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Foreign. I'm Dan Runcy. Welcome to trapital. And today we're going to talk about this fascinating paradox. In the private markets, music is hotter than ever. There are more firms and more institutional and retail investors that want to back music as an asset class. Bain Capital has partnered with Warner Music Group to invest in music catalogs from iconic artists. GIC has done the same with Sony Music Group, Chord Music and Dundee Partners have done the similar type of structure with Universal Music Group. And there are more funds, more credit products, debt deals and institutional capital than ever. If there's anyone out there that still thinks that investing in music rights was a zero interest rate phenomenon, they've been mistaken. There is more demand for these catalogs than there currently is supply. On the public markets though, very different story. Look at Universal Music Group. The stock is currently trading at an all time low since the company went public in 2021. The stock is currently trading at around 13x its earnings. That's looking at its enterprise value to its EBITDA. And that 13x is a steep discount compared to the underlying value of the music copyright that Universal Music Group owns. But Universal Music Group's position is slightly better than Warner Music Group's position where Warner stock sells at a discount relative to Universal Music Group. We'll get into some of the nuances there about both of those companies, but if those are the two biggest publicly traded music companies in the world, there are challenges as well for the smaller cap companies, where Reservoir Media is currently in the midst of an active takeover attempt from an investor, Irenick Capital and others that think that the stock is severely undervalued in the marketplace. And companies like Roundhill, Hypnosis and Believe have all went public and then went private in the past few years. This friction between the private markets that love music as an asset class and the public markets that shy away from a lot of these music companies is not a coincidence. It's not that Wall street and the public markets don't like music cash flows. They do. They frankly like them just as much as the private markets do. But Wall street is less interested in the external companies that manage and own those music copyrights. That's where the distinction is. And that's what we're going to get into today. This episode of Trapital is presented by linktree, the link in bio tool that lets artists house everything in one place. Streaming links, tour dates, merch videos, audience collections, socials, instant and more. With 60 integrations across the platforms you already use, like TikTok, Instagram, Shopify, and Lelo linktree allows you to centralize your ecosystem, save time, and optimize your entire online presence from one place. Fans can tap one link and choose their preferred streaming platform, whether it's Spotify, Apple Music, Amazon Music, or any others. To easily listen to your releases and make discovery seamless, you can build hype before the release day with Spotify Pre Save links and automatically use those to convert to streaming links when your track goes live. You can also own your audience by collecting fan emails and phone numbers directly through your link tree and build a list that you control instead of depending on algorithms. You can also see which cities engage most with your music, which links get clicked, and when fans are active. Plan your tours and releases Smarter. Use code TRAPITAL50 for 50% off your first three months of Linktree Pro. That's T R A P I T A L50. You can get started at linktree.com or tap the link in our Show Notes. Terms and conditions apply. For more info, tap the link in our Show Notes to view the landing page. If you love listening to trapital and want to stay ahead in the world of tech startups and venture capital equity, TechCrunch's flagship podcast has the inside scoop. Every Wednesday and Friday, they dive into the stories that matter most, from expert interviews to in depth discussions and roundtable chats with their team of TechCrunch reporters. Whether you're an entrepreneur looking for tips or just curious about what's shaping tomorrow's world, they've got you covered. Tune in to equity wherever you get your podcasts. Let's use Motown as an example here. Hypothetically, let's say that the music rights and the catalog of Motown was on the public market right now. Everything that Berry Gordy had coming through Hitsville usa, that asset would sell for a higher price than Motown itself as a business that also owned that asset because in the former only buying the asset itself. Sure, you still need someone to manage and administer it, but the belief is that that is more valuable than the current governance overhead and everything that is involved with Motown as an asset and that type of mentality is what translates to the discounts that you see in the publicly traded companies that own these very valuable music copyrights. An investment in the stock of Universal Music Group, Warner Music Group or Reservoir or any others, it is an investment in how that is run. And some of these companies may have some fat to trim. There are certain managerial aspects of them that may be less attractive. That doesn't necessarily mean that these companies are run poorly. They may be very well efficient companies, but part of it is just structural by the design and just how valuable the underlying asset is a majority of the time. This discount is inherent in the business. It was true in the 2000s, especially when Warner Music Group first went public and then went private again in 2011, and, and it's true today. But there are nuances where it could be very attractive to own stock in a publicly traded music company. And that especially is true in a tailwind environment. If you look at streaming, especially six, seven, eight years ago, when growth was up and to the right every year, the major record labels were in a great position to capture that value. Frankly, Universal Music Group and Warner Music Group weren't public until 2021 and 2020, respectively. So they may not have caught all of that value in the public markets. But that is a timeframe where a format change can create a strong opportunity, where investing