Why Investors Are Looking Beyond Iconic Music Catalogs

0:04I'm Dan Runcie. Welcome to Trapital, where today we're talking about investing. In music specifically, the opportunities that capture the biggest headlines have been the biggest companies, the biggest artists, and the major catalog sales that are often for billions of dollars or for the artists who are household names. But there's arguably an opportunity that has been overlooked by many, but is starting to become more and more mature as music as an asset class develops. And that's that independent layer, both with the companies that are attracting the artists who are leading independent record labels, or the artists that have been independent themselves, or the artists that may be leaning and building in the music industry in non-traditional ways.

0:48And that also looks at the catalogs for those artists as well, that may not be the Queen Michael Jackson level, but the returns may be just as valuable if they're aggregated in a smart way. And that opportunity right there, that's what we're going to get into in this conversation. Because believe me, there are a growing number of investors, LPs, and others in this sector that believe that the deals that capture the biggest headlines are getting too expensive, the sellers want too much money for them, and the market for music as an asset class is just grown too much that there's less opportunity to generate a return for the LPs, which is the fiduciary responsibility for any investor.

1:31So that opportunity we're talking about, there is high risk there because it's less proven, but if it pays off, there could be tremendous reward. And that's been a big focus for today's guest, who is Mike Morris. He is a managing partner at FlexPoint Ford, which has made investments in companies like Create Music Group, Gold State, Duetti, Network, and more. And you're going to hear about how Mike went about those decisions, some of the trade-offs, and how he sees the opportunity moving forward. This was a fun conversation with Mike, and I hope you enjoyed it as much as we did. Here's my conversation with Mike Morris.

2:08This episode of Trapital is presented by Symphonic, which recently launched Next. Their new initiative focused on catalog acquisitions, royalty advances, and indie artist financing. As the needs of independent artists and labels evolve, so does Symphonic. With Next, they're creating new pathways to capital and strategic partnerships, giving their clients the flexibility to grow, invest, and scale on their terms. According to Symphonic CEO Jose Brea, Next is designed to be flexible across a wide range of opportunities, typically supporting transactions from catalogs generating around$25 ,000 in the last 12 months of earnings, up to larger multi-million dollar acquisitions depending on the opportunity.

2:51To learn more, tap the link in the show notes. This episode of Trapital is presented by Symphonic, which recently launched Next. Their new initiative focused on catalog acquisitions, royalty advances, and indie artist financing. As the needs of independent artists and labels evolve, So does Symphonic. With Next, they're creating new pathways to capital and strategic partnerships, giving their clients the flexibility to grow, invest, and scale on their terms. According to Symphonic CEO Jose Brea, Next is designed to be flexible across a wide range of opportunities, typically supporting transactions from catalogs generating around$25 ,000 in the last 12 months of earnings, up to larger multi-million dollar acquisitions depending on the opportunity.

3:38To learn more, tap the link in the show notes. All right, we are here with FlexPoint Ford's Mike Morris. Welcome to Trapital. Glad to be here, Dan. Thanks for having me. Of course, appreciate you coming here in San Francisco. And anytime that you and I have talked or I've looked at your strategy, I feel like your strategy's a bit more unique in that you're specifically looking at independent sector and you're looking at the opportunities that aren't just the biggest artists in the world, the most iconic. Is that how you look at it on your end? Yeah. No, I think that's broadly right. I think it starts with the usual things that you and your guests have talked about in the past around just the secular growth in music.

4:17But then what's talked about quite a bit less is that within the independent sector, that has been taking quite a bit of share from the majors over the last 10 plus years. If you go back in time, 10 years ago, the independent sector was kind of 25 % to 30 % of overall, at least on the recorded music business. Fast forward to today, that's closer to the mid-40s from a market share standpoint. So when you take both the secular growth of the industry overall and the secular growth of this part of the market, it's a pretty interesting place to be. The second thing is that as opposed to the majors where obviously you kind of have the big three.

4:57And then we can argue about whether Concord and BMG coming together qualify as a major or not. But there's a tremendous amount of fragmentation in that independent part of the market. And this is where a lot of the interesting technologies, especially on the services and infrastructure side, have popped up over the last few years. And so all of those things have made it a pretty interesting place to be and have informed a lot of the investing that we've done that you just mentioned. A lot of people have viewed the independent sector, as you mentioned, yes, it's not what the majors are after necessarily, but because they see it as being more fragmented, people often can think, okay, do you invest more in the pipes or the distribution where you can capture everything as opposed to trying to pick the winners that are most likely to capture the most successful entities, whether those are the artists or the companies producing those artists?

