Music IP Rights — Valuing Catalogs, Due Diligence & The 10-Year Rule

Jakob Wredstrøm

Hey guys, and welcome back to the Sound Connections podcast. Today we have Alan Wallace in the studio. I'm good. I've been looking forward to this talk today. So, I'm, I want to get a bit nerdy today, and want to talk about something everyone knows about, but not necessarily knows the dynamic of, and that is everything related to IP rights, acquiring, selling, synchronization in the whole world of music as an asset class, I guess. But Alan.

Alan Wallis

Hello, Jacob, how are you?

Alan Wallis

Okay.

Jakob Wredstrøm

Before we get into that, for everyone who doesn't know who you are, who are you and what do you do?

Alan Wallis

Okay. So my background isn't in the music industry. I started in professional services, Ernst & Young, so long ago it was Ernst & Winnie, where I was a value, a business value for them. And I was able to get into the music industry because we had a lot of music clients. So I, the firm was very supportive when I said, I'd like to set up a music desk to do valuations of music assets. So my background is then spending a lot of time learning about the industry. I spent a year.

Alan Wallis

just finding out about the industry and talking to people before I took my first job. And so I came at it from that side, from the financial side. And then in 2017, about then, I was being asked by several sort of funds and people in the industry, could you put a team together to start your own music publishing business. And I got to the stage where I thought that might be an interesting idea. And I knew just the person I wanted to work with, who was Mark Freed, who used to run Spirit in New York. Mark was a dear friend and he left Spirit and he was on gardening leave. And I phoned him up and said, do you fancy getting back on the horse with me? And we started Mojo Music. We did our first acquisition in 19, start of 2019, which was the Kiss catalog, REO Speedwagon, Jerry Reed and some country music and a platform. And then we grew that and sold to Concord in September 2023. And my investor, I don't know why, so I said, do you fancy doing it again? And instead of asking the wife, is that a good idea? At the age of nearly 70, I wished I had dynamite songs last year.

Jakob Wredstrøm

Interesting. So obviously that's a very long rich career told in a fairly small amount of time. And what I love about people coming from a financial background into music is, well, at least my assumption of disassociation with music from a purgist value perspective of the sentimental aspect, but like looking at music as something you can trade, something that has actually monetization worth. And I think... One of the core things the music industry starts with to some degrees is the perceived value of music on a sentimental part. And then also it's financial potential and how they, to some degree seem like they're in competition in people's perception about the industry. It's an interesting thing and I've spent a good deal of time sort of trying to understand it as well. Obviously it's not something new, like this has gone on for a long time. I believe your experience in this space is... three decades of music and IP rights, correct? Yeah, if not more.

Alan Wallis

Mm-hmm. Yep. Yeah. About 2000, it was about 2000. In fact, the first idea I had was before private equity had started coming in, I was talking to a guy I knew and we had this idea of putting a catalogue together of what we called the B-roll. It wasn't sort of the big catalogue, but it was smaller catalogues of good of...

Jakob Wredstrøm

Yeah.

Alan Wallis

of great songs, but the smaller end that sort of got forgotten. And private equity came in and prices went up. So multiples went shooting up and it put the idea, made it a bit more difficult. So I carried on being a valuer for another 20 years. So.

Jakob Wredstrøm

Hmm.

Jakob Wredstrøm

What's your thought about? So I obviously operate a lot in the startup space and one of the paths for startups to succeed over long time is ultimately get acquired some through private equity firms and they're famous for being very savvy and getting their returns back. How does that dynamic work with it with a type of structure as private equity going into music and how they? Do they do they come here to squeeze value do they come here just because it's a you know? foreseeable dividend over time like what's their angle into music in general?

Alan Wallis

I think I can only speak from the position of the investors I know. I mean, they saw it as an asset class that was interesting, the idea of the uncorrelated returns that you could get. And I think for them, it was the opportunity to buy a smart and put together something bigger. broader and that could command a premium if you chose to sell. I think it was, and then on the way through, make sure that you do everything you need to collect all the pennies and make sure you're efficient and collect all the royalties you can and grow those royalties through exploitation.

Jakob Wredstrøm

So when they, when, you know, I think that this might have changed over time. When, when P, when you started working with capital of buying IP rights 25 years ago, was the inefficiency of collection a big topic? Is that, that they believe...

Alan Wallis

Yeah, mean, think, yeah, mean, streaming's been a big change in the last seven, five years, two years, three years. I mean, it's getting, it's still growing. So, I mean, what put the industry off, I think in the past was some of those issues. What put the private equity off was the risk of piracy, the sort of going from the physical a pound to the digital penny and you know just and until really the DSPs came along Spotify and the streaming services showed that there was there was steady income again I think there was a nervousness about the asset class but there's always I go back you know a long time there's always been people out there willing to buy catalogs and the issue was always that there wasn't enough assets for sale. And that's changed. That's changed in recent years. There are now more assets for sale than when I first started. There were people talking about raising a $200 million fund. It's always 200 million, always 200 million. And then I used to ask myself when they told me this, when I was on the other side, is, well, what are you going to buy? Where are the assets?

