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Welcome to the Alts Sunday Edition 👋

Boy, do I have a terrific issue for you today.

We just wrapped up a weeklong Investor Trip to Nashville; and I can't wait to tell you about it.

This was the music adventure of a lifetime. We arrived eager to understand what's really happening in this complex industry.

We returned with industry connections, lifelong friendships, and confidence in an upcoming music investing deal we're cooking up with our friends at JKBX. (More on that below)

So, what did we learn? What's the real state of the industry? What are the big takeaways?

Read on, I'll tell you all about it 👇

This issue is packed to the gills with info. It’s free for everyone, but probably too long for your email. Read the full issue here.

Note: A big thanks to our sponsors who made this trip possible: JKBX, Alto, and Melograno Cocktails.

Adventure Capitalism

Investor retreats like this are a huge part of why we started Altea, our private community for serious alternative investors.

We don't just source random deals from strangers and hope for the best. We travel far and wide to immerse ourselves in local communities. This is how we're able to find the best alternative investing deals from around the globe.

It's adventure capitalism. Our investor journeys are an investment in community. An investment in relationships. An investment in yourself.

Altea is where opportunities are found, discussed and vetted. It's where the magic happens.

These trips are for Altea members only. There's nothing else like it.

​Apply here.

My, how Nashville has changed..

I first visited Nashville back in 2006. To be honest, I didn't love it.

While music has always been embedded into the fabric of the city, the scene back then was centered around country music — which I wasn't a huge fan of at the time. (Admittedly, it has grown on me since then).

But at some point over the past 20 years, amid a rapidly growing population, and claiming the title of Bachelorette Party Capital of America, Nashville transformed into something much different.

Today, Nashville is booming.

Its population has grown 3.5x faster than the national average, driven by a strong economy, the vibrant music scene, and strategic efforts to attract corporations to the area. Oracle just announced they were moving to Nashville (from Austin, no less!)

Today, the city attracts musicians from all over the world — and not just country artists either. This is a huge rock town, with tons of great bluegrass, jazz, and soul. Hip-hop is playing catch-up, but growing strong. And even electronic is rearing its head.

Lots of cities have great nightlife, but Nashville is one of the few cities with great music nightlife and "day life."

Performers seem to be playing everywhere, all of the time. Sidewalks, bars, restaurants, hotel lobbies, parking lots...anywhere they can get a foot in the door. Morning, noon & night.

This is a town of hustlers.

And musicians need to hustle, because for better and worse, the music biz isn't what it used to be.

The music business vs the music industry

About halfway through the week, (and halfway through a fiery bourbon flight at Nashville Barrel Company) serial music founder Scott Cohen shared some honest opinions on the state of the music industry.

In the late '90s, Scott and co-founder Richard Gottehrer formed The Orchard; the visionary company that single-handedly created the market for digital music distribution.

The Orchard was way ahead of its time. This was pre-Spotify, pre-iTunes. Heck, it was pre-Napster. At times Scott felt they were perhaps too early.

But when the iTunes Store launched in 2003, the checks started rolling in, and haven't stopped since. In 2015 The Orchard sold to Sony for over $300m.

Today, The Orchard lets independent artists and labels distribute and monetize their music globally.

They work with artists like Bad Bunny, and indie labels like Third Man Records, offering a comprehensive suite of monetization services, including digital and physical distribution (i.e., getting their songs on Spotify and into stores).

When discussing the state of the industry, Scott said something I've been thinking about all week:

Scott has empathy for struggling musicians — after all, The Orchard struggled for years before succeeding — but that empathy comes with a caveat:

Music mindshare vs wallet

If there's one big takeaway from this week, it's that there's an enormous disconnect between music's mindshare, and its wallet.

Music holds a huge place in our collective consciousness, and the industry has long managed to "strike a fair bargain" between artists and consumers.

In his recent article, "How Has Music Changed Since the 1950s?", Daniel Parrish from StatSignificant writes:

In other words, since the streaming era began, consumers (who have been conditioned to no longer pay for music) have been getting the better end of the deal.

