We have a new episode this week. I had a great conversation with Flexpoint Ford’s Managing Director, Mike Morris. We talked about the firm’s focus on investing in the independent sector, with positions in Create Music Group, Duetti, GoldState Music Group, and Nettwerk.
Here are my main takeaways from my talk with Mike Morris:
The catalogs of bigger artists are not necessarily “better” investments. An artist does not need to be Billie Eilish or Justin Bieber to have a loyal and predictable fanbase. A smaller artist can have a smaller audience that consistently engages with their music.
Diversification matters more than picking a few iconic winners. Flexpoint is not making isolated bets on one or two big catalogs for hundreds of millions of dollars. They have diversified the portfolio of assets and service relationships to produce more predictable cash flows.
Investors are buying music earlier than ever. Duetti now buys catalogs as young as six months. But they’re not underwriting the risk the same as a song from 2006. Those younger assets need to be priced according to that risk.
Digitally native music companies may have an edge. Create Music Group, one of Flexpoint’s portfolio companies, began as a YouTube rights-management business. They’ve since expanded into distribution, labels, and invested in companies built around UGC and creator content.
Forever catalogs may not be “forever.” Some investors may assume that some artists are timeless, but are we sure that Gen Alpha will really care about music from the 70s nd 80s? Especially if they are purchased at 20x revenue multiples or higher.
Expect more alternate catalog financing deals like The Weeknd. In December, The Weeknd did a $1 billion joint venture partnership with Lyric Capital. The Weeknd will retain a 75% ownership stake and received $250M immediately as part of the deal. Mike expects more of these deals by the end of 2027.
An unsolved problem: music marketing. The industry spends a lot of money on promotion, but it’s still difficult to attribute its performance. A company that can make music marketing both measurable and effective is an opportunity that Mike and Flexpoint are interested in.
You should listen to the full episode here!
Listen here: Spotify | Apple Podcasts | Overcast
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