But if you had, I don't know, if you were at, like, Jordan's last game, the final shot, like that, that to me is pretty interesting. Yeah. What's interesting for blockchain, Mike, is that it sets up a direct payment rail with whoever's using the music to the songwriter to the artist, right? Like, if there's a song played in a bar, like the artist should know exactly at what time and they get paid right there. Believe it or not, it could take you like nine months to get paid for songs that get performed around the world. It shouldn't take that long. There should be a direct payment rail between the user or the stadium or the venue or the theater owner and the artist. And that's what blockchain is doing. And AI is also having

Starting point is 00:21:55 an amazing impact on the business. AI is just revolutionizing creativity and revolutionizing production right now. And it's giving artists like tons of tools. They can access stems to create new music. If there's a new songwriter, how about this? Okay. Ben, You're the Zach Bryan fan. If I'm a songwriter with AI, let's say I wanted to get it to Zach, I could have Zach's voice on all of these new songs that I'm writing to pitch it to Zach, to make it sound like Zach. So it really allows for creativity.

Starting point is 00:22:26 It allows for pitching. So all these tools are just amazing to me. Is there going to be a fight over this with other people using versions of someone's voice for AI? I mean, I know the whole writer strike part of the deal with that in Hollywood was they didn't want AI to take credit for writing a script or something because you feed all these inputs in and it spits you out of romantic comedy or whatever. Are there going to be lawsuits for years and years ahead on this stuff? How is this all going to work? Yeah. Look, it's a tricky area because

Starting point is 00:22:52 you can't copyright a voice, right? That's the problem. You have no copyright protection in your voice. You can protect your harmonies. You can protect your melodies. And so what's happening is deep fakes are happening. And they're actually suing whoever's using it around a sample infringement. universal. When there was like the fake weekend and the fake Drake on Spotify, they actually backdoored it through a sample, right? So that's what they have to do. So, but look, here's a thing. Like I said, it's an oligopoly today. All the majors are already working with Google on putting together an AI music incubator, a task force, right, to combat deep fakes and to build protocols in place for consents, for control, and for compensation. That's what needs to happen.

Starting point is 00:23:36 Same thing happened 10, 15 years ago when there was UGC, user-generated content going up on YouTube. They was infringing on tons of copyrighted material. And what did they do? They set up content ID, right, which was then a fingerprinting technology that allowed you to watermark and figure out who was uploading what, and they were able to pay the rights holders. That's what's going to happen here. They're going to figure out protocols in place for consent, control, and compensation. So all the artists and all the songwriters can get paid whenever there's a derivative use.

Starting point is 00:24:06 of a song. David, wasn't there an artist who recently, like, came out in support of AI and she was like, if you make money, let's get paid together or something like that? Grimes, I think, said that. Right. What was the story there? Yeah, I mean, that was it. She basically built her whole album on AI. Everything was used on AI, the songs, the recordings. And look, they're useful tools, right? Paul McCartney just used AI. If you heard his new song, it's like Lenin's in the studio with him. Yeah, it's amazing. That's what I'm saying. It is pretty crazy.

Starting point is 00:24:39 Holy moly. Here's what's going to happen in podcasting. And I think it's already happening a little bit. Instead of doing an ad read for a podcast, AI is going to take your voice and it's going to do the podcast read for you. So you don't mess up on any words and the pattern is perfect. That's where we're heading in the future. David, I got a question about how you put together this fund. So you've talked about some of the publicly traded companies in the fund.

Starting point is 00:25:01 But it sounds like you're also investing in some other stuff and some rights. is it, how exactly are some of these other investments structured? And what else are you investing in other than public companies in here? Yeah. So first of all, it's only public companies. Okay, all right. Just make sure. Yeah, it's only public. So 48 stocks, broken down, like I said, just to quickly recap, I'll give you the just a fund overview. So content streaming, live music and ticketing, equipment, technology, satellite, and radio. We've got 12, so 45% of the fund is domestic. 55% are foreign. This is a passively managed fund, right? The way the companies are eligible, they have to derive more than 50% of their revenue.

Starting point is 00:25:34 who's from music, right? Or they have to be a top five player in any of those five verticals I mentioned. No company can be smaller than $100 million in market cap and has to have daily trading liquidity of a half a million dollars a day. No single company can have more than a 7% weighted cap on the index. So the whole thing's market cap weighted. It's small cap, mid-cap, and large-cap companies. And it really covers every aspect of the global music business. And what's exciting here, Ben, is that these are company, many of these companies are international. They're really hard to get access to. We have companies in Taiwan, companies in China. We have, like, I think, 14 companies in South Korea, like the K-pop companies are a big part of this fund.