It's a $29 billion industry whose power laws mean the biggest artists in the world are doing better than ever.

But the harsh truth is that there really isn't much cash sloshing around for everyone else.

This makes investing in music tough. It's a "winner-take-most" industry, where 70% of the revenue flows to the top. (Remember, just three companies — Sony, Warner, and UMG — earn 70% of all music industry revenue).

This industry doesn't have unions. It arguably doesn't even have a middle class anymore. If you're going to invest in this space, you want to be at the top.

Our upcoming music rights deal

With that in mind, we're cooking up an exclusive music rights deal that you can invest in. We're calling it the Billion Streams Collection.

The idea is simple: There are over 100 million songs on Spotify. But only 750 of them have hit the elusive billion streams mark.

This is an incredibly exclusive club (the top .00075%!) containing some of the most popular songs ever written.

When will the deal be live?

We're in the middle of doing due diligence on this deal. Yes, even the most popular songs in the world need to be diligenced like crazy. Some of the experts featured in today's issue will be helping us out.

Interested in joining us & owning a part of this blue-chip collection?

​Apply to Altea. We'll keep you posted.

Royalty mechanics are very messy

Kicking off the week of speakers was Amanda Denery, a veteran of the notoriously complex reporting & royalties side of the industry. (The unsexy "red-headed stepchild," as she calls it.)

Amanda was analyzing royalty statements before the world went digital, and before it was cool. (Psst — it was never cool).

Back in the early 2000s, she literally pored through boxes of dot matrix printouts in order to determine how much songwriters were owed.

Since then, the technology has obviously improved, but the data is still junk. See, even today, the industry lacks any formal data standardization, which means songwriters routinely get screwed out of royalties that they're technically owed!

Does Bernie Taupin get every penny he's owed for co-writing Elton John songs? Yeah, probably.

But what about the 18th co-writer on Beyonce's Heated (the most co-written song ever)? Ehh...that's not a safe bet. The infrastructure is weaker than you think.

Labels have no incentive to change

You may be wondering, "wouldn't the labels help you recoup?" After all, labels are the VCs of the music industry! They're supposed to have your back, right?

I asked this very question and got laughed at. 😆

Amanda and Scott made it clear this is a legacy industry. Labels have no incentive to clean up the data, or ensure that royalty payments are divvied up properly.

Labels consider their data proprietary anyways, and even they don't understand how it all works. They barely have the expertise to solve this if they wanted to (which they don't).

It's getting better, slowly. Royalty management software has helped bring transparency to the market. The big example here is CounterPoint, which was developed by the father of Ben Katovsky, CEO of Hipgnosis.

And new startups like Syncopate utilize fuzzy data matching and AI analytics to help rights holders and investors retrieve what they're owed.

Retroactive payments are real, and clawback strategies are being employed as we speak. Companies are fighting back, and winning. Just last month, Limp Bizkit frontman Fred Durst sued Universal for $200m over unpaid royalties.

Innovative arbitrage opportunities

As a music rights investor, you can use this mess to your advantage. Heck, that's exactly what the new PE firms are doing.

As ridiculous as it seems, the big catalog buyers (mostly private equity firms like KKR, Blackrock, and Apollo) are boosting returns by performing basic hygiene on catalogs they acquire.

• Perhaps they realize one of the acquired songs was never actually registered in France
• Maybe another song was spelled wrong in Germany, preventing payment
• Perhaps the filing in Mexico was in Pesos instead of USD
• etc...

You need to understand that these aren't edge cases; they're literally everywhere. The problem is endemic.

Fixing data issues immediately boosts a catalog's value by ~5%. There are easy efficiency gains here for those who understand music's messy data problem, and are willing to roll up their sleeves and fix it.

​Dan Weisman agrees. He's a Principal at the Nashville office of Bernstein, the juggernaut wealth management firm.

Before Bernstein, Dan spent 15 years managing artists, including 5 years at Roc Nation.

Dan noted the efficiencies don't stop at data cleansing.

He estimates there are ~$200m in unpaid royalties at any given time, just sitting there — and the institutions know how to get it.

