00:00Joining me now, David Schilhoff, founder and CEO of MUSQ, the global music industry ETF.
00:06David, thanks so much for joining us.
00:08Hello, Caroline.
00:09So music as an asset class might be kind of a new idea for some investors.
00:14So break it down for us.
00:15What do we need to know about investing in music?
00:18Well, music has become simply too big to ignore, first of all.
00:22Second of all, it's doubling in size between now and 2035, if you look at the Goldman Sachs report.
00:27Music is a very uncorrelated investment class.
00:31It's not moving with the tides of the market.
00:33And paid streaming and content is growing at a double-digit rate.
00:37And so we have designed a fund that captures all the growth and innovation for the global music industry.
00:43And you have seen pretty impressive growth year to date, up about 25% for MUSQ.
00:49What is it that's really driving that growth?
00:52And I think the big question then is, can it continue?
00:54So paid streaming subscribers are doubling between now and 2035.
00:58You have 800 million paid streaming subscribers.
01:01That's going to 1.6 billion.
01:03Some of the big names, Spotify, Tencent Music, obviously YouTube, Apple, Amazon.
01:10And so streaming is growing at 25% to 50% in the emerging markets where there's very low cell phone penetration.
01:16And so, and all the streaming companies are raising rates.
01:21And so you see the last several quarters, companies like Spotify are, because music's undervalued, okay?
01:26Music is under-monetized.
01:28Music is very cheap compared to what you pay for other media services like Netflix and HBO Go and Hulu.
01:34So at $11.99, they raise rates 10%.
01:38There's very little attrition.
01:39And that generates a lot of incremental growth from existing subscribers.
01:43And that's why Spotify is one of our top holdings.
01:46The stock is up over 120% in the last 12 months.
01:50All the streaming companies are growing.
01:52And so music's simply undervalued.
01:55They're going to continue to raise rates.
01:56And they're going to generate new subscribers from all these emerging markets.
02:00But you talk about these impressive returns that we've already seen from some of your biggest holdings.
02:05If I'm an investor and I'm thinking, oh, shoot, I wanted to get in, but am I too late, you would say what?
02:11I would say you have to look at the emerging markets.
02:13There's certainly more growth today in the emerging markets than in the developed markets.
02:18But if you look in company, if you look at the holdings in countries like Africa, South America, China, parts of Asia, those growth rates are 25% to 50%.
02:29So, you know, 87% of all music consumption in this country is dominated by streaming.
02:36In the emerging markets, it's like 5% or 6%.
02:38So you have enormous opportunity to invest in the music industry globally.
02:43And we are a global fund.
02:45That's why if you look at our holdings, 50% are all international holdings.
02:49We have 10 companies from South Korea.
02:52We have companies like HIM in Taiwan.
02:54Companies like Genicorp and Kakao and JYP in South Korea.
02:58So we are giving global exposure to streaming, and there's plenty of growth ahead for music.
03:06We have not hit a saturation point at all.
03:09Beyond individual names, have you seen any broader trends emerge, especially as we have heard from some of your biggest holdings already in terms of earnings,
03:17that Spotify's, the Universal Musics, the Live Nations, the Tencent Musics?
03:24So live music events and ticketing is growing at a double-digit pace.
03:27That's growing at about 25% in the U.S.
03:30It's growing as high as 25% to 50% in the emerging markets.
03:34We have some of the biggest tours that we've seen last year, this year, the Aris tour.
03:39The Cowboy Carter tour was the biggest country music tour in history.
03:44And now you have very immersive venues like The Sphere in Las Vegas that are being developed.
03:50So fans and super fans are paying up for concert tickets, and they're paying up for experiences.
03:57And we know Gen Z audiences are willing to pay for experiences.
04:01So we anticipate massive growth in the next several years from live music events and ticketing.
04:07And we have all these companies in our fund, domestic and foreign companies like Live Nation, obviously,
04:12and Vivid Seats and Madison Square Garden and The Sphere, CTS Eventum, a big company in Germany.
04:19All these companies have reported really record earnings because of the growth of tours.
04:26And, you know, look, the cost of tickets keep going up, up, up, and up.
04:30And consumers are willing to pay for it.
