Investing in Music Royalties: The Truth About IP Deals
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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.

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.

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 Jamison 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. So check it out. Pretty short episode, but let us know what you 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 Capital Pad. And it is the thing that I wish existed when I started my journey of operating and investing in small businesses. So Capital Pad 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, Capital Pad is the place to do it. And if you want to buy a business and need capital, you can go on Capital Pad to be introduced to investors. So the really great thing too from the investor side is that Capital Pad takes care of all of the details that can get hairy with small business acquisitions.

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So if this sounds like something that's 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 CapitalPad.com and tell them that Acquisitions Anonymous sent you. How's everybody doing? Hey. Fantastic. How are you doing? We brought the big guns in today, Travis. Brought the big guns in today. I'm good. 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. So I'm going to share my screen. I wish there was more info about this, but this is on DealStream. And it caught my eye. It is a catalog of master recordings in New York, New York.

The price is 67 million, $461, 800, $840. It's a very weird number because it also says it's 60 million euros and they're, they're converting it for us.

But listen to this. 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 Russian 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, Balakurev, Borodin,

Scriben, 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. 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 this fun, Heather? What just happened? 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. 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 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, 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

like. I think to both of your points, I mean, the folks who I, I know somebody who sold a portfolio, they, 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,

but they can underwrite it in a really specific way. And there are these weird like outlier things that happen. 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, 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 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, but it can be kind of interesting. It reminds 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 it 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 batches of stuff and then eventually it'll be in a hit movie and everybody will listen to it for a while or it'd be a tick tock song and everybody will download it for a while. It's the white combinator strategy to art and music. Yeah.

We figured it out, guys. It's sort of fun. I talked about it with a friend this morning that, you know, I don't know if you guys have looked at this, but this guy that ran FTX, SBF, has like one of the best...

returning 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 these like deco deco unicorns he also ended up in jail but yeah i was gonna say isn't he in prison okay hey yeah heather it's no nitpick tuesday right 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 harm? I mean, that's his claim, not mine. What about the ketamine 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. We 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 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, Viso Business Capital, works with over 30 different lenders to find you the best funding in the world.

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 visocap.net. Then click Zoom sign up in the top right corner. That's visocap.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.

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. 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. 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 Universal, Sony or Warner, which I find really hard to wrap my arms around. OK, can we talk about the can we talk about the communist, the communist? I was trying to make a joke around elephant in the room. 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 closed 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? I don't know.

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 episode we did where we decided that it was kind of a money laundering website of some kind. I'm getting that vibe. It was the gift cards. Yeah. It was the gift cards. Bill was like, I know exactly what this is and we cannot touch it with a 10-foot pole. Okay, so this was a mini episode. We've basically exhausted everything we can say about it, but...

Thanks for tuning in. 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? Yeah.

I did a similar exercise at one point with old video games, like long in the tooth video games. Turns out not much there, 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's why I thought this was cool. It was like, oh, 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 going to be interesting stuff out there. That does bring up an interesting point. I may have talked about it on the podcast before, 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 –

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, 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, it's not transient. They're kind of permanent. Like people are always going to be like, I can't remember how to tie a tie. So,

So somebody was going to the YouTube creators, the people who actually own the videos and was consolidating them because they had they had an income stream. They had data to say, yeah, this ebbs and flows over time, but it, you know, trends in this 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 evaluated it and there's like basically two types of YouTube channels that are made for monetization. One is kind of like, we'll say Mr. Beast style, but things that are made to monetize

Catch lots of attention, catch the algorithm and like send you off. And the other is just like basically like SEO essentially, like how to tie a tie, how to tie a shoes, like this types of thing that will just continually build up more and more views over the longterm. And 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, uh,

I did not tweet about them. I did post a meme featuring them. I think that's what it was, yes. You have a guy like that who's like, hey, look, I'm just tired of this personally, 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 doing things that kind of self-select into a better ranking. But people are probably still going to look up his stuff, and people are always going to look up like –

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, uh, like digital photography space. These guys channels are insane and they cover every little tiny detail because I mean, even this camera in front of me, I mean, you could spend days figuring it out. So there's a million long tail keywords that they can target. Oh, I have. Yeah. I have. You're speaking to a fellow nerd. Well, when you get into the camera and audio visual stuff, like,

You'll see the person 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 could do this, do this. And then they come back a month later and they have the thousand yard stare like they were traipsing around Southeast Asia with a rifle. They come back and they're like, I figured it out, man. I've been in the videos. I've seen it all.

I now wear elephant pants. On that note, this is a good one, Mills. Yeah, 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 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.