If an artist does an audit before selling their catalog, all of the hidden/non-reported income isn't factored into the cashflow report, so the investor effectively gets an immediate discount.

Institutions use all sorts of cheat codes to make their catalog acquisitions more efficient.

For example, Chord Music Partners, the KKR-offshoot with one of the largest music rights portfolios, raised a bunch of money to buy UMG copyrights.

By bringing these into the UMG system, they don't have to pay 7-20% distribution fees. And with this distribution cost removed, they can get an immediate cash-on-cash return.

An under-utilized loophole..

One thing institutions have not yet perfected is the practice of landing lucrative sync deals on songs and catalogs they've acquired.

We all know that investment funds face strict regulations around what they can promote to the public. There are disclosure requirements, anti-manipulation rules, and all sorts of compliance laws.

But there's really nothing stopping a music investor/fund manager from boosting the underlying songs contained within an acquired catalog.

Sure, artists, labels, and managers are already doing this. There's an entire ecosystem built around landing sync deals (known as sync libraries).

But so far, investment funds haven't really done this — and there's no reason they couldn't.

It's an oddly under-utilized loophole in the music investing space. 🤔

The benefits of selling out

It may be hard for Gen Z to believe, but there was a time when the idea of artists "selling out" was frowned upon.

Today, that era is long gone. Now, when the music investors knock, you'd be wise to answer the door.

There are lots of reasons for songwriters to sell their catalog. But perhaps the most under-discussed reason is taxes.

Income from royalties is taxed as ordinary income. But when you sell music rights, it's treated as a capital gain, which of course is taxed at a far lower rate.

Given that the average catalog sales price sales typically falls somewhere between 12-24x annual revenues, songwriters have a unique opportunity to cash out, diversify, and parlay their success into new ventures.

​Marti Frederiksen is a perfect example of this. A singer/songwriter and producer from Los Angeles, Marti found early success and never let it go.

He's co-written songs with some of the biggest artists in the world, including Aerosmith, Ozzy Osbourne, Buckcherry, Mötley Crüe, and Faith Hill.

(Wyatt put together this playlist of songs Marti has written and produced.)

In 2010, Marti sold the rights to his entire catalog (including songwriting and production credits) to music rights investing giant Round Hill Music.

After the sale, he and Round Hill CEO Josh Gruss bought the famous Quad Studios — essentially a large house in a residential area of Music Row — where legends like Joan Baez, and Taylor Swift have recorded.

Marti and his team renovated and expanded the facility; a massive operation hampered by covid and deadly tornadoes.

The Studio is now complete. It's a deluxe, inviting space that continues to attract artists, including Keith Urban, Jewel, George Strait, and Toby Keith.

It was an honor to chat with Marti in the same room where Neil Young recorded Harvest Moon, and heartwarming to see a legendary studio like this get a makeover.

But from a pure ROI standpoint, the investment hasn't been a grand slam. To be clear, it hasn't been a bad investment. There's still plenty of demand for the space. But the recording industry just isn't what it used to be.

The fact is, it has become easier than ever to record music directly from your computer — especially for genres like electronic and hip hop. (Marti mentioned hip hop artists mainly seem to want to record there "for Instagram")

Studios aren't as lucrative as they once were. There have even been whispers of selling Quad to condo developers... (!)

Maybe Marti and his team will sell. Maybe they'll hang onto it. Maybe someone new will buy it.

The beat goes on...

Music memorabilia is having a moment

Music memorabilia is experiencing a surge in interest, and Cristy Barber is on the frontlines of it all.

A Grammy-nominated music executive, Cristy has had a tremendous influence on the industry — particularly in reggae. She served as the President of the Marley family-owned labels, and has held senior positions at Capitol Records, Colombia Records, Island Records, and Elektra.

Today, she's the VP of Pop Culture & Business Development at Julien’s Auctions — the entertainment & music memorabilia auction house which sold John Lennon's guitar, Michael Jackson's white glove, and Marilyn Monroe's dress she wore while singing, "Happy Birthday, Mr. President."

Nashville is chock full of museums (it has a whopping 84 of them, on par with cultural megacities like Chicago, Vienna and Rome) and Cristy works with many of the best ones.