in owning rights and owning stock in a music company can be very attractive, especially when interest rates are low. But in an environment like today, when interest rates are higher and there is more questions about where the future growth can come from, we start to see a bigger gap between how valuable the underlying asset is as opposed to the external company, the rapper. And frankly, for these music companies, it can be a very frustrating position to be in, especially on the public markets. It's like being underwater on your house, where you may owe more on your mortgage than the house is actually worth. But in fairness to music, though, this type of dynamic isn't only a music challenge. It can also happen in the real estate world, where people love to invest in real estate. They see the appreciation, they see the long term growth potential. But investing in a real estate investment trust or REIT can be a very different thing because again, similar to investing in a publicly traded music company, you're taking on the ownership, the governance, the layers. And in times where there is great value to exploit and push forward, there can be strong value to be had in terms of owning a specific REIT over another. But other times, those REITs can often trade at a discount, which is what we've seen from the S and P data, where there is a median 12.8% discount for US equity REITs at the end of 2024. This is by design, because the private buyers can underwrite the property cash flows, where the public buyers can underwrite the structure and the sentiment. And that gap there is the type of gap that we also see in music. Music also tracks with two dynamics that we're currently seeing in the private markets. The first one is the value that these assets or companies can have as strategic bets. There are a lot of companies out there that are much more valuable as strategic bets, and a parent company may be more willing to pay a higher price on that than the public markets would. We've seen that happen in tech a few times recently. Look at Instacart. Before that company went public, it raised its highest round at a $39 billion valuation. By the time Instacart had its IPO, though, its market cap was less than $10 billion. Look at a company like Stripe. In the 2010s, a company like Stripe would have went public years ago, but there was so much more money available on the private markets. Why would Stripe go through all the governance and public quarterly reporting when they can get the money that they need, still offer their employees opportunities for liquidation through tender offers? Why would they go through all of that extra work? Figma is another example. Figma was supposed to be acquired by Adobe, and the amount of money that Adobe was willing to acquire that company for is a lot higher than Figma's current market cap, since it is now a publicly traded company. Klarna, another example. There was a big valuation when that company was private. Then the company went public and the valuation has dropped considerably. Which is fair because the timing here is key. If 2021 was the time frame for private valuations peaking growth at all cost, it was also the peak time for NFTS people selling pet rocks. Money was flowing everywhere. And then from 22 to 24 we see the rates rise up. Some of the risk profile changes quite a bit. There was a public repricing and the IPO window essentially closed. And then in 2025 and 26, now we're seeing some of it reopen, but it's very different than it looked beforehand. And it is fair to put all of these music companies that are publicly traded in that same lens, because this is the timeframe that most of them went public. Universal Music Group went public in the summer of 2021. Warner Music Group went public in the summer of 2020. Reservoir Roundhill believe they all went public in the tail end of that low interest rate phenomenon. So the world that they thought that they were going to enter is very different than the world today. So there are some challenges that may be specific to music, but some of it is very much a macro dynamic and music is also part of that as well. A company like Believe, though, is in a slightly different dynamic to some of the other companies we discussed. You should Go back and listen to the conversation that I had with their CEO and founder, Denis Ladogetti. Him and I sat down at the Trapital summit in 2024, and this was the moment where a consortium led by Denis had taken Believe off of the public markets and made it a private company again. And in that same year, Warner Music Group tried to acquire Believe. It didn't end up happening. And Believe again, is a bit more unique. That company was more of a growth story than some of the music rights companies that were purely owning the underlying asset. Believe also own tunecore, so there was a technology play there. They were growing faster in international markets than others. But again, Believe goes public in that same timeframe we're talking about. The economic headwinds were quite different. Markets didn't necessarily catch up to the perception and what Believe was trying to put in the marketplace. But Believe also had a challenge that Reservoir also has. This is agnostic to music. This is about the size of these companies. A publicly traded company that has less than 2 billion or $3 billion in market cap, or in Reservoir's case, around 5 to $600 million in market cap, has a lot less float in the market. There are less shares available. There are likely less analysts, if any, that are covering this company on a regular basis. And when that happens, that can also lead to an asset that can often be mispriced one way or another. And in the case of Reservoir, which owns very attractive music rights like the Miles Davis catalog or the Tommy Boy catalog, which includes De La Soul, that can be seen as a very attractive asset. Which is why there are strategic investors like Irena Capital and others that are trying to do a takeover of that company because they feel like there is value to be maximized by taking it off of the public markets and making it private. Which is why they are offering a premium, a pretty strong premium over what the company is currently trading for. In Reservoir's case, it's trading at around a 15-16x earnings multiple as well. So again, it's