UBS partnered with Billboard to help increase awareness about the financial resources available to all entertainers. In the fourth episode, Wale Ogunleye sat down with Primary Wave CEO/Founder Larry Mestel and Billboard Deputy Editorial Director Rob Levine to talk about new technology in the market and how the music licensing market is changing.
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00:00 (soft music)
00:02 - Welcome to Music and Money Series.
00:08 My name is Wale Ogunleyeh,
00:09 and I'm the head of sports and entertainment at UBS.
00:13 Billboard and UBS has partnered
00:14 to help increase the awareness
00:15 around financial resources available to all entertainers.
00:19 Today, I'm joined by Billboard deputy editor, Rob Levine,
00:22 and Primary Wave CEO founder, Larry Mestal,
00:26 to discuss the music license market
00:28 from AI to international markets and everything in between.
00:32 Before we start our questions
00:34 that I have for these young men,
00:36 I wanna do a proper introduction for Mr. Mestal.
00:40 Larry is the founder and CEO of Primary Wave Music
00:44 and has been working in the music
00:45 and entertainment industry for over 30 years.
00:47 In 2006, Mestal took his extensive experience
00:51 working at multiple record labels
00:53 and founded Primary Wave Music,
00:55 one of the largest independent music publishing,
00:58 marketing and talent management companies
01:00 in the United States.
01:02 Private Wave controls over 50,000 songs
01:05 from catalogs of legendary artists,
01:06 such as Bob Marley, Stevie Nicks, The Four Seasons,
01:10 Whitney Houston, James Brown.
01:12 I can continue to go on and on and on.
01:15 Obviously, he's a very important man in this industry.
01:18 So with that being said,
01:19 gentlemen, thank you for being here with me.
01:21 - Thank you, Wale.
01:22 Good to be here.
01:23 - Thank you. - Great.
01:25 So I'll dive right in for you,
01:27 and we'll start with you, if you don't mind, Rob,
01:30 on this question. - Sure.
01:31 - What are the emerging trends and market disruptors
01:34 that are likely to shape the music licensing market in 2024?
01:39 - As far as disruptions, by definition,
01:42 I guess you don't see them coming always.
01:44 One of the things we're seeing though is,
01:47 the streaming market is growing, especially internationally.
01:51 And that makes it harder, a little harder, not impossible,
01:54 but a little harder to make predictions.
01:57 - You have a fairly good idea what's gonna be popular
02:00 over time in the US, in the UK, in Europe,
02:04 but you've got a lot of people in Africa
02:05 streaming music now, a big audience in India.
02:08 Is that gonna increase the value of Western music?
02:12 Are people there gonna listen to more music
02:15 from those countries?
02:16 We have an idea, but we don't totally know.
02:18 I think that's gonna be a big factor.
02:21 - Next question, I think I'll give to you, Larry.
02:26 When we are at UBS, again, we've got high interest rates.
02:30 And if we wanna talk about microeconomics,
02:33 there has been a speculation that rising interest rates
02:37 would negatively impact valuations.
02:41 Have you seen that?
02:41 - First of all, let me just finish what Rob was saying,
02:44 because we are very, very bullish on emerging markets.
02:47 We just bought a company, Times Music in India.
02:50 We actually think that India, Brazil,
02:54 a lot of places in Southeast Asia
02:56 are going to very positively affect the cashflow
02:59 of the catalogs and the artists that we own and represent.
03:03 So that's a very big piece
03:06 when you're talking about valuations.
03:07 And also technology, things like TikTok,
03:10 it's only growing and they're starting to pay royalties
03:14 when there weren't before.
03:15 So I completely agree with Rob on emerging markets
03:18 and streaming and technology platforms.
03:21 With respect to interest rates,
03:24 look, like every business,
03:25 this is a business of supply and demand.
03:27 And our business is only getting better
03:30 because we're well-capitalized.
03:32 We started 17 years ago, we have 180 catalogs.
03:35 So as interest rates go up,
03:38 it's harder for financial institutions
03:41 that came in the business three, four,
03:43 and five years ago to compete,
03:45 because there are just less people interested
03:50 or less financial institutions interested
03:53 as rates go up, because giving pricing,
03:58 it's easier to put your money in a treasury bill
04:01 than it is to pay prices that compete with firms like us
04:06 that have been around a while.