Jakob Wredstrøm

Hmm.

Alan Wallis

And for a time there was, apart from the sort of 2008, 2010, when we had the recession, when there was no market, I've always seen more, more people looking to more buyers than sellers.

Jakob Wredstrøm

Okay. Interesting. And we need to cover your sort of company, Dynamet Songs, in a second. But now where you say that there's more catalogs in the market, do believe there's more sellers than buyers right now?

Alan Wallis

which is interesting.

Alan Wallis

No, there's still lots of buyers out there as well. And I still think it probably goes that way, but there are more sellers. It's just that we're very few sellers, particularly. And I think there are various reasons why that's changed. I've tried to, and I need to understand that. need to understand why people want to sell, right? That's important for us to build a relationship with potential sellers.

Jakob Wredstrøm

Mm.

Alan Wallis

so that they want to do a deal with us. And I think what's changed, and lot of it goes back to the recession, piracy and all that, but I think some older writers started wondering, did I have too much of their wealth in music assets? And did they need to diversify those assets? Was the market changing? not saying disappearing, but going to be not what it was back in the old days. So did they have too much of their wealth in music assets? So that was one thing. think also they were looking at estate planning and their children. If their children weren't interested necessarily in running their catalogues for them after they've passed, would it be better to... sell those assets and then give them a lump of cash or other assets. So I think those happened. And then a younger, there is one other though, Jacob, there's the younger generation, which staggered me when I first came across this, when we first started Mojo, is that younger writers, and I mean those under 40,

Jakob Wredstrøm

But we'll cover a lot of that. Hmm.

Alan Wallis

Maybe they've been in the industry, they've written a catalogue, got 10 years under their belt, written some hits. They seemed more willing to say, OK, that's that little package. I'll package them up, sell them off and I'll go and write another lot of hits. Right back in the day, you thought, I don't know if ever I'm going to write another hit song ever. So I keep my rights. So I think there's been a change in the way that

Jakob Wredstrøm

Thank

Alan Wallis

that younger writers think about their music, they can go and do it again.

Jakob Wredstrøm

There's so many interesting things to sort of unfold in that because you touched upon a lot of things that I haven't talked about specifically before, so we'll cover a lot of those. But before I get into it, I think for the listener, maybe let's talk about Dynamite songs first. Like you did Mojo, you sold to Concord, you did it again. What do you guys do? How do you differentiate? How do we define you in sort of the market of other players as well?

Alan Wallis

Okay.

Alan Wallis

I mean, why we started Dynamite, why I said yes to it was we learned a hell of a lot at Mojo. And we did, the first acquisition, the Hori Pro acquisition was a bigger one. And as I say, we bought a platform. We had office in Nashville. had A &R. We had our own admin. And... But then all the acquisitions we did after that, and we did about 30, between 30 and 40 acquisitions after that, all of them were fairly small. I'm talking sub five million, sub four million dollars. And what we got good at was doing that and finding those assets. doing the diligence that you need to do, the financial diligence, the legal diligence in a cost effective way. And at the smaller end of the market, there isn't, you know, the bigger funds, the people who've got the 200 million, they can't go out and do lots of million dollar deals. It just isn't cost effective. But we could. And, you know, our investors were quite happy and we got quite smart. doing a constraint on that small end of the market. And that's what we decided to do with Dynamite. So we do focus at the small end of the market. I don't talk in capital values anymore. I talk in sort of underlying NPS, underlying income, where we'll say we look at deals anywhere between 25,000, the small end, up to about probably sweet spot 400,000. And that's our sweet spot. So

Jakob Wredstrøm

That's interesting because as you say yourself, this, well, at least the last 10 years, these have been known to be very, very costly in legal fees and the old work about doing the due diligence and the transactions. So how do you specifically do that?

Alan Wallis

Well, do, because of my background, we do all the financial DD, right? I'm sort of, I've got people who help me do that now, but when we started Mojo, I did all the financial DD on the catalogs. So that was sort of our cost. And then legal costs, we just hadn't. I've worked with the same lawyer now all the way through Mojo and I was very lucky. She said yes when I asked her would she work with us at Dynamite, who is Roberta Corras, who's tremendous and very efficient. so we try and make that. It will still take longer than you'd like.

Jakob Wredstrøm

you

Alan Wallis

but we do deal as quickly as we can. I think at the smaller end of the market, the issue we have to deal with is, I put it down to, it's like the, it's the drop box equivalent of the shoe box with a lot of royalty statements in, right? So that's what we get given. But we've just done a lot of deals and looked, obviously if we've done 40 deals at Mojo,

Jakob Wredstrøm

Hmm.