right in that same range of UMG and Warner, maybe slightly higher. If you love listening to Trap Ital, I want to put you onto another podcast that I think you'll really enjoy. It's called One Song. It's hosted by Diallo, Riddle and Luxury. Each episode unpacks one iconic track. They break down the original musical stems so you can hear how the song was built, while also diving into the creative choices and cultural forces that shape the song. If you're into how music, media and culture intersect, this show is very much in that lane. You'll hear songs you already love in a completely new way. Check out one song wherever you get your podcasts. Lets take a break for our chart metric stat of the week. Bruno Mars just released his latest studio album, the Romantic. Speaking of frontline releases from Warner Music Group, the album is debuting at number one on the Billboard charts, right around 180,000 units sold, which may seem like a lower number for an artist at Bruno Mars stature and popularity. But important thing to remember is the album only has nine songs on it and this has been a through line for Bruno Mars through his entire career. The way that he releases albums feels like a throwback to Michael Jackson, where Thriller only had nine songs on it. Off the Wall didn't have that many either. Bruno's approach is very different from so many other artists who may stuff their releases with 2030 track albums to get the highest numbers on the Billboard charts. But Bruno's game is different. He's released less than 100 songs total in his entire career. You can look it up on any streaming service right now, but the percentage of songs that have over a billion streams total, that hit rate is higher than almost any other artist you could imagine. Very fascinating. Less is more. Let's see if Brutal Mars can keep it up. His last album, 24 Karat Magic, didn't even debut at number one on the Billboard charts, but ended up having some of the biggest hits of the 2010s on it. So let's see what he does next. Let's get back to the episode. Speaking of Warner and Universal, sure there are size advantages. They do not have the small cap challenges that Reservoir I believe had. But there are other challenges there. Let's start with Warner Music Group. It is technically a publicly traded company, but not in the way that a lot of investors would hope to see from a publicly traded company. Lemblevotnik and his firm, Axis Industry, own over 70% of the shares in the company and have a 98% voting interest in the company. Yes, it's publicly traded, but that's less attractive than a publicly traded company that the quote unquote market really owns. So that is part of the reason why Warner Music Group is at a discount in its earnings and how much it trades for relative to Universal Music Group. Despite being a similarly structured company that is in the same exact business, Warner Music Group also has a lot more debt than Universal Music Group does. You go back to 2011, the year where Lem Blavatnik and Access Industries took control of Warner Music Group. They did it through a leveraged buyout. That leveraged buyout brought on a considerable amount of debt into the company. And that debt still sits in Warner Music Group. And that's debt that frankly, Universal Music Group does not have. Because when Universal Music Group went public in 2021, Vivendi, Bellore and the existing shareholders were able to do it without having nearly as much debt. Universal Music Group's situation may not be 100% ideal either. There are likely institutional investors that wish that there was a bit more of the company available, or there was less that was centrally controlled by Belore, Vivendi and Tencent, both from voting rights and from the ownership shares. But that is a much more attractive position to be in, relatively speaking, than how an investor may look at the sole control that Len and the Blavatnik family have with Warner Music Group. So those are a few of the reasons why Warner Music Group trades at a discount relative to Universal Music Group. But Universal Music Group also has a few unique challenges. When Bill Ackman was on the board of Universal Music Group, one of the big things that Ackman pushed for was a US listing. He wanted a dual listing of Universal Music Group stock be on a US Stock Exchange, whether it's Nasdaq or the New York Stock Exchange. He felt that there was money being left on the table by the company not doing that. Ackman is no longer on the board. I know he rubbed a lot of people the wrong way based on how he was trying to push certain things and listen, say what you want about Ackman, but in this particular position, he wasn't wrong. This was a capital light business that had plenty of opportunity for upside. And the fact that Universal Music Group recently announced that they are not going to pursue a public listing on the US Stock Exchange is why is one of the reasons why the stock prices drop to where CURRENTLY is trading at Currently as of this recording in early March 2026, where the company is trading at an all time low for its stock. Another reason that music companies, specifically these music companies we're talking about that own music copyright can trade at a discount is because there are certain analysts and investors in Wall street and that believe that the value is less with the music copyright owners and more with the platforms. And if you look at the shift in power between a company like Spotify and a company like Universal Music Group over the past four to five years, the market has shown this and played it out. In late 2022 in a trapital newsletter, I had written that when Spotify's market cap was $14 billion and Universal Music Group's market cap was north of 4, $40 billion, that Universal Music Group should try to buy Spotify. Why? Because the stock was at a very low point. Spotify had gone through a market correction like many companies did in 2022. Spotify is treated like a growth equity tech company, which is much more suspect to volatility in the market, as opposed to a company like Universal Music Group or Warner Music Group. But that's what I wrote at the time. If you look at where the power has shifted today, Spotify's market cap is north of $100 billion. And it's universal Music Groups whose current market cap is in the low $30 billion range. And