04:09 A financial institution has to pay significantly more
04:11 than I do to get an artist's catalog
04:15 because they have no infrastructure.
04:16 They have no history in working with artists.
04:19 They have no marketing teams, branding teams,
04:22 digital strategy teams.
04:23 So artists are very smart.
04:25 While money is important in a transaction,
04:28 partnership, maintaining legacy and growing an artist's value,
04:33 cash flow, and legacy is also very important.
04:40 So interest rates are certainly affecting valuations.
04:44 - Yeah, and I think the next one,
04:47 we're gonna talk about negative impact on valuations,
04:51 a hot topic that we've been seeing here at UBS.
04:55 It's the topic on AI, right?
04:57 People are looking at it as a threat.
04:59 I know a creative artist like are looking at it
05:02 as something that they need to be wary about.
05:06 And if you're looking at it from a streaming perspective,
05:09 it does seem like AI may be a threat to streaming,
05:13 but there are some opportunities there.
05:16 Would one of you wanna opine
05:18 on what maybe those opportunities are
05:19 as we look at AI?
05:21 - I'll jump in.
05:23 One of the things that, you know,
05:25 people initially perceived AI as a threat,
05:28 but what we seem to be seeing now,
05:31 and obviously this could change,
05:33 is it may be a threat to creators' dignity
05:36 more than to their pocketbooks.
05:38 You know, if you're Drake,
05:39 you might be reasonably offended by the idea
05:43 that someone's imitating your voice,
05:45 but that could be something that you disdain artistically,
05:49 but it doesn't have a big negative effect financially.
05:53 Financially, this is looking more and more
05:56 like it's gonna be another great licensing opportunity.
05:59 For one thing, if you wanna train an AI
06:04 on a body of music,
06:05 you are gonna have to license the song rights
06:09 and the recording rights,
06:10 and also most likely,
06:13 depending on what jurisdiction you're in,
06:15 a number of other rights, like likeness rights.
06:18 I'm gonna set Larry up for this,
06:19 'cause he was a pioneer in terms of licensing
06:23 as many rights as are available,
06:25 because if you only have some rights,
06:27 you can only do some of that transaction.
06:29 The more rights you have,
06:30 the more valuable the catalog is.
06:32 - You know, people were afraid of Napster.
06:35 The record industry fought a digital revolution.
06:39 AI is an opportunity,
06:40 and AI is an opportunity, you know,
06:43 for further expansion in the business.
06:45 We're very excited about it,
06:47 and Rob's right.
06:49 You know, we were one of the first
06:51 to also buy ancillary rights,
06:53 like name, likeness, and image,
06:55 and to the extent that you can harness AI
06:59 for further marketing and further brand opportunities,
07:03 you know, we're gonna take
07:04 and are taking those opportunities.
07:06 So we see it as a way to further expand our revenue stream
07:10 and grow the market value of our artists.
07:12 - Interesting, because, you know,
07:14 when we do talk to, you know,
07:15 some of our clients and our artists and creators,
07:18 they're definitely on the side
07:22 that they're afraid that AI is going to take,
07:24 you know, food off their table.
07:26 And it is interesting to see
07:27 that there are some opportunities.
07:29 And if you, you know, take you guys' approach to this,
07:32 I think it's advantageous to learn more
07:35 about the opportunities there,
07:36 and that's great insight for you.
07:38 - I also wanted to say that the combination of AI
07:42 and other technologies will create other opportunities.
07:46 One thing you're seeing now
07:48 is touring-like business for legacy acts.
07:53 For example, the ABBA show in London
07:57 is they have quote-unquote "Avatars."
08:00 That's not AI, but it is a show that uses likeness rights,
08:05 recording rights, publishing rights.
08:09 And you're seeing a lot of different kinds of show,
08:12 different kinds of shows.
08:13 The Beatles Love Show in Vegas,
08:16 other Cirque du Soleil shows.
08:17 Those strategies are not appropriate for every act,
08:22 but I think different acts will use them
08:24 in ways that we can't begin to imagine.
