Weekly Reads - June 6, 2022
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At least $5 billion was spent on music rights acquisitionsin 2021. Could 2022 be even bigger? - Music Business Worldwide
The rise of music copyrights as an asset class continues to drive new capital into the market as streaming continues its journey to becoming the most popular channel to listen to music. Artists who were popular decades have seen massive appreciation of their music catalog despite most of these songs not being culturally relevant for decades. This has been driven by older demographics adopting streaming services and loading up their personal playlists with songs of their childhood and younger demographics being introduced to older classics via streaming and new social channels such as TikTok. Music labels and private equity investors see music copyrights as a modern day gold mine with the ability to continue generating long lasting sustainable income over the life of the copyright via streaming without any incremental spending to market/promote these songs and exploiting their newly acquired ownership rights to license these songs to profitable channels such as commercials, social media, video games, movies, and television. With new competitors such as Hipgonsis, KKR, and BlackRock alongside music label incumbents Warner, Sony, and Universal multiples for music copyrights have virtually doubled leaving questions on how long this gold rush will continue and at what multiple do these deals start generating unattractive IRRs. Peacock Expands Test Giving Free Movie Tickets, Rentals to Subscribers
A great example on how competitive streaming has become and the need to create additional value outside of the platform’s entertainment catalog. This is especially a problem with subscale streaming platforms like Peacock who do not have the budget of Netflix nor the intellectual property of Disney. Subscale players like Peacock are and will have to resort to discounts and promotions to drive users to their platform as well retain current users. With Netflix adding ad-supported streaming and Disney offering discounts on their hotels via Disney+, Peacock and competitors must continue to be aggressive in their discounts and promotions to increase share/scale in a highly penetrated U.S market. Headlines like this indicate that both incumbents and new competitors in the medium term will find it difficult to generate attractive returns on capital as long as content and discount/promotion spend increase wildly. Microsoft Slashes Hiring Plans, Reducing One Team's OpenHeadcount to 200: Memo (businessinsider.com)
Fear of a recession is spreading across the tech sector with bellwether Microsoft pausing hiring following the footsteps of other large tech giants Meta, Salesforce, and Uber. A few months ago the U.S labor market was one of the strongest in recent history with too many job openings and too little applicants. This has drastically changed as rising inflation and recession worries have led many companies to pause hiring and focus on cost reduction versus growth. With many tech stock prices at annual and/or multi-year lows it will be interesting to see how many of these tech companies pivot away from a growth at all cost model to a cost reduction model. As more headlines like this pop up across various sectors we expect further market and secular volatility as guidance/consensus estimates are revised lower.