a lot of our conversation today has been focused on the back catalog, especially the music that these music rights investment firms and these private investors that are now partnering with the major record labels to invest in. But the major record labels are still invested in Frontline music. But here's the thing that doesn't get mentioned enough about Frontline music. The whole older music eating new music needs some nuance. Because if you look at the Luminate data, 50% of the music that was listened to in 2025 was music that was released since 2020. And this is purely on streaming that we're talking about since 2020. From a sheer volume perspective, there is a lot of music listening and a lot of revenue generation that is happening with newer releases. But the job of picking and knowing where that music is going to come from, that will pop, that shifts the power specifically for frontline music, that shifts the power to the pipes or the platforms that generate revenue from that music, regardless of where it's coming from. Like a Spotify, like a YouTube, Apple Music, Amazon and others. The music rights holders may take 70% of the revenue that is coming from the streaming services, but the streaming services collect all, all of it, versus the music rights holders only collect their share of it. There's a much wider range of music rights holders than ever before, especially in the streaming era, and especially those that are generating considerable revenue. So the big question is this. How can music close that gap? How does the love that music has in the private markets for the underlying asset? How can that translate to the public markets for the overall companies themselves? And there's a case to be made that the situation and structure that Bain, GIC and Cord currently have with the major record labels is the best of both worlds. They get to use their funds and let the Major record labels do what they do best. They get to invest directly in the assets that those companies can then acquire, and they get to benefit from all of the resources that the major record labels have to exploit the underlying asset. Sure, the financial investors GIC, Bain Cord, they likely still pay some form of management fee, the same way that anyone would do in a private equity type of deal for whoever is administering the funds and investing on their behalf. But they would much rather do that than likely making a direct investment in Warner or in Universal Music Group. We also see this happen with the smaller private companies that are still raising money in this space. Let's look at a company like Duetti. I recently had a conversation with Leor Tibon, the CEO of Duetti, on the show, and we talked about how he structured his fundraise. He has a specific amount that comes from specific investors that is for the underlying company that helps them do what they do best from a technology perspective to be able to analyze the type of assets that Duetti is looking at, the type of catalogs that they are investing in, then they have a separate tranche of money, two separate tranches, one for credit for some of the younger catalogs that may have a different investor profile than some of the longer term bets, which come more from asset backed securitization, which is the much more common way that a lot of the big funds that are investing in catalogs worth tens or hundreds or billions of dollars, like your primary Waves, Harborviews, Litmus and folks like that, that type of segmentation is key. It can attract a different profile of investors who may be looking for one thing versus another. Again, let's go back to the Motown example we talked about at the beginning of this episode. Let's say there was a world where you could invest in the underlying copyright of Motown and separately invest in Motown, the underlying business. On paper, the underlying catalog of Motown may seem like the more valuable bet today. But betting on Motown, the company may seem like a high risk, high reward opportunity. If someone can turn that around and modernize it and make it something big, who knows where it could go? If there's a way to be able to do that with the major record labels, that would be great. Again, I'm not saying this as a push for this to happen. It likely wouldn't happen. If you're Len Blavatnik, what's your rationale to do this? If you are Vivendi or Belore or Tencent that owns Universal, what's your rationale to do this? But I do think we may see a bit more variety, especially from the smaller cap companies in this business. So what should we look for in the future? We should definitely look for more. Take private attempts, especially for these companies that have sub 3 billion or even sub 5 billion valuations. We also should look to see what type of new platforms and new technologies can create that next format shift. That may create a tailwind environment for a major record label. That may change its fate and that may bring it back to that period that it was in six, seven years ago where streaming growth was just compounding year after year. What if the major record labels figure out the super fan opportunity in partnership with the streaming services and others? And are there new types of rappers, new types of companies, especially with AI and some of the partnerships there? What will that look like? We'll likely see some changes. Nothing is stagnant. But here's one thing in music that likely will remain. If the public markets don't reward the external rappers that run the underlying music assets, then the private markets will continue to try to find ways to buy them or find a way to acquire those assets. And that is a wrap. I hope you enjoyed this one. This was a fun one to research. Thank you to everyone who spoke to me off record to provide some background information. Thank you again to our audio and video producers G and Eric to make this episode possible. And thank you for listening. If there's one person you know that would really enjoy trapital and get a lot out of it, then send them a link to the show. Word of mouth is still the best way to grow, so if you don't mind, take a few minutes, share a link and if you feel so inclined, leave a comment. Leave a review that helps the algorithm do the right thing and helps trapital reach the right people. Thanks again. Talk to you next time.