Whitney Tilson’s email to investors discussing that William Ackman SPAC, Pershing Square Tontine Holdings (PSTH), nears $40 billion Universal Music deal.
[soros]Q1 2021 hedge fund letters, conferences and more
1) I have no idea why shares of Bill Ackman‘s SPAC, Pershing Square Tontine Holdings (PSTH), are down on this news: William Ackman SPAC Nears $40 Billion Universal Music Deal. Must be “buy the rumor, sell the news” foolishness…
My colleagues and I love the recorded music business – more than 70% of it is controlled by Universal Music, Warner Music, and Sony Music. We particularly like Universal, which is why we recommended its owner, Vivendi (VIV.PA), to Empire Stock Investor subscribers 13 month ago – and it’s up 50% since then.
Here’s an excerpt from our report:
Universal is Vivendi’s crown jewel, as the world’s biggest intellectual property holder in music. Whether you listen to Drake on Spotify (SPOT), Luke Bryan on Apple (AAPL) Music, The Who on SiriusXM (SIRI), or Billie Eilish on YouTube… you are consuming Universal’s product.
The music industry has been riding a double-digit secular tailwind tied to the growth of music streaming services, whose revenues have quadrupled in the last five years.
Last year, industry revenues grew 13% to $11.1 billion, marking the fourth straight year of double-digit growth. Streaming revenue grew 20% to $8.8 billion and accounted for 80% of the industry’s total.
The big winner among the major labels was Universal, which added more revenue ($729 million) than Warner Music and Sony Music combined.
These results were only possible because music is now a much better product for both consumers and producers.
Disruption kills most companies and industries. But in this rare exception, the music recording industry actually benefited from it and is now better positioned than ever.
Music publishers provide the raw material that fuels subscription services, that in turn produce more predictable revenues and higher profits for the music publishers.
In many ways, this is like what software companies experienced with the business model shift to Software-as-a- Service (“SaaS”).
When Adobe (ADBE) and Microsoft (MSFT) went from selling perpetual licenses to monthly subscriptions, their revenues initially suffered. It took time to reach the inflection point where monthly fees surpassed legacy lump-sum purchases. And the benefits of SaaS only became apparent to investors after that transition took place.
For music, this transition took much longer because it wasn’t planned. But now, the streaming business model is gaining momentum.