Alan Wallis

that probably meant we looked at over 200, maybe more, that we actually did the diligence on.

Jakob Wredstrøm

And what's this sort of, what are a few of the things that makes you not invest in something? Like what are the red flags that might be there?

Alan Wallis

I, I'm, I'm a, we're a catalog company. We're, we're about songs that have got, you know, I, I talk about culture, childhood hits and culturally relevant songs, songs that sort of speak to people across over time. So I will avoid, uh, young deals, you know, deals of songs under five years old where you don't know, hey, you don't know if they're going to be the evergreens of tomorrow. You can take a guess, but you don't know. And also the income hasn't decayed off to an underlying level. So we avoid very new catalogues. And there are more and more of those about now where people are packaging those up quite young catalogues. We don't do those. I like Pupp.

Jakob Wredstrøm

Hmm. But what sort of maturity do you usually see that makes it credible that this have some sort of stability to it? 10 years ago. Yeah.

Alan Wallis

10 years. Yeah, I mean less, we will do less. But I, nice round number, 10 years.

Jakob Wredstrøm

Okay. And, and how do you, is that sort of like, because catalogs are often bonded together. So let's say if you have a catalog where something is three years and something is 10 years, do you, do you try to remove the three year in the deal? Like what sort of your

Alan Wallis

I mean, there have been a couple of deals where we've sort of yeah, we like the catalog. We like the songs in the older catalog, but the newer ones. There are deals we'll do. If the newer songs haven't been the bigger hits and the bigger hits are the older songs and the top earning songs, then, you know, within the... within the scheme of things, if the younger songs aren't particularly material to the overall catalogue, we'll leave them in. But very often, the newer songs are the big earners. So that's the red flag.

Jakob Wredstrøm

That sense. Maybe if I can ask a question because there's always learnings and no one is perfect when they start out things even when they get a lot of responsibility and even if they're senior, what are some of the assumptions you've had that proved to be wrong over time where you've perhaps made less than optimal deals?

Alan Wallis

One of them is a younger catalog where there was a song in it, was a co-write with a, it was a country song, was a co-write with a huge pop star. And it was a great song. But the actually the income hadn't even started coming through when, but we liked the overall catalog.

Jakob Wredstrøm

Hmm.

Alan Wallis

And so we did take a, I'm not going to say take a pump. We spent a lot of time trying to work out what we think it would make, but it's not easy. And that's probably one. That's the reason, as I said, we learned from the lessons we did. I don't do young deals now.

Jakob Wredstrøm

Yeah, that makes sense and we've heard that. Is there other aspects of assumptions that you turn out to be maybe not true?

Alan Wallis

The thing that surprises me is when we first look at catalogs is particularly if they're coming to us through sort of, I'm going to call this sort of third party broker or introducer angle is I'm not sure they always know what they're selling or what's for sale. So you think, you know, they'll say, yeah, for selling the publishing. But it's not the copyright, it's the writer's or it's ancillary income. And so, you know, very soon we put the prox up and say, well, that isn't really what we want to buy. We want to buy the copyrights, not the writer's share. We do buy writer's share for the right songs. What surprises me is how often the first question that comes out of our mouth is what they sell in. I say, I've got this catalog for you. But they can't actually articulate what it is exactly that they're selling.

Jakob Wredstrøm

For the listeners who are less familiar with the concepts, could you try to explain the difference between copyright and writer share in that concept?

Alan Wallis

Yeah, so the IP is in the copyright, so that's the ownership and control of the song. So the ability to license it, put it in for sync, to exploit that work record. The other side of the IP is the writer's entitlement to income.

Jakob Wredstrøm

Hmm.

Jakob Wredstrøm

Hmm.

Alan Wallis

So you've got half of is in the copyright and then half of is in the, or more, is in the writers, just a right to income. No interest in the underlying IP, just in the income. So it's passive, passive income.

Jakob Wredstrøm

Yes, so in other words, yeah, in other words, you need to have catalogs that you can be active with where you can make decisions where you're going to place it. Have you had mistakes in the past where you thought you were buying something, but in reality you bought something different?

Alan Wallis

Yeah.

Alan Wallis

No, our legal DD is pretty good for making sure we don't make that mistake, yeah.

Jakob Wredstrøm

I think that can probably kill a of confidence.

Alan Wallis

But sometimes it's quite a long way in before the... Yeah.

Jakob Wredstrøm

Interesting. So how much time do you spend on DD in your business? that the majority of your time?

Alan Wallis

Of my time, of my time, it's, yeah, mean, finding catalog, I mean, you know, we try and source our own deals as well. So, you know, not rely on, it's an important channel for us, people, lawyers, business managers, brokers or whatever, where people have already made the decision that they'd like to sell.

Jakob Wredstrøm

Yep.