Starting point is 00:26:18 Companies obviously all over Western Europe, Scandinavia, Germany, France, Great Britain. And so we really, we want to give exposure to the whole global music industry, you know, in all these different countries. and I think I've designed a really great index that's been really well back tested that captures all the growth and all the innovation around music. So if you go back to Taylor, we have to talk about Taylor because she's like the prom queen right now, but like she's signed to Universal, Universal's in the fund. She did a deal with Live Nation, Live Nation's in the fund. She got a publishing admin deal, I think with Sony.

Starting point is 00:26:55 Sony's in the fund. She's selling through Vivides, you know, so it's like you can cut, you can go through every different artist. It's like we're really trying to capture everything and all the excitement. And that's what this whole fund is really designed to do. It's really the first pure play music industry ETF capturing the entire industry ecosystem for investors. David, I along with millions of consumers of the ticket resale industry, just ticket sales, have had just some really, really lousy experiences. And then, oh, by the way, if everything actually works the way that it's supposed to, what's the rank? They take,

Starting point is 00:27:30 like, you know, in the range of 20% on each side. How is this, how is this possible? It just seems, it just seems egregious. Yeah, well, there's an antitrust lawsuit right now. That's happening. They're going to try and break that up, right? There's issue. You would think with AI, with blockchain and all the kind of technology, you know, they've become big businesses. It is egregious. And it's unfair to the fans, because the fans don't get a piece of the, you know, the trade, right, through a scalper. I'm interested in the, you mentioned the overseas aspect, a lot of this fund is international. There was that clip going around Twitter in the last couple of weeks of the gangam style guy popping up at his concert, and he pops up from beneath the

Starting point is 00:28:09 stage, and the crowd goes bonkers. I don't know if that was in South Korea or where that was, but talk to us about some of the differences over there and how much, how everything is growing overseas, because obviously we're just kind of focused on the American market. Well, first of all, let's start with South Korea. South Korea is like after the U.S. market's the second biggest music market, right? So they own already a big piece of like the U.S. market. So like, you know, companies like Hive, right, Hyde bought like, you know, big management company, bought Scooter Brons company behind Ariana Grande and Justin Bieber. So they manage Bieber and Ariana Grande in that management company today, right? So he's actually the president of Hive, right? So then you, so you've got,

Starting point is 00:28:49 they bought a company, a management company called Quality Control, which has like tons of like hip-hop acts, right? Migos and Little Baby. And so they're already entrenched. in the U.S. business, right? And then they have all of their, you know, local content, right? So, they've got like BTS and they've got, you know, just tons of like K-pop stars. So, you know, they're big consumers of U.S. content, but they're producing tons of South Korean content. And these are big businesses. When you look at YP, SM Entertainment, Hib, those are big South Korean companies. So we're really trying to capture all of that excitement overseas, you know, through the fund. And then if you look in the other,

Starting point is 00:29:27 countries too. I mean, in Japan, we have AVEX in Japan. In Korea, by the way, there's two big streaming companies there, too. You know, Genie and Cacao, these are big companies there. So, you know, we're really trying to, you know, everyone's, like, obsessed with, like, you know, whether it's Chris Stapleton or Zach Ryan or Taylor Swift or Beyonce, but there's a whole another business internationally with these acts over there. And we want to, and I want to make sure we give investors exposure to what's happening over there. David, I remember growing up on Long Island going to Tower Records, and obviously that is now obsolete as are all of those places that once sold tapes and records, cassettes, and CDs and all that sort of stuff.

Starting point is 00:30:11 Is the music industry, like, was that the high watermark or is it bigger today than it was 25 years ago or whenever CDs peaked? No, it's bigger today. So 25 years ago peaked at 20 billion or 22 billion. Today it's at 30 billion, right? And the whole industry is going to 152 billion. So what happened was physical sales declined, right? In 2000, you had Napster, right?

Starting point is 00:30:34 You had the digitization of music. We came out of that in 2000. First, there was the launch of iTunes, and then there was streaming. And then if you look at a chart, right, physical sales continue to decline and decline. And on the other end of the curve, right, streaming was growing. Right. And so today, streaming is obviously, it's 87%. If you look at the RIAA report, it's 87%.

Starting point is 00:30:57 And then in physical sales are small. But there's a resurgence in vinyl. There's a resurgence in some of the hard formats. And so the industry today recorded business is about $30 billion. And it's growing at about in the U.S., it's growing at 7.5% or 8%, right? Which is like three times or almost four times the GDP. I know you're not a finance guy, you're a music guy. Is there any relationship between interest rates and music?

