Millennial Investing - The Investor’s Podcast Network

MI363: Valuing Universal Music Group w/ Shawn O'Malley

Aug 5, 2024

56:12

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Shawn O'Malley, a music industry analyst, dives into the dynamics of Universal Music Group's stock and its advantages over Spotify. He discusses the exciting economics behind music labels, revealing how streaming enhances music rights value. O'Malley shares insights on Universal's unique revenue streams, its strategic positioning in the market, and the impact of AI on music creation. Plus, he examines the current valuation of Universal and touches on its foray into health and wellness initiatives within the music realm.

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Episode notes

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Quick takeaways

Universal Music Group’s economic resilience is showcased through its ability to generate stable revenue from back catalog monetization via streaming.

The significant role of music labels in the industry includes artist development and managing financial risks linked to production and marketing.

As the music landscape evolves, UMG must balance the opportunities and challenges presented by artificial intelligence while advocating for fair artist compensation.

Deep dives

The Resilience of Music Labels

Music labels like Universal Music Group (UMG) operate in a mature industry characterized by significant economic moats that provide them with stability and control over recorded music rights. As major players in the market, UMG, Sony, and Warner Music Group collectively dominate approximately 70% of the industry’s revenue. These labels have an essential role in artist development, helping to market and promote talent while bearing the financial risks associated with production costs. This structure allows UMG to monetize their extensive back catalog of music, transforming their revenue model from a front-loaded system reliant on new releases to an annuity-like model generating income for decades through streaming.

Intro

2min

Financial Dynamics of Music Industry

11min

Universal Music Group's Strategic Evolution

9min

UMG's Evolution and AI Impact

9min

The Intersection of Music and Health: Pioneering Prescription Music

5min

Universal's Evolving Strategy in the Streaming Era

11min

Understanding the Valuation of Universal Music Group

5min

In today’s episode, Shawn O’Malley (@Shawn_OMalley_) breaks down Universal Music Group’s stock and what the music industry looks like from music labels’ perspective.

You’ll learn why Universal Music Group is a more reliable bet on the music industry than Spotify, why music labels have such compelling economics, Bill Ackman’s rationale for owning Universal, how AI could impact the music industry, and whether Universal is currently undervalued, fairly valued, or overvalued, plus so much more!

IN THIS EPISODE, YOU’LL LEARN

00:00 - Intro

00:19 - Why Universal is a more reliable bet on the music industry than Spotify

03:44 - How streaming has increased the value of music rights

05:16 - What music labels do for artists

06:40 - What Universal’s advantage is as the largest global music label

07:44 -How Universal’s revenue streams breakdown

12:45 - Why Universal’s business is like selling shovels in a gold rush

18:30 - Why big stars still need music labels

18:50 - How Universal split off from Vivendi

20:40 - The risks from AI and Bill Ackman’s thoughts on AI

25:24 - What happened during Universal’s feud with TikTok

28:00 - What Universal’s health and wellness ambitions are for music

30:29 - Which challenges could hinder Universal the most

35:02 - How to value Universal like Bill Ackman

And much, much more!

*Disclaimer: Slight timestamp discrepancies may occur due to podcast platform differences.

BOOKS AND RESOURCES

Join the exclusive TIP Mastermind Community to engage in meaningful stock investing discussions with Kyle and the other community members.
Bill Ackman’s presentation on Universal stock.
Music Streaming Royalties 101 article.
Check out the books mentioned in the podcast here.
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