Top Three Videos – August 14, 2023

The music streaming industry is a recession-proof investment opportunity, with major companies expected to grow by $15 billion in the next seven years, benefiting both the companies and artists.

Quick Summary Bullets:

Growth and Potential in the Music Streaming Industry

• Investing in the music industry can be a lucrative opportunity due to its widespread popularity and daily consumption by people from all walks of life.
• Sholoff’s background includes working at Interscope Records, Disney, and founding his own private equity-backed company, showcasing his diverse experience and success in the music business.
• Streaming is projected to grow by $15 billion in the next seven years, making it a significant component of investment opportunities in the music industry.
• There is a direct correlation between the revenues of record labels and publishers and the streaming companies, highlighting the profitability of the music streaming industry.
• Spotify, a subscription-based music streaming service, emerged as a solution to combat the decline in revenues and obtained licenses from major labels.
• The music streaming industry is projected to reach $131 billion by 2030, indicating significant growth and potential for investment.
• The music streaming industry is a recession-proof business, making it an attractive investment opportunity.
• “The earnings have been great” in the music streaming industry, indicating its profitability and potential for investment.
• The music streaming industry is likely recession-proof, as consumers are unlikely to cancel their subscriptions even during an economic downturn.
• “Ninety percent of this index really doesn’t have vulnerability to advertising shortages, as the bulk of the revenue for music streamers comes from paid subscriptions.”

Opportunities for Artists and Monetization in the Music Streaming Industry

• While some artists like Neil Young and Joe Rogan have withdrawn their music from streaming services, many artists find it beneficial to stay on these platforms due to the revenue generated from paid subscriptions.
• NFTs present a significant opportunity for artists to connect with their super fans, offering new ways to monetize their work and engage with their audience.
• “If Spotify makes a dollar off of a stream, roughly about a penny goes back to the label.”
• The blockchain has the potential to revolutionize the music industry by creating a direct payment rail and ensuring artists get paid immediately when their songs are heard.

Impact of Technological Advancements on the Music Industry

• Technological advancements, such as the iPhone and legal streaming services, have transformed the music industry, leading to a revival of vinyl and overall growth in the industry.
• Streaming offers consumers the appeal of accessing an unlimited catalog of music for a monthly subscription, providing more value compared to buying CDs or albums.
• The evolution of super fans, NFTs, vinyl, and tours has contributed to higher consumer spending on music, leading to increased revenue for the music streaming industry.

Transcript Summary:

