The Best Media Content I Consumed This Month (March 2023 Edition)
Here's a glimpse into the best podcasts, articles, videos, and books I consumed in March 2023.
Podcasts
1) Universal Music Group: The Gatekeepers of Music (Business Breakdowns)
I’ve been really interested in the economics of the music industry lately (reason unclear), so I decided to re-listen to this classic Business Breakdowns episode from 2021. Universal Music Group (AMS:UMG) is the largest record label worldwide and the biggest position in Bill Ackman’s Pershing Square Holdings. Some key learnings from this podcast about UMG’s business and the music industry:
UMG has unparalleled distribution; more than 50% of the top 50 streamed artists on Spotify have signed with UMG.
It is almost impossible for an aspiring artist to succeed and generate traction without the support of a major record label (due to high upfront costs and partnerships).
The economics of a record label are eerily similar to a VC investor and follow the “power law”. Around 90% of artists signed by a record label do not recoup the cost of their initial investment, so almost all profits are generated from the 10% of artists that become famous (e.g., Drake, Taylor Swift, Justin Bieber etc).
Streaming income is a small component of the overall income for a large artist. Other income sources include concerts, sponsorships, merchandise, etc. Streaming is often a lead-generation mechanism for artists to build brand awareness and direct fans to more lucrative income sources (e.g., concerts).
There is a whole new industry emerging focused on purchasing the rights to old music catalogues based on traditional valuation metrics (e.g., EV/sales, EV/EBITDA multiples).
2) Chatphising, veracity and “two years of chaos and a reset” (Securities by Lux Capital)
This was a fascinating interview with Josh Wolfe where he ran through the highlights of his Lux Capital 2022 Annual Letter to LPs. My key takeaways:
Josh thinks the best investment returns over the next decade will come from “deep tech” as the US will be forced to invest in manufacturing businesses to compete with China.
Lux’s investment areas include: (a) “inner space” (biological breakthroughs and drug discovery), (b) “outer space” (aerospace and defence initiatives), and (c) “latent space” (AI and computational modelling).
Josh expects that the next generation of successful long-short hedge fund managers will emerge over the next decade (similar theme to what happened in the mid-2000s following the dot-com crash).
3) TaylorMade - David Shapiro (Private Equity Deals)
This was a super detailed interview with David Shapiro, Co-Founder of KPS Capital, a US PE fund that manages $14b and focuses on turnarounds and corporate restructurings within manufacturing businesses. As an avid golfer, it was interesting to go behind the scenes on arguably golf’s most recognisable equipment brand in a transaction where KPS Capital made an 8.5x MoM return in <5 years. Some interesting learnings:
TaylorMade went through a dark patch with declining revenues in the early-to-mid 2010s as their parent company (Adidas) introduced new clubs too frequently and got caught in a vicious discounting spiral for older (but still popular) models.
TaylorMade only had 3% market share for golf balls in 2015 due to a lack of marketing. For comparison, Titleist had >50% market share.
Taylor Made saw a very high ROI on sponsorships (particularly those with large social media followers) and pivoted their marketing strategy to focus primarily on sponsoring athletes with a strong social media presence.
KPS turned TaylorMade around from a $50m EBITDA loss in 2017 at the time of purchase to a $200m EBITDA profit in 2021 at the time of exit.
Articles
1) How to Trick Investors & VCs (OnlyCFO’s Software World)
I love this substack. This short article should be required reading for all aspiring VCs and investment professionals (particularly those like myself without classic accounting training). Key points discussed in this article:
Sales commissions are often capitalised on the balance sheet and expensed over 3-5 years (rather than in the quarter when the commission was earned).
R&D investments that are capitalised get expensed at a later date as COGS (not R&D), which can lead to misleading gross margins.
Where companies should categorise customer success costs and recruiting costs in the P&L.
