Office Hours: The Cyberattack on UnitedHealth, Investing in Music Royalties, and Scott’s Tips for Giving a Compelling Presentation

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1:08welcome to the prop two pods office hours this is the part of the show where we answer your questions about business big tech entrepreneurship and whatever else is on your mind if you'd like to submit a question please email a voice recording to office hours of prop two media.com again that's office hours of prop two media.com first question hey scott first time caller here i'd love your analysis on the Change Healthcare United Healthcare IT hack in the ransomware. I don't hear anybody talking about this. I work in healthcare. Over 50 % of claims pass through Change Healthcare, and we haven't been able to bill for two weeks.

1:50This is going to be a large issue with no date in sight for a lot of providers and hospitals not knowing when they are going to get paid. Would love your analysis. Thanks for all. I don't see these questions because I want to be raw and authentic. And the downside is sometimes I don't have the domain expertise and don't have time to do the homework. And this is one of those instances where I feel I feel naked or maybe that's the remnants of the ketamine speaking. Anyways, I'm grateful for your question. So look, this is, so what is a war? A war is a shooting match, right? Ukraine and Russia are in a war.

2:32They've committed, you know, they've declared war on each other and there are Russians shooting at Ukrainians and vice versa. And then there are proxy wars. The Houthis are firing missiles at U.S. ships or Western ships, trying to wreak havoc, send the price of oil up, generally just fuck with the West. And it looks like they're getting a lot of funding and armaments from Iran. That's a proxy war to a certain extent until we entered the war. Vietnam was a proxy war, right? It's large nations don't want to get involved, engage in a direct shooting match because it can escalate. So what they do is they have proxy wars and they fund one side or the other, which is kind of it takes their finger away from the button a little bit, if you will.

3:09Now, the proxy wars being fought all over the world right now are essentially the biggest proxy war being fought between, I don't know, our adversaries and us right now are cyber attacks. And some of it is just pure criminality. A group of people in wherever, I won't name, you know, in an African or Eastern European country, maybe even some folks domestically, see an opportunity to shut down. And this is happened to a couple of friends of mine, the IT of a business, and they call them and say, transfer$78 ,000 in Bitcoin and we'll unlock it. And what happens is a lot of these companies just go ahead and do it because, and they don't report it because they just want to get their business back online.

3:45It's pure blackmail. It's pure extortion. But we absolutely need to beef up our security apparatus and put in place not only defensive measures, but counter offensive measures. What do I mean by that? We need to increase the compensation of our government officials such that we attract more young and technologically literate people. We do have the best cyber defense and cyber offense in the world, but I would imagine we still need more and more funding because what I'd like to see is more investigative or forensics that identify who are the nations and bad actors doing this. And then I think we should just turn around and kick them very hard in the nuts and do the same thing and start fucking with their government institutions, turning off the lights, just really wreaking havoc and basically have a disproportionate response every time they do this to us.

4:30I think right now the incentives are so great. America is so rich that these nations have a group of entrepreneurial, technologically literate criminal gangs that see opportunity to shut down an institution or exploit it or blackmail it. And their government either turns a blind eye or is actually, in fact, sponsoring it. By the way, something I'm very excited about, and I will make a more formal announcement, and this is huge virtue signaling. I am funding a program at UC Berkeley and UCLA around vocational programming, and one of those programs will be a one - or two-year certification in cybersecurity.

5:04I think there's an enormous number of young people, specifically young men who are not cut out for a traditional four-year VA liberal arts degree, but are smart, are aggressive, are ambitious, want to be good citizens, want to pay taxes, want to build a middle-class life, have kids, buy a home, et cetera. And there's a ton of vocational training that they would benefit from, whether it's nursing, specialty construction, or cybersecurity. Anyways, enough about me. Isn't that great the way I turned it back to me? Totally appreciate the question. I think this is a huge problem. Wired Magazine reported that someone paid$22 million in Bitcoin to the ransomware group thought to be responsible for the attack.

