Larry Mestel on What Makes a Song Worth Millions

0:03Dan Runcie: I'm Dan Runcie. Welcome to Trapital. And we are kicking off our Trapital Summit series, where you get to hear and watch the conversations that we had on stage with the leaders that are pushing the industry forward. These conversations have been in high demand. And believe me, we wanted to release them as much as anyone, but we can't just drop them at once. These conversations need room to breathe. These talks had so much insight, so many things to unpack. And if you drop it all at once, all of that can get lost. And this week, we're kicking things off with our first talk of the day with the founder and CEO of Primary Wave, Larry Mistel.

0:42Dan Runcie: Talk about someone that has taken bets to push his business where it was today, especially since the first 10 years of Primary Wave. There were very few people that were talking and wanting to invest in music as an asset class, especially given where the industry is now. We talked about how he's adapted and shifted the company over the past 20 years to get to this point. We talked about what type of company that he is now building, especially given the acquisition of Cobalt, some trends, opportunities, how he sees the critics in terms of how they view his strategy, and a lot more. Thanks again to Larry for joining us, and I hope you enjoy this conversation as much as we did.

1:28Guns N' Roses, huh? I love that song, especially in the morning.

1:31Dan Runcie: Larry, again, thank you for joining us today. You've been one of the leaders, particularly investing in music rights before a lot of people were even interested in the space. And you recently raised a fund that was over$2.2 billion earlier this year. But I do have to ask, if you were to compare raising$2.2 billion in 2026 versus$60 million in 2006, which one's harder? Oh, the 60 million, for sure. Much harder starting out. I mean, it's, you know, I always say this, that it's so much harder to go from zero to one or zero to two and get a company off the ground than it is to go from two to 10. The first 10 years of primary wave, we started back in 2006, and it took us 10 years to get to be a$200 million company.

2:25The next 10 years, we went from$200 million to$7.5 billion. So it's just so much harder to get started.

2:34Dan Runcie: And then thinking about the time now, though, I feel like there are different challenges where first 10 years, you're proving this thing that doesn't exist. You're also validating this market, this asset class that isn't realized in the same way. But now you have a lot more competitors. There's a lot more capital. And that probably changes how you go about the business as well. So how do you feel like you've had to adapt your playbook, specifically just given the number of competitors and just how that changes the deals that come in and then also how you close them? Well, I think, you know, 20 years ago when we started, we were probably the first to start it more on an institutional level and think about music as a fantastic investment, an alternative investment.

3:21And when we started, there was a lot of debt that we were using. We used a little bit of equity. We used a lot of debt. We were thinking about it in terms of securitization or one of our very first investors was Credit Suisse. and Credit Suisse really thought about it from a banking perspective that, hey, why not generate fees for themselves off of our securitizations? So everything we did, we did from that perspective. Today, 20 years later, we have no debt. We have virtually no debt on our balance sheet and we're able to deliver the returns that we do because of the infrastructure and platform that we've created.

4:13But today there are a lot of people raising a lot of money trying to compete for few acquisitions. And our secret sauce is that we very, very rarely go to an auction. If it's not a proprietary deal, we almost never enter the conversation. And it serves us well because, you know, we're now the largest owner of legendary music in the world, more so than the majors. By what metric? um well if you think about the sheer volume of AUM that we have um and you compare that to majors just their catalogs and if you take out a lot of the noise and the junk that exists in a lot of companies you know you're not really left with a substantial amount of icons and legends um so it's you know it's really very easy to look at that if you um you know if you think about the industry in general right what has changed so much is the influx of capital right the fact that institutions now look at music as a real asset class that's only been relatively recently.

5:40So you have a lot of people, as I said, chasing very few deals. And what you find is that a lot of people are buying because they have to invest, right? You raise$300 million, you raise$100 million. An investor doesn't want to see you holding that and putting it into a money market account, right? They could do that themselves. So you're seeing in the space people buying things they really shouldn't be buying. And you see a lot of that.

6:15Dan Runcie: And is your thought that anything that goes to auction is something that maybe people shouldn't be buying because it could be overpriced? Well, let me say it another way, right? the two things you need to do to generate returns, because, you know, buying is easy. Anybody can buy, anybody can write a check. In fact, you know, over the 20 years, people have said, you know, almost every year primary wave has been around and we've been around now 20 years, we're overpaying, right? We're spending too much. We're spending too much. I, you know, I don't know of anybody that's been doing what we've been doing for 20 years.