08:27 The one thing we know about those kinds of shows
08:30 is that you're going to need to license all the rights.
08:33 - So, I mean, that's a good, that's great.
08:35 Another revenue stream for artists
08:37 to do thinking outside the box,
08:39 which is going to be great for the industry
08:43 if you look at it as a plus
08:45 and not just always in the negative connotation
08:48 that AI has been recently.
08:50 Thank you for that.
08:51 Let me talk to you, Larry, a little bit about the buyouts,
08:54 right, of these various rights.
08:56 This is what you do, right?
08:57 This is your space, your place.
09:00 At the end of the day, no one understands
09:02 or really understands who's winning in this space.
09:05 Maybe you can tell us who's winning in that,
09:07 but more importantly too, for our viewers,
09:10 they want to know what role does marketing play
09:13 in helping to get bigger payouts for the rights?
09:18 - Sure, well, let's look at this in two different phases.
09:24 First, in that regard, when you say who's winning,
09:28 from our perspective and our artist perspective,
09:33 we do deals with both the artist wins
09:36 and primary wave wins because we partner with artists.
09:39 We almost never buy out 100%.
09:42 We're looking to buy 50% or 60%
09:45 and actually invest in a partnership.
09:47 And so, why is it important?
09:49 Well, the reason why it's such an interesting business
09:54 for us and our investors and our partners
09:57 is because if you do it the right way,
09:59 and you mentioned marketing,
10:01 you have bond-like characteristics.
10:03 You take many of our catalogs and our artists,
10:06 they've been generating cashflow,
10:08 predictable cashflow for 20 years, 30 years,
10:11 50 years, 60 years in the case of a Bing Crosby
10:14 that we partnered with,
10:16 the estate or a Glenn Gould or a Count Basie, right?
10:21 I mean, those are long, long, predictable cashflows.
10:25 More recently, Prince, Talking Heads,
10:29 the DeWords that we've partnered with,
10:32 those are 30 and 40 years worth of cashflows,
10:35 very predictable.
10:36 But if you do what we do and you have an infrastructure,
10:39 and most companies don't,
10:40 most of our competitors do not,
10:42 but we have 16 digital strategy people
10:45 that do playlist pitching.
10:47 We build our artists' websites.
10:48 We build their e-commerce sites.
10:50 We have eight brand people.
10:51 We have marketing teams.
10:53 We have a content creation team.
10:55 We've got 35 different biographical films,
10:59 documentaries, Broadway shows in the pipeline
11:02 right now.
11:02 If you add marketing, and I view that as marketing,
11:05 I don't view synchronization as marketing.
11:07 Synchronization is licensing.
11:09 Everybody does licensing.
11:10 What separates us and what separates your question
11:14 about marketing and adding value
11:16 is having that infrastructure
11:18 to be able to generate new revenue streams.
11:20 So you can take these bond-like characteristics
11:23 of long, predictable cashflows
11:25 and turn them into equity returns
11:28 if you work hard
11:30 and you create these new revenue streams.
11:32 You know, there's very limited risk
11:35 when you're talking about long-lived assets.
11:37 They're uncorrelated to the market.
11:39 They get great tax treatment, right,
11:41 because you get capital returns.
11:43 And, you know, look at what Rob just said
11:47 about streaming emerging markets, et cetera.
11:50 It's really a very, very good business
11:53 where you can take bond-like characteristics
11:56 of these assets and create equity returns,
11:58 and that's what we think we do.
12:00 Better than anyone else in the world.
12:02 What separates us from our competitors
12:04 is that marketing, branding,
12:06 and content creation component,
12:08 which virtually none of the independent competitors
12:12 that we have do.
12:13 - Thank you two gentlemen for joining us today
12:14 on "Music and Money."
12:16 Obviously, me sitting in this Zoom with both of you
12:20 has been very informative,
12:22 and I'm sure our creators and artists and clients alike
12:26 appreciated the time and information you shared with us.
12:29 Thank you, guys.
12:30 - It was a pleasure meeting you.
12:31 - Same, same, hope to see you again.
12:31 - Thanks, Bob.
12:32 Good seeing you too. - Thanks, bye.