But one particular museum she loves is the underrated Musician's Hall of Fame and Museum (MHOF).

Unlike other music museums that solely focus on ultra-popular artists, MHOF also celebrates the producers, engineers, and session musicians who have moved the industry forward while remaining slightly behind-the-scenes.

Cristy's next big music memorabilia auction is Played, Worn & Torn. This two day blockbuster (Nov 20-21) will take place at MHOF and feature over 1,000 items from music’s biggest legends. Register to bid here.

(Also — If you're in Nashville on Nov 19, Cristy is also hosting a VIP Reception at MHOF with drinks and appetizers. Reply if you'd like to attend — I'll put you in touch.)

Hustle and technology

Working in the music industry is like an endless hustle.

Nashville isn't a place where people kick up their feet and rest on their laurels. People don't seem to ever retire in this town. Marti is 62 and Richard is 84. They're both still working, even though they don't have to. The movie never ends, it goes on and on and on...

Unlike Silicon Valley, people here seem to genuinely love what they do. They're also a lot cooler, more authentic, and there's less "failing upwards."

What Silicon Valley and Nashville have in common is a bias towards technology.

Very few people understand this better than Rick Barker.

Rick was Taylor Swift's very first manager, back when she was just 15 years old, MySpace was king of social media, and only the earliest of early Swifties had heard of her.

In Taylor, Rick saw sheer hustle, authenticity, and an enormous desire to connect with fans. He set her up with MySpace. He set her up with Facebook, using a friend's email address (remember you needed to have a university address back then!) He got her into award shows — even if she didn't win, she appeared, and that's what people remember.

Along the way, he watched in awe as she engaged with fans directly through social media — even as her rising popularity made her "too large" to be doing stuff like that.

Today, Rick is a paid consultant on retainer to help artists like Jordana Bryant build their business through social media & digital marketing.

He only acts as a manager on rare occasions. The problem with managing artists is that there is no money at the beginning of an artist's career, and that's precisely when a good manager is doing most of the work.

Rick is part of the rapidly growing music consulting & startup ecoystem. Along with startups we met like MySet and Free Market Music, a new slew of companies are helping artists bridge the gap from the "music business" to "music industry." The goal is to give artists an edge, and in the process attempt to make the world of music just a bit fairer for everyone.

What does the future hold?

When thinking about the future of music and what it should look like, it's hard not to think of Nashville's own Taylor Swift.

In many ways, Taylor Swift is the perfect example of what the music business — and the music industry — is all about.

She's a natural born singer-songwriter, an endless hustler, and authentic from the very start. She re-recorded her masters (after Big Machine sold her catalog to Scooter Braun). She pays her team well, and she has legions of adoring fans which she truly connects with and showers with love, attention, and rewards.

As Dan Runcie put it recently on the Trapital podcast:

Music consumers have been conditioned to think that music should be free, and the most popular artist in the world is reversing that.

That's a really good thing.

Where to next?

This was truly the trip of a lifetime. But it won't be the last one.

If you want to join our next one, apply to Altea.

We'll keep you posted.

Liner notes

That's all for today!

A special thanks to everyone who joined our second investor trip, to all the speakers who made it work, and to our sponsors JKBX, Alto, and Melograno Cocktails.

Also a big thanks to:

• Dasha Titlebaum for her excellent photography, and for fighting relentlessly to get us into Rudy's + meet the Wooten brothers.
• Mike Mallicote for his kickass videography, and the introduction to Marti & the crew at Quad.
• Scott Cohen, who almost certainly had better things to do than hang out with us for a week, but did anyways.
• Adrian Boeckeler, for introducing me to Rick, and offering suggestions and support to make the trip shine (sorry we didn't go to Husk)
• John Belitsky, who was fighting a nasty cold and yet still managed to convince musicians to get into NFTs.
• And to my co-founder Wyatt Cavalier, who held down the fort while I was busy pretending to be a rockstar 🤘

If you'd like an introduction to anyone mentioned in this issue, reply back.

Until next time,
Stefan