6:55And the reason is we are less sensitive to multiples than most of our competitors. And it's very simple. We only buy a certain type of music. We only buy from a certain type of artist. We are in the iconic song business, right? And we're in the legendary artist business.

7:25or an asset is presented to us that is so financially good, the deal is so financially good, we can't turn it down. That's rare. In this day and age, in this market, that's rare. So the reason we've been successful is because we've been very focused. You have to have an element of taste in what you buy, and then you have to have a marketing platform to grow, right? And think about it this way. If I'm an investor and I'm looking at music as an asset class, if you can get 5 % in a treasury bill, do you want 5 % in a music catalog? No, because a music catalog is just so much more risky, right? So you have to generate significant returns for it to be interesting for an investor.

8:22So, you know, forgetting debt, but if you're paying, you know, a high teen multiple and you're buying a bunch of junk, that asset is going to depreciate over time. So the multiple you're buying is going to go up instead of down, and it's going to be very hard to generate return. That's what you're seeing in the business today, in my opinion, right? That's you're seeing in the business. For us, because we've developed this very unique marketing platform over time, we have 120 professionals, most of which are marketing, branding, content creation, digital strategy. We make our own biographical films.

9:07We produce our own Broadway shows. We produce our own documentaries. We are producing our own immersive experiences. I don't know of a competitor that has that infrastructure. So if I'm paying a mid-teen return, you know, which call it as a six and a half percent cash on cash return, which is not an interesting return for an investor. And my competitor is paying the same thing, but they don't have infrastructure to grow the earning streams, you know, eight to 10 % a year or 12 % a year, how are they delivering return? But over 20 years, that's how we've been able to deliver returns to our investors, our partners.

9:50And that's why we've been able to raise this enormous amount of capital. But by the way, we have to cut off every time we raise. We always are oversubscribed in our fundraise because it's very hard to find a management team in music that can deliver returns.

10:09Dan Runcie: And for you all, that makes sense given that the value add has been active management. Active management, right. But I suppose that some of your competitors that may be more on the passive side of things, and I know you use the term junk, but there's a lot that's in between there. If they're in many ways underwriting a different product where they're saying, okay, even if we don't need to make this the next Whitney Houston biopic, this is still going to have steady returns and we can underwrite it this way. But I guess for you all, especially those that may think you're overpaying, the case maybe made that, okay, well, if primary rave's doing that, they need to be so certain that this Bob Marley biopic is going to crush.

10:46Dan Runcie: Yeah. You know, look, if you look at Bob Marley, since we purchased a partnership interest in Bob Marley's music publishing, I think it's been eight years. We've quadrupled the earning stream, right? And I'm not going to tell you the multiple we paid, but it was a very high multiple, right? The biofilm wasn't a smashing success. Didn't do a billion dollars at the box office like Michael Jackson. Didn't do$400 million at the box office. It was an excellent film that did okay at the box office. but regardless we we had increased the earning stream of the catalog i think it was three and a half fold through the release of the movie so um you know we don't rely on home runs we rely on singles and doubles every single day now home runs are nice and then your life there is that for you all bob marley was like such a sure thing yeah i mean i had run island records for many years.

11:53So, you know, I knew the family, I knew the catalog, I knew the music, we felt it was undervalued, even at a high multiple. But without infrastructure, without marketing, you know, it's very hard to generate, you know, positive returns.

12:13Dan Runcie: Let's take a break for our chart metrics stat of the week, which is 2.89 billion. That's the number of streams that Guns N' Roses' Sweet Child of Mine currently has on Spotify, which makes it the fifth most streamed song from the 1980s. Number one is The Police, Every Breath You Take. Number two is Michael Jackson's Boozy Jean. Number three is Journey's Don't Stop Believin'. Number four is AHA Take On Me. And in that fifth spot is Sweet Child of Mine, which Larry walked out to on stage at this year's summit. Let's get back to the episode. And you mentioned the Michael Jackson biopic, of course, billion dollars.

