Bill Ackman advocates for music


Hedge fund billionaire William Ackman says music comes right after food and water in the hierarchy of needs, but music is worth an investment because it pays royalties.

In a presentation Wednesday setting out his reasons for spending $ 4 billion to buy 10% of Universal Music Group, Mr. Ackman and his colleagues at Pershing Square Tontine Holdings Ltd.

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exposed a bullish case for the music industry that relies heavily on the growth potential of streaming music around the world. He also said that music is the cheapest form of entertainment – 60 million songs that can be heard anywhere by anyone doing anything.

During a two-hour webcast, Mr. Ackman said music is a better streaming business than video, drew comparisons with the software industry, and ranked Universal General Manager Lucian Grainge among the greatest CEOs of all time, like Walt Disney and Steve Jobs.

“If you own UMG, you own a royalty on the people who listen to music,” Mr. Ackman said, noting that Universal’s third-party ownership of all recorded music gives it an edge in the music market. streaming. “I can’t think of an asset that I’m more confident will be consumed over time. ”

“You need food and water to live, but the music comes next. ”

– William Ackman

Pershing executives said the company would have bought an even larger stake in Universal, if not half the company, but the parent company of Universal, the French media conglomerate Vivendi SE, which is splitting from Universal Music Group this fall, had tax reasons to limit the size of the stake.

“You need food and water to live, but the music comes next,” Ackman said, adding that “you can’t license intellectual property. [intellectual property] food and water.

The proliferation of smartphones around the world is still booming, Pershing executives said, adding that the company expects the penetration of paid streaming subscriptions worldwide to reach 30% by 2030, compared to 11% in 2019.

Pershing executives say they expect mass distribution of the music through Spotify Technology’s streaming services HER,

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Apple Inc.,

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Alphabet Inc.

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Google and others, which bear the costs of acquiring new customers, to direct music streaming to less developed markets.

Specifically in China, Mr. Ackman said that the other strategic shareholder of Universal Music Group, Chinese internet conglomerate Tencent Holdings Ltd.

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will be a critical factor. So far, Tencent has increased the number of paid music streaming subscribers to 9% in 2020, from 2% in 2016, Pershing executives noted.

Universal’s artist list includes hitmakers like Kanye West.


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Still, some investors say the highest paying markets for music streaming are plateauing in their growth and new subscriptions are coming from markets with lower pricing power. Pershing executives said they expect the global average revenue per streaming user to remain stable over the next decade as price increases in some markets are offset by faster adoption in emerging markets.

Universal, whose labels include successful powerhouses Interscope Records, Republic Records, Def Jam Recordings, Capitol Records and Motown, is the dominant player in the recording business, with around 40% market share in the United States and 30 % in the world. His roster includes hitmakers Taylor Swift, Drake, Lady Gaga, Kanye West, the Weeknd, Olivia Rodrigo and Billie Eilish as well as classic artists such as Elton John, Queen and The Beatles. Universal also operates the world’s second-largest music publishing company, which purchased Bob Dylan’s entire songwriting catalog last year.

After a 15-year decline amid rampant online piracy, the fortunes of the music industry began to reverse in 2016, when the growth of streaming services began to outweigh the decline in sales of CD and digital download. Streaming now accounts for over 80% of recorded music revenue in the United States and over 60% globally. Without having to manufacture and distribute so many physical products, companies like Universal have also become more profitable, Ackman said.

Lady Gaga at the Grammy Awards in 2019.


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Thanks to streaming, music has also become a more attractive proposition for the everyday consumer, he said. For about the price of a single CD per month, or by listening to intermittent advertising, a listener can have unlimited access to virtually any music in the world. Pershing estimates that it costs 10 cents per hour of listening for a consumer to stream music, while playing video games costs five times as much. Watching a show costs eight times as much, considering the cost of video streaming services, executives said.

Unlike video, consumers can listen while doing other things, and they tend to listen to a song over and over again instead of just once, as viewers of the shows do. Meanwhile, every music streaming provider must license all the music that matters, much of which belongs to Universal, while video providers only need critical mass to attract subscribers.

Owning music, Mr. Ackman said, is unique because it gives you a recurring source of income for life. Due to streaming, the music industry is less of a success-driven one-off transaction business and has evolved into something like a monthly annuity-like income stream business.

“The best analogy we can make here is what happened to software, and some of the most popular companies in the world are software companies,” Ackman said, explaining that initially consumers were buying software. as a physical object and then download it. , and now they subscribe. It behaves like an annuity for the software publisher.

“I am convinced that in 25 years, 50 years, 100 years, Universal will be very high on the list of big companies,” he said.

Music has also proven to be recession-resistant. “A pandemic is the worst thing that can happen in music,” Ackman said, pointing to the shutdown of shows and retail. “The company grew 5% in this environment.”

Mr. Ackman’s investment applies a valuation for Universal of 35 billion euros, or the equivalent of around 42 billion dollars, which could shed light on his spin-off by Vivendi into a public company, expected at the end of September. When Tencent doubled its stake in Universal last year, the transaction valued the Universal Music group at 30 billion euros.

Highlighting Universal’s lack of debt and its predictable, free cash flow-generating activity, Mr. Ackman said Universal “has ticked every box.” He also said that his grandfather’s songs belonged to Universal and that the first record he bought was from Sting.

“I was kind of like a dog grabbing the bumper of the car and just wouldn’t let go,” he said.

From the invention of the phonograph in 1877 to the rise of streaming services today, the music industry has had to constantly adapt to emerging technologies. In this video, we explore whether music can keep reinventing itself in order to survive. Photo: Liliana Llamas / WSJ (Video from April 27, 2018)

Write to Anne Steele at [email protected]

Corrections and amplifications
William Ackman’s investment applies a valuation for Universal of 35 billion euros, or the equivalent of about 42 billion dollars. An earlier version of this article incorrectly said $ 42 million. (Corrected June 23.)

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