Jakob Wredstrøm

Hmm.

Jakob Wredstrøm

Mm.

Alan Wallis

and have packaged, they've put all their information together in a nice package. You get the summary and you can do that. That's an important part of what we do, because that's a certain amount of deal flow coming through. What we're trying to do at Dynamite is to build, like we did at Mojo, broad-based catalog across genres, across eras. And you know, what comes up on the market doesn't always... I've seen a lot of 2010 hip hop and R &B, you know, so much. But if you're trying to build a broader base catalogue by time and genre, you need to find other ways to... So I do what we... We spend a lot of time doing our own research. working with a couple of really good scouts I've got in the US to identify songs and catalogues that, let's make an approach, see if they're interested in doing a deal with us. Now they take longer.

Jakob Wredstrøm

Hmm. Is that, that actually? Yeah, that makes sense. It's actually quite interesting because when you talk about catalogs and IP rights, you know, you talk about diversified asset classes and how this being, you know, you talk about it as a bundled thing, but basically what you're mentioning is the, investors, LPs in, in investing yours also need diversification in what you buy. So, you know, a catalog in itself might not be as diversified as, you know, the macro tend is telling you, still need to diversify internally in order to actually make this a stable asset, I guess. Is that sort of how you think about it?

Alan Wallis

Yeah, yeah. yeah, I don't mean that will work particularly for on the sync side, you know, if you add just, know, need music supervisors need all sorts of their pitches are for all sorts of songs across all ages and types. So, you know, you want to build a catalog that you've got a nice collection of songs that you can. when a music supervisor, we've got something that fits that brief.

Jakob Wredstrøm

So one thing that really fascinates me, and I've covered a tiny bit of the episodes on the podcast, is the talk about sync. Because sync is a small part of revenue in total of the music industry, the recording music industry and publishing. But it seems to be, especially in IP catalogs, that's one of the primary sort of narratives that are brought into optimizing the catalogs. Can you break that down to me? What does sync actually matter for these catalogs?

Alan Wallis

Yeah.

Alan Wallis

I mean, yeah, think is interesting. It's the one bit of the catalog where you have got control over pricing. Well, to an extent, to the extent you can, you negotiate the price with the buyer who wants to license that song. That's your chance within boundaries to actually negotiate a fee. Everything else of course is driven by royalty rates that you get from performance income, streaming income, all comes from set rates.

Jakob Wredstrøm

Is that something you calculate in your offer to buy a catalog that you think this can be synchronized or?

Alan Wallis

I know, I'll take it back. When I first started doing, looking at music assets for Ernst & Young, the perceived wisdom in those days was that sync was one-off, lumpy, and you treat it as such. And in many cases, it would get ignored. You take it out of the calculations. It wouldn't be in the underlying because it was in those days. This is in the very early days when SYNC's day coming through, it was quite lumpy. What's happened is, Mark Fried, who, as I said, was my partner at Mojo, was an absolute master at spirit, was really good on the SYNC side, building relationships with music supervisors. And what I learned from working with Mark, both before I, because I helped him buy a couple of catalogs while I was at Ernst & Young. And then when we worked together at Mojo is that you need, you need that breadth of catalog. So that you can, you can get people like me when I was at Ernst & Young comfortable that this is an ongoing underlying income stream. So it's not the one big, you know, half a million pound trailer or $200,000 trailer for a film and then nothing or the big global TV car ad. But it's something that, and it can be smaller amounts of money, but a set number of songs you can sync on a regular basis across a broad catalog. so that you can say, well, I'm not dependent on that one song and that one sink. We've got a range of songs earning sink income that becomes a year on year, a sustainable underlying level. And that's what you look for now.

Jakob Wredstrøm

Obviously for the sake of preparatory information, could you comment on what is expected, what is a good number of the total revenue in a catalog that should be attributed to SYNC if well managed?

Alan Wallis

I mean 20 % you know of the income yeah it can be as much as 20 % and on an old older catalogs that you know you can see it higher than that I've seen catalogs where year on year sync has been 30 40 percent because of the of the songs and

Jakob Wredstrøm

that much.

Alan Wallis

I mean, I can't remember. REO Speedway was a good example. That was the gift that kept on giving for us at Mojo because when we bought the catalog, there was one or two songs that made up most of the sync. We got that to four or five songs. the streaming services, Netflix and things like that came along that and they were looking, you know. five figure sums on a regular basis and REO was a really good one. Then we got the Ozarks show which was really good, we got the John Lewis Waitrose advert in the UK our first year out and we just found REO was a very and the reason was, there's a fundamental reason why, it wasn't necessarily, it was REO although we did have a couple of directors and music suits that were great REO fans was we had 100%. We also had really good re-records that the band had done. So we were a one-stop shop.

Jakob Wredstrøm

Sure.