5:48Do you have a lane there based on what end of that spectrum you may lie in or where you see those opportunities? You make a good point about kind of how the industry and this independent part of the industry have formed. If the question is around, is it more interesting to invest around these independent artist catalogs or the infrastructure in the pipes, as you've called it? Look, we found good opportunities in both lanes. But I think as you look forward, and this is really where a lot of our portfolio companies are going, you really need to bring both together. I think today, just being capital and just going and buying independent artist catalogs at random, that's not a winning strategy.

6:26It probably wasn't 10 years ago and it's certainly not today. So today I think it's a combination of bringing the infrastructure, financial savvy to that and discipline to that is where really the opportunity is. It can take the form of being on the identification side. So using all forms of data to identify the catalogs that are doing the best, or it can be using better pipes to get better distribution, get better, again, get uplift on your distribution, market the music better. There's just a tremendous amount of opportunity right now to kind of better administer and monetize some of these independent artist catalogs than there has been in the past.

7:05So if we're thinking about that and taking a step back with it, the one place I'm curious and how you look at it is the risk, because like anything, high risk, high reward. How do you underwrite those opportunities? Make sure that, yes, you know, the upside is there, But if the underlying thing, even if you're not directly investing directly in one particular artist, it's still very hit or miss on what that can look like, which is less proven than some of the biggest. Yeah. Well, I have two thoughts for you. One is that it's less hit or miss than most people would think. Just because you're not Bob Dylan or Billie Eilish or Justin Bieber doesn't mean that you don't have a fan base that's very dedicated to you, that is very loyal to you, that'll listen to not only your legacy catalog, but also everything new that you put out.

7:56So just because your followership may be less than, you know, Billy or Justin doesn't mean that you don't have 10 ,000, 100 ,000, a million very dedicated listeners and followers on Spotify or the other platforms. So I think there is a little bit of a misconception that just because you're a smaller artist, that it's riskier. The second layer is that what we're doing, and this is important, we would not, even with the best data in the world and the most confidence in the world, we're not going and making isolated bets around a single artist or a couple artists or even five or 10 artists. We're building in different ways between our portfolio companies, diversified pools of these royalty assets, as well as services contracts and services relationships with these artists.

8:48And when you put all of those together into a diversified pool, and assuming that you're doing your job on the front end to make sure you're getting access to the right contracts and the right assets and the right repertoire, it ends up being this diversified pool of fairly visible, predictable cash flows. But it comes down to getting that level of diversification, not taking large single bullet shot type exposures on individual artists and getting the diversification to provide those predictable cash flows. Right. And that makes sense at the more mature level, right? Because as you mentioned, not everyone is Justin Bieber or Bob Dylan, but you're also investing in companies that are investing earlier stages as well, right?

9:27Catalogs that are three, four, maybe even one year old. And there is a bit more risk, but I also think you're pricing and underwriting that type of risk. Well, you just hit it. And I don't mind saying because I think it's public, but one of our portfolio companies, Duetti, has recently announced that they're now buying tracks in catalogs as young as six months, which would have seemed entirely crazy even to me not all that long ago. But for Duetti specifically, just to hit on them for a minute, they're a digitally native catalog acquirer in services business that has always been focused initially on tracks that are two years plus old.

10:09And now with the body of data in the kind of technological tools that they've been able to build over the course of their reasonably short existence, we now feel that there's enough confidence that we can go out and very selectively buy those tracks down to six months. But you hit on it, the price is key. Clearly, you cannot pay the same price for a six-month-old track from a very emerging artist, irrespective of how much momentum they might have behind them, that you can for a 10 or 20 or 30-year-old track that has proven performance over the course of years or decades. But by getting the underwriting good enough, it won't be as tight as it will be for a 10 or 20-year-old track.

10:50But in combining that with the right pricing, that's an attractive place to be from what we've seen so far. They recently put out their own report. They showed for the multiples for some of those younger catalogs. And you're looking at 3, 4, 5X. And again, that's very different from the music that is much more mature. So again, that's what we're talking about when you're talking about, okay, how do you price the asset accordingly? Because obviously, if that works out well, that's a tremendous payoff, right? That's exactly right. There's also a lot more risk that comes with that. And that also makes me think of another investment that you all have that's public, which is Create Music Group.

11:24If the rest of the music industries have been more focused on the traditional DSP game, they're looking at YouTube or TikTok and creators themselves, hence the name, or even things like record labels for cats. For dogs. For dogs, not cats, for dogs. Yes. The through line there is, okay, what is the type of opportunity that may be less obvious on paper, but could have that next upside down the road? Yeah. The next opportunity that could have more, be less obvious on paper and have more upside down the road. I think you hitting on Create is an interesting example of kind of where they've taken their business.