12:51Dan Runcie: Queen is in the same category as well. I know you don't do auctions, but are there any deals out there that you look and say, um, maybe we should have, you know, ponied up and put a little bit more on there for them? Well, look, I'll tell you in the last 90 days, right? We bought Harry Chapin, proprietary. We brought Robert Palmer, proprietary. We bought Pete Townsend and the Who. When I say we bought, We partner. Foreigner. Massive catalog. We probably had eight acquisitions in the last 90 days. All proprietary. If you look back, you know, we were involved in the Bob Dylan discussions and it went for an extreme multiple.

13:34And we just felt that we couldn't deliver appropriate growth and appropriate returns, given the multiple. Who wouldn't want to have Bob Dylan?

13:43Dan Runcie: And it also makes me think of like Prince, for instance, too. And I know that because there's so much that's focused on these, there was an element of key person risk involved. Okay, if this nine part Netflix documentary doesn't go through, how does that impact the underwriting that we expected that we would be able to do for this legendary act? Well, listen, as I said, when we underwrite, we're underwriting singles and doubles because you can never predict a home run. I mean, I'll give you an example of some home runs, but you just can't predict them. And on Prince, Prince, when we did the deal, was in probate.

14:20so when a when a an artist is in probate catalog music is in probate you can't do anything it's under the court's control it's very hard to get anything done um so when we you know michael jackson's been in probate still still in probate i don't know 20 plus years right we got prints out of probate in six years that's like lightning and now that it's at a probate you know there's a lot we have going on, including Purple Rain on Broadway that's coming up in the spring and lots of other very big conversations we're having on things that could eventually be home runs. But Prince has been a fantastic investment for us.

15:05Absolutely fantastic investment so far. And we haven't even, you know, released some of the big marketing opportunities that we have.

15:16Dan Runcie: you know by the way think about prince there's a vault of thousands of unreleased songs we're working with our partners at at north star uh and uh some of the record labels you know we've been releasing an album a year in some cases more since um since we bought into the prince estate and listen there's enough music to release an album a year for decades and decades switching gears a bit outside of the fund. You made a pretty big acquisition this year. Primary Wave acquired Cobalt. And for you all, this shifts the company a bit because I think for years you all were seen as you are, yes, a music company, but you're also primarily private investments.

16:01Dan Runcie: Let's make sure that we can maximize this. But by acquiring this company that is focused on administration, it feels more so, okay, this is no longer just private equity. You are building this into to a music company. And you mentioned some of your competitors. And I have to imagine that you're no longer looking at other funds as competitors. You're looking at the big three major companies and some of the other larger private music companies as your competitors. We don't look at ourselves as a private equity company at all. We're a music company and we've been a music company for 20 years. We just happen to be funded through private equity.

16:36And there's a difference, right? Because most of the competitors in the space now are pure private equity. They buy, they're looking to figure out how they can flip and generate a return. It's very hard. They have to securitize. They have taken a lot of debt. We look at things very differently. We're in the asset protection business, the asset management business. We're in legacy protection. Very, very different. So the purchase of Cobalt was never about what everybody thinks it was about, right? People think, oh, well, Cobalt was the premier independent publishing administrator. Well, we have very good partners right now.

17:23We're administration agnostic. We have catalogs with Warner. We have catalogs with Sony. to be honest, our preferred administration partner before Cobalt was Universal. I think Universal is the premier administration platform. Jody Gerson, Mark Cimino, David Kukokic. They are absolutely fantastic. So we push a lot of our music to Universal for administration. The reason we bought Cobalt was because they have a platform called Amra. And Amra is a CMO, right? They, ex-US, they do digital direct collection. And, you know, if you know anything about a CMO and you know what PROs internationally are charging you, uh there's a middleman you know everybody's got their hand in your pocket if you're a rights owner i like the idea of going direct especially digitally i like having my cash delivered to me in you know 60 to 90 days not significantly longer um lots of reasons why we wanted to acquire COBOL, not necessarily just for administration, although we will be certainly pushing opportunity to COBOL for administration as well, but we continue to be administration agnostic.