Alan Wallis

And the whole thing about soup is sorry about sink is making it easy for the music supervisors.

Jakob Wredstrøm

That makes sense. But still, like, sync is a very, you know, operational, expensive thing to do. So even though you might make 20 % of revenue, how much cost associated to that? Like, how much are you actually making on that activity, do believe?

Alan Wallis

Tchö!

Alan Wallis

True, and my investors used to look at that very closely, you know, and it is not as much as you'd like always, but it depends how you do it. And it is an important part because it isn't just the sink income. You've got the sink, but if you get this right, and we saw it with Kevin Cronin, was the performance income. You start seeing other bits of income and it gets an interest in the songs again. I'm not talking about Kate Bush running up here. It creates a bit of interest in that catalogue again and in the rights and has an impact on other royalty streams, not just sing.

Jakob Wredstrøm

So some of it all is, you know, there is money to be made on ActiveSync and is that sort of mentality, that's the money you can pocket as like lottery ticket type of vibe or like how do you think about this money?

Alan Wallis

Yeah.

Alan Wallis

No, we spend a lot of time. We, when we're looking at what is the underlying NPS of a catalog and what we'll underwrite in terms of the, the NPS we expect from a catalog, probably sync is the one area we spend the most time analyzing, looking at and understanding is this, is this one off. Can we rely on this sort of income coming through or do we need to make adjustments? It probably is on sync. But you know, if you've got a broad enough catalogue with songs coming in from, with songs across lots of, it is a regular income stream that you should value just as highly as everything else. But you've probably made some adjustments to the figures. So you're not adjusting the multiple, you're adjusting the MPS.

Jakob Wredstrøm

Hmm.

Jakob Wredstrøm

Hmm. Interesting. One of the things about catalogs, which I actually don't know anything about, so it's a question of curiosity, is that it has an emotional value, both from a seller's side and the fan's relationship to the catalogs. And I can only imagine there's been deals in the past where the seller has regretted or maybe had strong opinions about how it's being managed. How do you... Tell me about... any of those specifics, but how does that dynamic work and what have you experienced in the past?

Alan Wallis

I mean.

Alan Wallis

I think what's important is that you don't oversell when you start those conversations. You have realistic. What's important to me is. Is the relationship you build up with potential sellers and understanding what it is that's driving them why they want to sell. Sometimes it is that they don't think their catalogue has been worked hard enough or exploited and they're looking for a partner who, or it could be the children of the writer. The writer may no longer be with us, the family, know, just saying there's my dad's and my mum's legacy.

Jakob Wredstrøm

Hmm.

Alan Wallis

And how we're gonna keep that going. It's important, I think it's important just to build a relationship to understand and not over promise. Again, back when my aunts and young days, there were so many occasions I was looking at catalogs where the buyer would say, I'll look at the sync on this catalog, it's making no sync at all. It's been totally underexploited. It isn't always the fact that it's badly managed. Sometimes some catalogs just don't, when you're talking about individual catalogs, they just don't sync. And it could be because you've got seven writers, right? And you've got, it's music supervisors' headache. They've got to go and clear it with six different publishers and the record company. Know, move on. Let's find another one.

Jakob Wredstrøm

Because one of the things about a market where there's more buyers than sellers is obviously there's competition about selling. And I'm a salesman myself to the degree that I run a company and I'm very involved in sales. And I've done a lot of mistakes in the past where I have oversold in order to win a deal. And that sometimes, if not often, bites you in the ass really, really hard. But I can imagine this market where there is competition that is sometimes something you do maybe if you're younger and you've less experienced too much or what's your experience there?

Alan Wallis

My experience is that there is sometimes a very strong drive for a particular cat. And there's a couple that I've looked at where you for I love those songs. I love that writer. Wouldn't it be great? Know, someone another, but I'm not going to say they've overpaid. They may have a completely different business model and a different cost of capital to mine. And They get it and I don't. And what I've learned, I think coming from the professional services background where it wasn't an emotional thing, right? I was valuing it because they wanted my professional opinion. So what I think I got good at was keeping sentiment and emotion and getting excited about catalogs out of the way.

Jakob Wredstrøm

Hmm.

Jakob Wredstrøm

Mm.

Alan Wallis

And this, you remember, I have also valued the Beatles catalog. So, you know, this is in my professional career. So I think I've got good at not allowing that emotion and that sentiment to mean that we'd do something that we know was not going to endow us to make our returns and wouldn't pay back. And I've also got a... An investor who watches me like a hawk on that sort of stuff has got no idea about the songs anyway. Leave that to me.

Jakob Wredstrøm

Because I don't know the intricacies of specific deals, a specific company. So I'm just going to say this as a hypothetical example. There's, you know, funds and, and HPVs that set up with like famous people like Merck with hypnosis where, know, one of the big talking points about that is credibility relationships and importance of the person fronting it. Do you believe that you have in the past lost deals because you're not that type of face or you don't have this sentimental.