5:40If this was really a payment to fix part of the breach, it's a huge gain for the hackers. And again, creates the wrong incentives. As experts say, in 2023, the FBI documented 249 ransomware instruments targeting healthcare and public health entities, up 68 % in 21. So we're going to need more of this. Again, and see about if we need a new algebra of deterrence. Thanks so much for the thoughtful question. Sorry for the word salad. Next question, question number two. Hi, Professor Galloway. Bradley from New York here. I recently heard about this website called Jukebox, which allows people to buy shares in songs and earn a proportion of the royalties from this fractional ownership.

6:19Do you think that this is a good new investment vehicle? Thank you for being a role model and inspiration. Can't wait to hear your thoughts. Thanks, Bradley from New York. Although I get the sense you're from somewhere else and that you're just living in New York. Anyways, back to your music platform. So Fractional Ownership, this company, JQBX, pronounced Jukebox, is aiming to democratize music investing. It launched a platform that lets people invest in song royalties. Think of it as stock shares from artists, including Beyonce and Taylor Swift. Jukebox just recently launched with SEC approval.

6:52A June filing with the SEC shows that since January 2023, Jukebox has raised$16.1 million. So in terms of revenue, they enable the rights holders to issue and sell royalty-backed securities, meaning they earn from transaction execution. For example, investors can buy shares in Beyonce's Halo for$6.78 each and receive quarterly distribution fees from various music revenue sources. So what kind of yield are you getting on these shares? According to Jukebox, the annual yield is around 3 % to 4%. with potential for the underlying terminal value to go up, right? Liquidity and future plans. Currently, Jukebox doesn't support trading of shares, meaning investors can buy but not sell their shares.

7:31That sucks. But they plan to enable trading and expect to follow after overcoming a regulatory challenge. So that probably means they need to become a broker-dealer. The historical context. The concept of converting user rights into cash flows or financial assets isn't new. In 1997, David Bowie became the first musician to securitize his song world who raised$55 million through the sale of what became known as Bowie bonds. So essentially securitizing future cash flows. If you win the lottery, you don't get a lump sum payment. They pay you, I don't know, whatever. You say you win the lottery of$3 million, they pay you$100 ,000 over 30 years.

8:05You can securitize that. If you get a settlement claim where they're obligated to pay you over 10 years, a certain amount per month, you can go to a company that will securitize it in exchange for you handing over those payments. They give you one lump sum payment. So this is the same thing. You have a royalty stream and you're essentially buying a bond. I mean, a lot of these big music companies, their primary asset is not the individuals who go out and find artists, not even the current artists who are making them a shit ton of money, but their music library that spins off royalty payments. And as interest rates go down, that means that the yield or the value of these things go up.

8:41So if you can get 10 % in the market and fairly secure bonds, that means that you should expect about$10 for$100, right? So if a royalty catalog is producing$10 a year in royalties from Beyonce and Beck and whoever else and Tom Petty, oh my God, he'd produce so much more than that. By the way, I was asked last night in this quiz show at South by Southwest, what is something you do when you're alone and no one's watching. And I said, well, one, I like to take edibles, drink and write. And also, I like to turn on Tom Petty in my earphones really loud when everyone's asleep at two in the morning and dance around.

9:18It is not pretty. If someone looked into my living room at two in the morning, they see a guy with no music on, in jeans, without a shirt on, dancing around. But just know it's not as weird as it sounds because I'm listening to Tom Petty. Anyway, not what you ask. As interest rates go down, the value of these catalogs go up because your ability to get cash flow from other things, you get less cash flow because the interest rate or the yield on bonds goes down, which means that any cash flow is worth more. The multiple goes up. So the idea of securitizing or chopping up, finally chopping up assets that democratize the opportunity to own them, it's a good idea.

9:56You need liquidity. You need kind of an active trading market. And what happens is these things oftentimes, it's not about the underlying assets. Sometimes they just turn into pure vehicles for speculation. I think there'll be some of this. I'm not entirely sure it's going to take off. What I would say is if you love music and you find it fascinating, take a small percentage of your portfolio. So, you know, enough money such that if the Beyonce share goes up fivefold, it might mean something to you. But not so much money that if it goes to zero and you can't sell these things and become debt equity, that it would have any impact on your life.