• 00:00 The music streaming industry is recession-proof and a good investment opportunity, with top streaming companies like Spotify, Apple, Amazon, and Google expected to grow by $15 billion in the next seven years.
  • During a recession, people are unlikely to cut off their music streaming subscriptions as music is considered a necessary consumption, making the music streaming industry a recession-proof business and a good investment opportunity.
  • David Schulhof an investor with 25 years of experience in the music industry, discusses his new ETF called M-U-S-Q and his background leading up to launching the fund.
  • The music industry underwent significant changes with the rise of Napster, leading to a decline in CD sales but an increase in revenue from other sources such as radio and TV, and now with legal streaming services, the industry is bigger and better than ever before.
  • The investment strategy is to provide investors with exposure to the global music industry through various categories such as streaming, content, live music, ticketing, equipment, technology, and radio companies.
  • The top streaming companies, including Amazon, Apple, and Google, must generate over 50% of their revenues from music or be a top five player with more than 10% global market share, and they are capped at a maximum of 7% weight on the index.
  • Streaming companies like Spotify, Apple, Amazon, and Google are dominating the market and are expected to grow by $15 billion in the next seven years, with TikTok potentially becoming a major player in the industry.
• 06:42 Music streaming companies are raising prices, benefiting both the companies and labels, while consumers prefer streaming for unlimited access to music; publishers and labels benefit greatly from streaming, artists may demand more profits but still benefit from staying on these platforms, DIY services like Cobalt and DistroKid allow independent artists to upload music, NFTs offer opportunities for artists to connect with fans, and the global music industry has seen a recent revenue spike after a decline.
  • Music streaming companies are about to raise their prices for the first time in years, which will benefit both the streaming companies and the labels that receive a percentage of the revenue, while consumers prefer streaming due to the unlimited access to a vast catalog of music.
  • Publishers and labels benefit greatly from streaming, as recently renegotiated rates and price hikes have resulted in significant revenue increases for them, creating a direct correlation between their revenues and the streaming companies.
  • Artists and creators may demand a larger share of profits from music streaming platforms, but many still benefit from staying on these services and pursuing self-publishing on the internet.
  • There are many DIY services available for artists to upload their music, with companies like Cobalt, AWOL, DistroKid, and The Orchard providing opportunities for independent artists to upload a large number of songs each day.
  • Artists in the music streaming industry are using NFTs to connect with their fans, but many popular artists are unable to bypass streaming services due to exclusive recording contracts with labels.
  • NFTs offer artists opportunities to connect with fans, while the global music industry experienced a decline in revenue from the late 90s to the mid-2010s before seeing a recent spike.
• 12:05 The music streaming industry has grown significantly since the decline of file-sharing technologies, with major services like Spotify and Apple Music projected to double in size by 2030, reaching $131 billion.
  • In the early 2000s, the introduction of Napster and other file-sharing technologies caused a decline in music industry revenues, but eventually led to the emergence of subscription services like Spotify.
  • Spotify, Apple Music, Amazon, and Google are the biggest music streaming services with millions of paid subscribers, offering licensed catalogs from major labels and independent artists, while vinyl records are also experiencing a revival.
  • The music streaming industry is projected to double in size by 2030, reaching $131 billion, with more people now streaming music rather than buying CDs.
  • Consumers are spending more on music streaming services due to factors such as the appeal of the service, increased cost of tickets, and general inflation.
• 16:17 Music streaming platforms like Spotify and Apple Music generate revenue through licensing agreements with labels and publishers, exclusive contracts with artists, and investments from companies like Amazon, Google, and Apple, while investing in individual artists is not currently approved by the SEC.
  • Spotify licenses songs from labels and publishers, as each song has two underlying copyrights for the publishing asset and the recorded asset.
  • Spotify requires agreements with publishers and labels, paying a percentage of content costs and streaming revenues back to them, with roughly a penny per stream going to the label and 50% of that going to the creator.
  • Music streaming platforms like Spotify and Apple Music have exclusive contracts with artists, allowing them to stream certain songs or albums exclusively, generating more revenue through windowing and album downloads.
  • Jay-Z removed his songs from Spotify to promote his own streaming service, Tidal, and offered other artists deals and equity in exchange for not signing up with other platforms.
  • Music is available on multiple streaming services, and companies like Amazon, Google, and Apple are making money from their music services and reinvesting it into those services.
  • Investing in individual artists or their derivatives is not currently approved by the SEC, so the speaker created a platform to invest in a fund that provides exposure to multiple music companies and their royalties.
• 21:51 The music streaming industry is unpredictable, but K-pop companies like Hyde are becoming increasingly successful, owning management companies for popular artists and streaming services, making them major players in the industry, while an index allows investors to participate in multiple companies’ success, with Universal Music Group being the largest publisher.
  • Picking one music streaming company is difficult due to the unpredictable nature of the industry, with K-pop companies like Hyde becoming increasingly successful.
  • They own management companies for popular artists like Ariana Grande and Justin Bieber, as well as big South Korean bands, and also have streaming services on their platform, making them a major player in the music industry.
  • The music streaming industry is rapidly growing and it is difficult to choose one successful company, so an index was created to allow investors to participate in multiple companies’ success, with Universal Music Group currently being the largest publisher.
  • The top three music publishing companies, including the largest one, own and administer catalogs to generate income from performance, streaming, mechanical sales, and sync licensing, while there are also other royalty companies and South Korean companies engaged in music publishing.
• 25:16 The music industry is being disrupted by AI, but real artists and live concerts will always be more popular than virtual performers or the metaverse; however, blockchain technology in ticketing can provide value and transparency for artists and companies in the industry.
  • AI is disrupting the music industry by creating software that can write songs, generate EDM music, and create virtual performers, but the real question is how technology can grow the business and provide artists with tools.
  • Artists have opportunities to use AI in their music, but a robot will never be more popular than a superstar like Drake because people want to connect with real artists and attend live shows.
  • Artists connect with fans through their real stories, and the idea of replacing live concerts with animated versions or the metaverse is not feasible.
  • The metaverse cannot replace the live experience of attending a concert, but it does create additional revenue streams and opportunities for generating more revenue.
  • The use of blockchain technology in ticketing can provide value by creating a direct payment system and ensuring transparency for artists like Taylor Swift in terms of ticket sales and payment.
  • Companies like Madison Square Garden, Live Nation, CTS Event, and Vivid Seats, which are leaders in the live music and ticketing space, will be well-positioned to capture the innovation of blockchain technology when it becomes available.
• 31:02 Artists who write their own songs and connect with their audience through storytelling have longevity in the music industry, while publishers and record companies curate and package music to resonate with listeners.
  • Artists who write their own songs and tell their own stories have longevity in the music industry, regardless of changing trends, and it is unclear whether societal shifts or artists’ desire to write about different things come first.
  • Artists are storytellers who connect with their audience by discussing problems and offering solutions, whether it be serious issues like poverty or lighter topics like country artists singing about drinking beers and racing cars.
  • Artists and record companies curate and package music to connect with audiences, and publishers play a role in identifying songs in their catalog to be re-recorded by different artists.
  • To create a hit song, you need a great song with lyrics and music, a great artist to sing it with a great melody, and a great producer to produce it in a current way.
  • The speaker discusses their personal favorite artists and how their taste in music has changed over the years, mentioning that they are a fan of contemporary music but also enjoy playing and listening to country folk music.
  • The speaker’s young daughter is a great discovery tool for new music, as she finds it on platforms like TikTok and they listen to it together in their house.
• 36:45 The music streaming industry is experiencing rapid growth and price hikes, making it a recession-proof business as people are unlikely to cancel their subscriptions during an economic downturn.
  • Visit musq.com to access the website, download the white paper, fact sheet, investment case, and pitch deck, and follow the speaker on LinkedIn.
  • Schulhlof discusses various themes in the music industry that they write about regularly, including publishing, artist discovery, AI, and streaming.
  • The music streaming industry is experiencing rapid growth and price hikes, with the potential for increased revenues for labels, as streaming services are expected to continue raising prices and consumers are willing to pay for it.
  • The music streaming industry has a large potential for growth and is likely recession-proof, as people are unlikely to cancel their subscriptions during an economic downturn.
  • The music streaming industry is not heavily reliant on advertising, with only 10% of the industry being vulnerable to advertising shortages, as the majority of revenue comes from paid subscriptions.
  • Music streaming is considered a recession-proof business because music consumption is seen as a necessary consumption like food and water, and it is not correlated with economic conditions.