11:58It might be a little known at this point, but Create started out as a pure play YouTube rights management business. That's how they were built. That's really just around going and collecting on UGC, user generated content that was on YouTube, doing the conflict clearances and getting money from YouTube into the correct IP owners, owners pockets. So they grew up digitally native and over time have taken the business further to get into distribution, to get into record label ownership. But also because of that kind of experience in formation story around being native to YouTube in UGC, this isn't well known, but they also have a very significant digital content studio called Flight House Media that has over 300 million subscribers to own channels, has over a billion unique views a month that they're able to leverage to better get the artists that they represent and their repertoire and music out into the world.

12:56So those more digitally native businesses like Create that came up outside of the traditional record label system and outside of being reliant purely on the DSPs early on are something that we're very bullish about. Are there any additional risks that a company like that faces that may be different from the more traditional music groups? Yeah. Look, I mean, when it comes down to it, the risks would really be they don't have that classic repertoire of the Eagles and the big named legacy catalog acts. What's the risk of that, though, if it's purely financial, right? Like, is there a risk in not having just a marquee name, even if you have others that can still generate?

13:38Well, I mean, I think that would be more the view of some of the traditional label and publishing people, that if you don't have this kind of corpus of legacy, iconic repertoire, then you just have a riskier catalog. But for Create today, they have exposure and generate revenue through literally millions of tracks spanning the independent music ecosystem and spanning all kinds of genres, geographies. And most importantly, they're exposed to the highest growth areas of the music ecosystem today. So when you put all of that in the blender, is there really more risk to a platform like Create versus a major label?

14:23I'd argue not. And you're exposed to capturing more of that upside associated with the fastest growing parts of the industry. Do you look at platform dependency as a primarily important risk factor, whether it is YouTube or TikTok or others? Yeah, of course we look at it. If you're a content owner or a content service provider, whether you're in music or film or audiobooks or anywhere else, you are dependent on the DSPs that you're distributing through for the most part. And in music, obviously that's your Spotify's and your Apple's and your Amazon's YouTube's. And so we do spend a lot of time, and this is what a lot of our kind of like internal discussions are around how we best form these symbiotic relationships between the DSPs and the IP holders.

15:12One really can't exist without the other, but there's a constant tension. It's important to maintain the relationships with those DSPs in a way that's going to end up making sense for our individual platforms. But there is a playbook to doing it, but it involves a lot of hard work, relationship building, et cetera. Let's take a break for our chart metric stat of the week. Ella Langley's country hit, Shoes in Texas, has been one of the most popular songs of 2026 on the Billboard charts. 15 weeks as the number one song of the Hot 100 countdown. That's more than Mariah Carey's We Belong Together.

15:50That's more than Whitney Houston's I Will Always Love You. Does that mean that this song is actually bigger than those songs? We're not going to get into that today. But what we will get into is Ella Langley herself and how her stardom has grown specifically on Spotify. She currently sits at just under 32 million monthly Spotify listeners. She crossed the 30 million threshold in May of 2026. She crossed the 20 million threshold in January of 2026. She crossed the 10 million threshold in June 2025. And just as recent as 2024, she had under 3 million Spotify monthly listeners. Again, this is an artist who had been active for years, but you never know when that moment might be that an artist may pop.

16:34Best of luck to her. Let's see how well this song continues to do for the rest of the summer. Let's get back to the episode. So looking at the portfolio, are there any areas that you feel are exciting areas to you that you haven't been able to make or that you're still looking to find the right opportunity? Yeah, I'd say that the one area that's most like within that kind of combination of having the right capital, having the right service offering that's most interesting to me right now, but no one has quite cracked the code on yet is around marketing. Within music, historically, marketing has been a little bit of this nebulous thing where going back 10, 20 years, it's you signed to our label.

17:14We're going to market your album the right way. We're going to get you on the right tours, on the right radio stations. There was a lot of smoke in mirrors as to how that all worked. And if it ever worked, I think that going forward, finding measurable ways to put money, marketing dollars behind the right artists, the right, the right tracks, the right songwriters is, is like a problem that people have been trying to figure out for a while. But again, no one has quite cracked the code on. And we're monitoring kind of that service offering to see if something emerges. Because if someone gets it right and gets it to a very measurable place where you can kind of know with some degree of certainty, we put$1,$10,$1 million behind a track or an artist, what is that going to result in in terms of a return on capital?