10:29Take just a small, just a dabble, just a skosh of your capital and do this if you're interested. But to me, this feels like a niche market that may or may not live up to its potential. Sorry for kind of the word salad and not a very definitive answer here, but it's definitely cool. I'm going to check it out. Thank you for the question. We have one quick break before our final question. Stay with us. I'm Christian McCaffrey, pro running back, and Abercrombie is an official fashion partner of the NFL. I'm not kidding when I say NFL by Abercrombie broke the internet last year, and I think this season's lineup is even cooler.

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12:20Contiguous U.S. only. Welcome back. Question number three. Hi, Scott. It's Lance here. A big fan of all your podcasts and the thought leadership you bring to the business world. Like you, I'm also presenting at the upcoming Financial Grant Forum in May. My session tackles the complex and impactful topic of the ethical, legal, and strategic risk of AI and banking. As I prepare to deliver this message, I'm particularly impressed by your consistent ability to convey complex information in an engaging and impactful way. This resonates strongly with my approach to crafting my presentation. My question for you is, what are your top tips for presenting complex and potentially controversial topics in a way that is both informative and engaging for the audience?

13:09Thank you for your time and consideration, Scott. I look forward to potentially connecting at the forum and learning more from your keynote address. See you in Vegas. Lance. Lance from Undisclosed. By the way, that's my favorite place to hang out. Undisclosed. Okay, so how do you convey or articulate or present around controversial or complex topics? Okay, so complexity, trying to get distilled. One, analogies, you know, fit it into a story. So when I talk about the anti-competitive or monopoly practices of the app store, right, they charge a 30 % tax on apps or revenues that apps get if they're in the app store.

13:48The analogy I use is credit card companies. And what if Visa went into the business of retail and the retailers they owned didn't have to pay 30 percent transaction fees? Those retailers would be monopolies or other retailers wouldn't be able to compete with them. That's an analogy or story that helps understand or maybe not, but I think helps people understand how Apple is, in fact, engaging monopoly behavior. In terms of presenting a controversial topic, you want to, data is just sort of says, all right, I don't like this guy's opinions. I don't like him. But if you present data, it just is what it is.

14:24There is a certain truth and charts, visualizations, super, super important. And also just some of the softer stuff. I think it's fine to have humility here. And that is to say that I predicted this. I oftentimes say, well, say, I predicted this. This is what I saw. And I got it wrong. Because just to acknowledge that you're wrong brings some humility. People empathize with you. And then the most effective one is something that's difficult to force. But if you're blessed with it, it just softens the beach. And that is humor. Jon Stewart can say very, very controversial things and is incredibly powerful.

15:00Before you say something provocative or aggressive or a bit controversial, anything around humor, it just kind of opens people's minds to listening to you and being thoughtful. I describe it as the Navy or artillery softening the beach before you invade it with a viewpoint. So let's review. Analogies, storytelling, data, visuals, graphics, all get the message across. and then on the softer stuff, having some humility, admit that you might be wrong or you've gotten wrong before and softening the beach with humor. So I will see you in Las Vegas. The dog loves to roll in Vegas. I put on a kilt. I give myself a thousand dollars, actually$10 ,000, but I've become very self-conscious about my wealth recently.

15:45I go down, I gamble like fucking crazy. I drink a shit ton and I lose it all. But for me, it's not gambling. It's consumption. I don't expect to make any money. I expect to lose it all. It doesn't matter to me. And I have a fantastic time. I think Vegas is the most singular city in the world. Also, singular in the sense that for 48 hours, it's the best place in the world. And by hour 49, it becomes the worst place in the world. But anyways, I will see you at the conference and good luck with the presentation. Let me know how it goes, Lance. that's all for this episode again if you have liked to submit a question please email a voice recording to officehours of propertymedia.com