Alan Wallis

I can't go too far. We've actually got one deal because we're not. But yeah, mean, there will be, there will be deals like that. But we've just got to stand firm and hold ourselves to account for what we do and try and avoid going down that line.

Jakob Wredstrøm

Okay.

Alan Wallis

Because it's a slippery slope if you can't make any turns.

Jakob Wredstrøm

That, yeah, that makes sense. Yeah, one thing I want to ask about, which gets a tiny bit nerdy, I hope you can help me understand this because it's something that's not really talked about a lot when we talk about acquisitions and that is cost of capital. Like, can you try to explain to me the dynamic of raising capital, the cost of capital, how that sort of speaks into the whole dynamic of owning IP rights?

Alan Wallis

Mm-hmm.

Alan Wallis

Well, I mean, it depends on your investors, you know, and where their money comes from, but private equity money is more expensive than pension fund money.

Jakob Wredstrøm

Mm.

Jakob Wredstrøm

Try to break it down. Try to break it down for us.

Alan Wallis

Or this thing. So the most expensive would be private equity money probably, where you're looking at. I mean, if you're looking at the cost of capital, you're looking at something probably between nine and 10%.

Jakob Wredstrøm

What does expensive mean in this context?

Jakob Wredstrøm

Yeah, and that's what it costs them. Like, try to explain that dynamic.

Alan Wallis

That's the return that they want to get. And they want to do better than that, right? But that's what their cost of capital is. And then pension funds and others is probably closer to six. So that makes a big difference in pricing.

Jakob Wredstrøm

Hmm. Yeah.

Jakob Wredstrøm

Hmm.

Jakob Wredstrøm

Hmm. And how does that dynamic work for them? Where they got the capital four? Like why are their numbers set for that specific thing?

Alan Wallis

I think you'd have to talk to a pro, talk to my investor about that. He just gives me a lump of cash and I spend it.

Jakob Wredstrøm

You Yeah, no, makes sense, but it's a very important thing of it because yes, you're acquiring rights, but you do so with other people's money and you need to have an operation, you need have staffing, there's a lot of things that goes into it and at the end of the day, you have something you need to reach. That affects the multiples you can buy on, that affects on how you operate and how you run your business. So what is the fundamental difference between a company that operates on expensive capital versus cheaper capital? What would you see as a difference in these type of fund structures?

Alan Wallis

I think it could be, I mean, funnily enough, the smaller end of the market, they're probably more willing to do the deals, the passive deals, and just buy rights to income. Because they're looking for a longer term return of the lower rate and where private equity are probably looking at buying and building to sell on. So there, you'd like the

Jakob Wredstrøm

Yeah.

Alan Wallis

You like the control of the asset so you can exploit it and grow it. Where I think some of the other funds, certainly what I've seen, it's the pension fund type. Look, a pension fund is matching its income with its cost. It's looking and saying, well, I'm looking at a long-term asset. Music is a lovely long-term asset, right? So you've got 50 years on that. So with steady income.

Jakob Wredstrøm

Hmm.

Alan Wallis

So, you could, and I'm hearing of people who are looking at funds now that are buying things like producer royalties, right? Which isn't something that I'm looking at. Yeah. But again, but I think they're looking at it over a long time. In the old days, I can remember when I was still at Ernst & Young, there was a couple of investors, they were looking to put together funds of writer's share.

Jakob Wredstrøm

Hmm. Which is very niche thing to do. Yeah.

Alan Wallis

You know, just the income rights. But they were trying to do that at scale to make it make sense. And there wasn't just, and they, in those days, lawyers, you your advisors would say to your writers, don't sell your writers yet, that's your pension.

Jakob Wredstrøm

Yeah.

Jakob Wredstrøm

Yeah. So you've worked with other industries, it's just music. So I think this question might be appropriate. When we talk about music, oftentimes it falls into the category, at least when I hear about it, is like the alternative asset class. And totally correct me if I'm wrong, because I'm not too knowledgeable in this space. But as far as I know, there are some sort of, not necessarily a set number, but a few percentage points of an LP's investment funds that they can put into alternative asset classes. What would be a comparable asset class for an LP going into music rights? What are the alternatives on the table of similar nature they would be looking at?

Alan Wallis

Book rights, film rights.

Jakob Wredstrøm

Okay, what about things like gold or is that in the same category? Like how would you bundle this?

Alan Wallis

Yeah, mean, whiskey, aeroplanes, you know, in an Arizona desert somewhere, you know, it could be things like that.

Jakob Wredstrøm

Okay. Really? Okay.

Jakob Wredstrøm

So is, because you know, for us, obviously the works in the industry, this is, you know, the center of how the industry operates, but for these big LPs, it's like a minuscule part of their investment. How is this sentiment talking with these sort of LPs? It, that's how they talk about it? Like we have this small amount allocated to something alternative.