2) The best way to collect and spend frequent flyer points (AFR)
An interesting breakdown of the most efficient ways to collect / spend frequent flyer points. This topic is close to my heart as my fiance and I are currently attempting to accumulate enough points to pay for our honeymoon flights to / from Europe in mid-2024. Some interesting learnings:
Can get substantial points through using partners for health insurance, car insurance, gym memberships, etc.
Keeping old unused credit cards open can decrease your credit score.
Points generally have more purchasing power for business class flights than economy flights.
Finding an off-peak time for flights is the best way to maximise the value of points.
YouTube
1) Electrum Group Chairman Thomas Kaplan on The David Rubenstein Show
This was a fascinating interview with Thomas Kaplan, an eccentric hedge fund manager who built a billion-dollar fortune through a series of concentrated bets on commodities and oil/silver mines throughout the 1990s and 2000s. Interestingly, Kaplan has no classical finance training, instead boasting a PhD in Modern History from Oxford. He’s a captivating speaker and strikes a delicate balance between oozing confidence and self-assurance, while also remaining incredibly humble. This interview was a masterclass in public speaking.
2) Fundsmith Annual Shareholders’ Meeting February 2023
I learn more from Fundsmith’s annual shareholder meetings than any other annual letter or investor presentation. Terry Smith runs a concentrated long-only global fund with a mix of old-world “boring” businesses (e.g., Unilever, PepsiCo) and new-age “technology” businesses (e.g., Microsoft, Amazon, Adobe, Meta Platforms). He’s brutally honest and doesn’t hold back when criticising management teams of public companies he regards as incompetent or unethical (or both), while also injecting bucket loads of humour and wit throughout.
3) Volvo Trucks - The Epic Split feat. Van Damme (Live Test)
Bit random but arguably the greatest ad ever created, with an even better soundtrack. Worth the 76 seconds.
Books
1) Hitting Against the Spin: How Cricket Really Works
Given I played cricket for over a decade and have followed the sport religiously from the age of five, this book has been an absolute treat to read so far (although I recognise it might not appeal to everyone!). It’s written by two data scientists, one of whom worked with the England Cricket Team during their meteoric ascent during the mid-2010s. The book uses stats and data to explain controversial questions and statistical anomalies, such as:
Is it better for a fast bowler to pitch the ball up or bowl a good length? What about when the ball is swinging?
What factors predict whether a team will win the ODI World Cup?
Why does the Indian team have so few left-handed batsman in the top order?
Why are leg-spinners so successful in T20 cricket?
Is it better to have a conventional or unconventional technique?
I highly recommend this book for all cricket nuffies / tragics out there.
Companies I’m Researching
1) L1 Long Short Fund (ASX:LSF)
Several weeks ago, I initiated a position in L1 Capital’s flagship Long Short Fund after researching the fund for about 12 months. Here’s a quick breakdown of my investment thesis:
Australia’s best performing long short hedge fund that has smashed its benchmark since inception in 2014 (20.8% IRR vs. 7.3% for the ASX 200 Accumulation Index).
Traded at a 9% discount to pre-tax NAV at the time of purchase, despite this phenomenal track-record.
The two Co-Founders (see below) each have >$100m invested in the fund and have been consistently purchasing shares on-market over the past 12 months.
Take a differentiated approach to most “quality growth” funds (i.e., large-cap tech) and most of their outperformance has come from sectors in which I have little exposure (materials, communication services, industrials, financials, and utilities).
Healthy dividend yield of 3-4%, which can be reinvested through a DRP.
2) Universal Music Group (AMS:UMG)
As I mentioned earlier, I’ve been learning a lot about the music industry over the past month. Particularly, I’ve been focusing on how much competitive power record labels have vs. the major streaming platforms (e.g., Spotify) and vice versa. Key questions I’ve been wrestling with:
Can both Spotify and UMG succeed simultaneously?
Is the oligopoly in US record labels between UMG, Warner Music Group, and Sony Music Entertainment sustainable in the long-term?
Can UMG grow EPS at a >10% CAGR for the next decade?