19:04And the other thing that COBOL had, which I think is a gem that's very under the radar, is something called COSINE. That's a tremendous asset and platform as well. And there are a lot of reasons we bought Cobalt, but ultimately we are now a full service music company and very few can say they're a full service music company. People can say they're a full service administrator, but we have 18 people that just do digital strategy. We have an entire playlist pitching team. We have a team that just creates content for TikTok. Obviously everyone has a sync team, right? But we look at it as a marketing sync team, not, you know, the phone rings, you pick it up, you license it, right?

19:52A lot of sync teams are licensing teams. We have a marketing sync team. And our content team is very interesting. We have a very large A &R staff based in LA that is just out. They're out every night in the studios, working with producers, pitching samples, pitching interpolations, pitching covers, little old primary wave. I think 2025, we had 11 number one Hot 100 songs and 60 top 40 songs. And we don't buy new music. We don't sign new and developing writers. That's just off our catalog. That's how you deliver alpha. That's how you deliver returns. And by the way, we bought an immersive company last year called New Substance, which allows us, you know we've probably got i don't know seven or eight immersive experiences that's that are in development and we just announced this is awesome this is what gets me up in the morning we announced a month ago that we bought lou adler's catalog the great lou adler the great record producer music producer film producer one of lou's great assets was rocky heart picture show so when we partnered with Lou and bought a big interest of Lou's music and his assets.

21:11One of the great assets was Rocky Horror Picture Show. And I remember as a kid going to see Rocky Horror, and I'm like, it's still generating income, you know, 40 years after I saw it. Well, we pitched The Sphere and we partnered with The Sphere and The Sphere in Las Vegas is opening Rocky Horror Picture Show, probably at midnight, Wednesdays through Sundays, right? Starting in March of 2027. And, you know, talk about home runs. Take a movie like Rocky Horror that's been chugging along for 40 or 50 years and the marketing machine that's the spear. We intend to have enormous success. And hopefully the sphere, hopefully we'll have success.

22:02and it'll roll out to the next four spheres that are opening around the world. But that's marketing. That's creating content. That's working with partners to generate growth. And that's our business, generating growth.

22:16Dan Runcie: Final question for you. We talked about scalability, growing this business. For so long, I felt you probably have the white glove service. Everyone wants to shake your hand when they meet to be able to close a deal, originate a deal. How does that scale as you continue to acquire Newcap Logo? Well, as my staff will tell you, I personally am the least important person in the company. So, you know, they certainly don't need me. Your staff may say that. Just the artist say that. Look, this is the biggest difference between Primary Wave and the rest of the business, right? You look at Universal, fantastic company, right?

22:55I don't know, 8 million copyrights. You look at Sony, another great company. Probably 8 million more copyrights. You look at Warner, another good company, right? 6 million copyrights, 5 million copyrights. Primary Wave has 100 ,000 copyrights, okay? We are, again, the largest owner of legendary music in the world. We are probably the fourth or fifth biggest music company in the world. We only have 100 ,000 copyrights, yet we have more staff than most companies in the business. More creative staff. between, you know, content immersive, producing film, marketing, branding. We have, we have 10 brand people on staff and I don't know of another company that has one.

23:41We have 10. So that's our ability, uh, to grow. And, you know, our, our briefcase could have five times the amount of copyrights and we still have the ability to deliver returns, but we're not buying stuff. I won't say junk, okay, because people get offended. We're not buying stuff. We're not buying it just because it generates income. That's the business today. Because there's so much capital, people need to put money to work. So they're not focusing on what is exceptional. They're focusing on what they can buy. That doesn't necessarily lead to good results.

24:23Dan Runcie: Well, I'd love to continue and ask you a follow-up, but we will pause there. but ladies and gentlemen, Larry Mestel.

24:33Dan Runcie: Thank you again to Larry Mestel for joining us on stage. Thank you to Sean T. Smith for capturing the audio and video at the summit. Thank you to our audio producers, G and Eric for everything you do to help make Trapital possible. Thank you again to Jesse, our vent producer on stage at the summit. Thank you as well to everyone that joined us at the summit. And thank you for listening. If there's one person, you know, that would really enjoy Trapital and get along, lot out of it, then send them a link to the show. Word of mouth is still the best way to grow. And if you have a few moments, leave a comment, leave a review.

25:05Dan Runcie: That helps make sure that Trapiddle reaches the right people. Thanks again. Talk to you next time.