04:33As much as they're paying for Broadway, they want to pay for these shows.
04:37And they're not just paying for the tickets.
04:39They're also getting super into it.
04:41I think the Cowboy Carter tour, I mean, just the outfits alone that I saw people wearing.
04:46Obviously, Taylor Swift with the Aris tour, there was certainly a uniform for that as well.
04:52But have you seen any shifts in consumer behavior that could move the needle for investors?
04:57Because we do know the consumer is under pressure.
05:01Are there any signs of cracks, if you will?
05:04There's no signs of attrition on the streaming side.
05:08So when companies like Spotify raise rates, no attrition.
05:11In fact, we see the opposite.
05:13In tough times like COVID, they actually subscribe to two or three or four different subscription services.
05:18Number one.
05:19Number two, music's cheap.
05:21Streaming is cheap.
05:21And it's under-monetized.
05:23And so they're accustomed, actually, to paying a lot more.
05:2625 years ago, right, in 2000, when Napster came out,
05:30when we were at the end of the CD cycle, the average music consumer was spending $200, $300 a year, right, for CDs, for merch.
05:38Now they're paying just $120 a year.
05:41So they're used to paying a lot more.
05:43They're applying that now into live music.
05:44So they're still paying a lot less than they were for music 25 years ago.
05:49Although I'm sure there's a lot of concertgoers, the younger demographic, that have never bought a CD in their life.
05:56What they are buying, though, is vinyl.
05:58Because vinyl's growing at 5% to 25%.
06:00And Taylor Swift, so she announces, of course, last week on the Kelsey podcast, Diary of a Showgirl.
06:08I mean, the vinyl that she's putting out for this is going to be tremendous.
06:12All kinds of lyrics and notes.
06:14And so superfans, we know, pay three times what the average fan does, which is why vinyl's growing.
06:20Interesting.
06:21What about AI and regulation?
06:23Because we're hearing a lot of developments in terms of both when it comes to the space.
06:30What impact are those having, and what should investors know on that front?
06:34So first of all, if you read the Goldman Sachs report, again, Music in the Air, Lee Siang is a top analyst.
06:39AI has very little impact on the music industry today.
06:42Very little impact.
06:43The issue is artificial streaming and content farming, right?
06:47What music is fake music, right?
06:49So there's still a very low percentage on Spotify in terms of artificial music.
06:54The bigger questions, Caroline, are in this country, we don't have federal copyright protection in your voice yet.
07:01And so should we allow companies like OpenAI to train their algorithms to sound like Beyonce, The Weeknd, Drake?
07:10That's really the biggest problem.
07:12We have states like in Tennessee, they passed the Elvis Act that makes it a crime to lift someone's voice.
07:19But until that gets signed into law, you know, there's a constant push and pull between intellectual property holders and technology and innovation.
07:27But we need to do something about that.
07:29You have the No Fakes Act, which is a bill before Congress right now.
07:32Nurture Originals Keep Entertainment Safe Act.
07:36And you have the AI, Generative AI Act.
07:38And so we need to do something.
07:40Companies should not be allowed to lift the voices of famous artists and make it sound like them.
07:46And they certainly can't say it is them.
07:48So those are the kinds of issues that we're facing today.
07:50But as it relates to market saturation and market piracy, very little impact on the industry today.
07:56Okay.
07:56So final thoughts as our listeners maybe say, okay, you have me convinced music is an asset class that I want to invest in.
08:04What do they need to know?
08:05Music's very uncorrelated to the market.
08:08Music's growing at a very aggressive rate in the emerging markets today.
08:13Live music events and ticketing is on fire.
08:16Streaming, paid streaming subscribers are doubling.
08:19It's tariff resistant.
08:20It's not moving with the tides of the market.
08:23We are the first pure play music exchange traded fund that is giving investors total exposure to streaming,
08:31to content and distribution, to live music events and ticketing and equipment and technology.
08:37And we are simply a convenient and portable way to invest in all these securities globally.
08:44And up 25% year to date.
08:46David Schilhoff, thank you so much.
08:48Great.
08:49That was David Schilhoff, founder and CEO of MUSQ, the global music industry ETF.
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