Starting point is 00:31:25 Like, is there a lot of leverage in the industry? Yeah, so, well, I'm a music guy, but I've been raising money to buy companies for 25 years, so I know a little bit about finance. And so, yeah, I mean, interest rates clearly impact what you can pay for catalogs. When interest rates were cheap, catalogs sold for a lot of money. So if you look in the last, I don't know, seven years, Springsteen, Bob Dylan, Tom Petty. What did Springsteen get $500 million or something? $500 million, yeah.

Starting point is 00:31:49 Paul Simon sold his? Paul Simon. So look at that period was like Tom Petty, Paul Simon, Neil Young, you know, Stevie Nick's. Those guys are great macro traders. They knew. Awesome. No, but look, but rates went up. Look, Katie Perry just sold her caliber for $225 million after rates went up. So there is a correlation between, I think you are going to see some multiples go down because the cost of borrowing is higher. But if you look at what Katie Perry just sold for, it's an example, like those were smart investors, they clearly knew the growth ahead was streaming, and they baked that into the purchase price, even with higher rates. So getting back to the streaming versus streaming war of, like,

Starting point is 00:32:26 video versus music, it does seem like music, especially right now, is in a way better place and have figured out, already kind of gone through a lot of the stuff, where as opposed to streaming, a lot of these companies are still really trying to figure out what they're going to do and figure out, boy, we spend all this money, and now we're trying to save subs or get new subs every month, and so it seems like streaming music is in a far better place than streaming video. I think so, Ben. I think it's a lot cheaper. It's still, we can still go through price hikes with very little churn. It's a really good value proposition. That's what I mean when I say that, and I mean it, like music is the most under-monetized media asset. There is a lot of value here

Starting point is 00:33:06 by raising rates with streaming companies. And then that, when you think about cell phone penetration, right? Like, we're just scratching the surface. Like, there should be, this should triple in the next three years or four years. To have only 11% paid subscriptions on cell phones is, to your point, it's really low. So I think these numbers are conservative. Goldman Sachs said it to Lisa Yang and her music in the air report, which is the Bible of sort of what's going on every year in the business of music said it to. And then, by the way, we forgot to mention the evolution of the super fan, okay? Well, hey, I have a nine-year-old super fan

Starting point is 00:33:44 in my house, and so I told you her, my wife went to Taylor Swift. When the, another platform, Taylor Swift is obviously a phenomenon, but her ticket sales for the movie came out because she's doing the movie concert. And so my wife and daughter are buying the day the tickets come out,

Starting point is 00:33:58 they go to buy the tickets, and guess what, they're dragging me to see it with them too. I have to go see the movie now. Well, and we know super fans are going to pay up to three times, right, what the average fan would pay. So they're going to pay up for these tickets. They're going to pay more for concert seats.

Starting point is 00:34:14 I mean, yes, she's going to do bonkers. And then Beyonce just announced her Renaissance movie deal, too, on the heels of Taylor Swift. So Taylor's going to do another $100 to $150 million in revenue when that movie opens up October 13th. Beyonce and all of her amazing fans is going to, you know, they're going to experience the Renaissance tour. You know, so that is just, that's what this music industry, there's so many derivative uses to music, right? Like, you can make biopics, you can make documentaries from them, and then you have the tours and the physical aspect of it. It's just, it's a great way to diversify revenues.

Starting point is 00:34:49 Once you have, like, a star, you have a hit, you have a star. People just love music, you know, people, you know, even in like a pandemic when you would think everybody's cutting stuff, right? And that was a terrible time, and it was sad. And I knew a lot of people that were unemployed and out of work. The one thing they weren't doing was cutting music. Like, they were at home, whether they were like. listening to, you know, Zach Bryan and getting deep, right? Or they were dancing and doing

Starting point is 00:35:13 videos. Like, they were listening to music. And so that's what not. Music is just, it's here to stay. It's here for the long term. It's only going up in value. And I feel like we're really well positioned with this fund to capture all that growth and innovation with what's happening in the industry. Perfect. David, where can we send people one more? Well, you can follow me on LinkedIn. in. It's one place. You can go to the website at musq.com or musqetf.com. And you can follow me on Twitter as well at David K. Schullhoff. Perfect. David, this is great. Thanks a lot. Okay, thank you again to David. Remember, that's Musqetf.com to learn more and send us an email and send Michael your music recommendations, Animal Spiritspot at g-mo.com.

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Animal Spirits Podcast - Talk Your Book: Investing in Music

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