Alan Wallis

I've never had that conversation with my investor ever and I'm in my second deal with him now, right? It's never, it's, I like the asset class. We like you, Alan. Go and help us build a music fund of great assets.

Jakob Wredstrøm

Yeah. So maybe this is too specific of question, so feel free to not answer it. But like, do you have a sense of, maybe not the specific, but like an LP, like what amount of their funds would they put into such type of assets? Like what's the percentage point of their whole available fund?

Alan Wallis

Yeah, I mean, because I work within the alternative fund, it's quite a big chunk, but across the whole thing, it would be less than 5%.

Jakob Wredstrøm

Okay, yeah, interesting. So what is for you the next steps in this space? Like, where is it moving? Because obviously a few years ago, there's a big talk about things being, know, the multiples being too high and, you know, there's interesting things going on in the market. But like, where do you see the status quo right now and where are we moving in this space?

Alan Wallis

It did get a bit hot, but then you look at the assets that were the bigger assets, the Springsteens, the Dillons, the Paul Simons. When you look at those and you look at Bouldam, it was the majors, right? It was the major Bouldam. And it was as much about, we can't let these goes. This is market share that they had to buy those assets. It was much about that as it was. Pricing and value in my mind. They just had to buy them. So you take those big icons out then there's quite a drop into where the next lot come and in the smaller end there's again smaller assets. The prices get low again, so we saw with those big deals go out of way. It did feel that prices were settling down a bit and but maybe the sellers, the potential sellers hadn't quite got wind of that and were still thinking my catalog, you know, is it's worth as much as Springsteen's, you know, there's an element of that. I think that's wound its way through now.

Jakob Wredstrøm

One question, one follow-up question before you answer the future. Do you believe those deals that maybe had too high multiples were intentionally done for the sake of the name and it wasn't actually miscalculations or sort of overconfidence in the catalog?

Alan Wallis

I mean, look, the people of all them were the people who already working those catalogues. So they had an intimate knowledge of what they could do with them anyway, in many cases. It's always been this thing. There's always been buyers out there. The second in the line always say, they overpaid, right? Well, they didn't. For whatever reason, that was what they saw the value. We always had this idea, well, of course, we got beaten, so they must have overpaid for those assets. I don't always buy into that. There's some chunky prices. mean... The measure is you don't see these people necessarily have difficulties, so they make them work. I think some of those big ones, yes, it was about market share. wasn't just about the financial return.

Jakob Wredstrøm

Which is very much in line with how the industry works in many, many ways. But so I caught you off before you got to where you believe the future is heading and where the market is heading.

Alan Wallis

Yeah, I mean, I think prices were beginning to settle down. There's still more and more, you know, people raising money and coming into the space now. So I don't see prices falling. I think there's enough and there's plenty of competition in there, which is where I've always found it. But I think there are good deals to be found out there at reasonable prices, particularly the smaller end of the market.

Jakob Wredstrøm

Mm.

Jakob Wredstrøm

Yeah.

Alan Wallis

So I, yeah, I, I was talking to, um, a guy who I've got a lot of respect for in the industry who spends a lot of time looking at this and writing sort of brokers reports and stuff on it. And he thought the sort of the red hot market had gone and it was settling down. But with streaming, I think it's going to come down to what do you. What view do you have about streaming growth? Because a lot of the pricing is taken into account still probably 8 % growth in streaming. Now that's fine if you look at it across the industry as a whole is growing at 8%. A lot of that of course is in the newer market. It's not in the catalog market.

Jakob Wredstrøm

So maybe you have a specific investment narrative, but is that something you think into catalog exhibitions? Like you might have a certain genre that you know is trending in a region where sort of subscription adaptation is growing significantly. Is that as a part of your calculation or your estimations of the catalog worth?

Alan Wallis

Well, yeah, we will look at the catalog. Because we're looking at the very small end of the market, it's very difficult to take global market trends and then apply it to a million dollar catalog. So you tend to be a bit more cautious about that, but you will look at it and you'll take a view, well, OK, we're seeing... we're seeing streaming income is growing, you know, in the catalog market. From when we did Mojo to now is we're seeing that streaming growth coming through, even in some of the older catalogs. It is definitely there now.

Jakob Wredstrøm

Mm. One of the interesting things are these growing markets and how that relates to IP and I might be using some wrong examples. But that's just sort of my reference point. I'm from Denmark originally and live in Norway and we have like us who are. Well sized in the local market but huge somewhere else like Michael Lawrence to rock is a great example. It's a you know. Pop 80s band that did really well in Denmark. Everyone knows them but like in the Philippines there are like gods

Alan Wallis

Yeah.

Jakob Wredstrøm

And obviously that's a market that's sort of developing when comes to streaming adaptation. So I can imagine, you know, many of these cases, I would only guess hundreds types of artists around the world that has catalogs that has like a similar path where there's someone else in the world where they're just exploding. What do you see?

Alan Wallis

here.

Alan Wallis

Yeah, but it depends how big those territories are, right? So if they're, you know, the Philippines isn't that big, so.

Jakob Wredstrøm

Yeah, yeah. So what do you define as big? Like what is actually affecting what you believe, what is powerful enough to affect your calculations?

Alan Wallis

Well, I don't think it's not so much about the size, it's about the sustainability of it. It's the view on the, okay, they're very popular today. how long that, look, the past is your best guide, right? So how many years has they been making this income and the longer it's been going on the... the chances are it's going to continue, right? I was never a fan of K-pop. I've always avoided K-pop because I just don't know. You know, I see a bubble. I don't know. And I might be totally wrong about that. But my team have argued with me about that. But I'm not a fan of investing in K-pop.

Jakob Wredstrøm

Hmm.

Jakob Wredstrøm

Yeah, but especially when your relationship to catalogs is 10 years of maturity before they're relevant, like you can call a lot of things a bubble because you just don't know. Like it's, it's an interesting mindset because if we're talking to a pub writer and you called K-pop a bubble, you would, you know, you'd be insane. But if you talk through like a return investment over a long time and you have like a 10 year majority before you consider it, that, makes a whole lot of sense. Interesting. So what's sort of the... half for Diamond Songs moving forward. You have some funds to deploy, you need to manage that well.

Alan Wallis

Yeah, we've got our funds, so we've got a lump of cash, you know, I'm being kicked and encouraged to spend it in a sensible way. I think what we're trying to do is I look to what we build a mojo in terms of the breadth of the catalogue. And that's what I'd like to try and do again. That's what we're trying to do again. So it's concentrate on, on the songs. It's all about the songs. So finding catalogs with great songs that have got an audience that have got an ability to, to find new people who want to listen to that work, tell the stories of the songs, exploit them, make sure we collect every penny we can from every source we can. And then just and have something that is a nice balanced catalogue across all genres and eras. It's really what I... with great songs in it.

Jakob Wredstrøm

Because how your last journey ended was by selling to Concord in a relatively short amount of time, by the way. Yeah. Time to exit. How big a place does that take in your decision making that I need to sell this catalog at one point?

Alan Wallis

Yeah, the market was hot.

Alan Wallis

I mean, we're in a fund and the fund doesn't alive, but there are always options. Our investors will want to return at some point, but it doesn't necessarily mean a complete exit. There's other ways around it. That's just one of the options. I have to say one of the biggest, and I'm going to be very open here, Jacob, one of the biggest things for me is in five years time, I'll be 75. Now, whether... I want to carry on after I'm 75, I don't know, but my team certainly would. So, I mean, in many times this is building dynamite is as much about for them as for me. I'm probably done at 75, I think, but there you go.

Jakob Wredstrøm

That makes sense and I think that's really important because at the end of the day, these and other things that just disappears, that's really the purpose of buying these things. So they need to live on, they can shift hands. Yes, and it might be from creator to creator, but also might be from fund to fund and manager to manager and yeah.

Alan Wallis

one pocket to another, you know, there's different ways to do it. Yeah.

Jakob Wredstrøm

Alan, thank you so much for talking about your journey, your perspectives and explaining things to me with some questions being a bit simple and stupid. But I think it's a topic that's being discussed a lot, but nuances are really important and I'm happy that you sort of discussed that with me. So Alan, if you looked back, maybe the last question of this episode, if you look back on a rich career within this space, where have you personally find the most value in doing this?

Alan Wallis

getting a chance to work with some great people actually, and make, you know, and, and learning a lot from them on the way through. and now to the extent I can passing that on, to my team. But, but yeah, I mean, I've been lucky. I've, I've worked with and got to know some great people, in the industry. I've worked. I've worked on some really interesting, you know, with some, you know, I was a, as a school boy, I was a huge Beatles fan and then McCartney as a solo artist. mean, who knows that one day I'd be working for him, know, Pete Townsend is another one that I was a huge Who fan and then got a chance to help Mark buy his catalog. So.

Jakob Wredstrøm

Mm.

Alan Wallis

You know, there's been, and then with the companies we've bought putting together, I think it has been great just sitting back and being putting together what we put together at Mojo in terms of that catalogue that Concorde liked enough to pay a decent price for it.

Jakob Wredstrøm

Amazing. Well, so working with your heroes and with good people and yeah, that sounds beautiful. And I think what I'm also trying in my career is like where's the value that I will sort of value over a long time and finding that purpose combined with, you know, financials, people who need to have salaries and I need to return something to my investors as well. That's beautiful. Thank you so much for telling us and appreciate the time. Great.

Alan Wallis

Jacob, nice to meet you. Thank you. Take care.