18:02Like that's going to be a pretty compelling place to be if someone can crack the code. Of course, historically, people would just throw money at different things and whatever types of promotion based on who they thought was popular or just the intuition. But now I feel like so many artists and the folks they represent, they're relying on meta. They're relying on all these other platforms where the metrics are pretty quantifiable. How that lends itself to long term value creation beyond just you're able to acquire this user or this viewer for X amount. But you're saying that, OK, if we apply that more directly to music and maybe be a bit more holistic, how can you have a more complete picture on what that looks like for the customer or what that looks like for owning that relationship and marketing?

18:44Yeah, that's right. But the measurability piece of it is it's very difficult because if you get let's say you create a viral moment on TikTok, which is, by the way, very difficult next to impossible to create virality. There needs to be substance. I would argue the vast majority of labels now are out trying to manufacture it by paying creators to feature their songs in a dance TikTok video. But it doesn't mean it's going to translate into something. But getting that to a place where you can measure it with some degree of certainty is where things need to go before someone or some company breaks through.

19:19I assume similarly, would that lean a bit more towards someone that has the distribution or the pipes of the marketing to be able to have some type of technology that serves everyone as opposed to maybe an agency that is more so picking and choosing? Yeah, I think that it needs to be less, when you say picking and choosing, I think it needs to be less based on kind of like taste and intuition and more based on data numbers. So as to who it is, is it someone who already has distribution? Is it someone more on the agency side? It's hard to say. The barrier for all of these groups, they have their own way of doing business.

19:55They're making money one way or a couple of ways today. This is this may be a new model for how you make money in the in the music business. And so I wouldn't it wouldn't surprise me at all if it's someone who is a totally new entrant and who doesn't necessarily have distribution pipes or agency relationships or an agency offerings today. Anyway, there needs to be real, you know, real data, real technological infrastructure. And then, you know, an operator who hopefully has some and entrepreneur and management teams that hopefully have some of that taste and ability to see where culture is going, but can marry it with the data, with the financial acumen, and with a scalable infrastructure to build something enduring and of consequences.

20:37Those are the types of businesses that we want to get behind. And on a similar perspective, are there any trends right now that are more popular among investors or even among the asset class that you're less excited about? Yeah. I'll give you a controversial, it might be a little bit of a controversial take to some people, But I don't want to say it's a trend. It's just been kind of the norm. And you have a lot of very vocal folks, especially in the catalog aggregation space. Today, they'll just say like buying anything other than the blue chip artists. And frankly, a lot of what I would consider just like old white guy music.

21:12So owning the Eagles and Bob Dylan and Bruce Springsteen, there are a lot of people out there that would say that's the only stuff to own. That is all that will endure when you buy anything even remotely new that's not going to endure. My controversial take is that this is a little bit informed by, as we were talking about before the show, as a father of three with a 10-year-old, a 7-year-old, and a 5-year-old. I don't think my kids are ever going to listen at all to the Eagles or to Bruce Springsteen or to Bob Dylan. And demographics have a way of catching up. I listen to some of that music because that's what I grew up listening to because my parents listen to it.

21:51So it's like a part of my listening. But I just don't think it's going to be the case for this next generation coming up. So I wouldn't be surprised if before you and I get too much gray hair, I already have more than you. you start to see declines in those catalogs that were supposed to be very much perpetual and forever catalogs. I agree with you on that because I've had similar thoughts. And of course, streaming is more tied to the master side, but you can see it in the streaming data. I think it was a couple of years ago where Drake had more streams on Spotify than any artist before 1980 or some type of stat there.

22:26Similar, right? So that data is there, but there's clearly still people making these bets. So I guess for you, I know it's easy to say, oh, okay, like what are they doing? And just looking at that, but is there a rationale that you see that you're like, okay, even though that isn't my strategy, I understand why people are doing that. Well, look, I I'd say that I have a lot of respect for the primary waves and pop houses of, of, of the world and what, and what they're doing. I think that, you know, in my view, what they're doing in terms of finding other ways to essentially monetize these catalogs, including really the name, image, and likeness by doing Broadway plays, by doing biopics and the rest.

23:05That's the only justification that I can find for going and paying 20, 25, 30 times for one of these catalogs. But you better be really damn sure that you know what you're doing and you're going to both drive more consumption and drive these ancillary streams before you can do it. Because going and just acquiring it passively, if you're just sitting on it, I think the demographics are going to work against you. And the cash flow yields on it at those type of multiples aren't very attractive. Yeah, which does kind of speak to the operating model of this industry from its beginning, right? You're signing all these artists because you're hoping that one of them becomes the legendary Springsteen Dillon home run when there was thousands of others, right?

23:47I guess the equivalent of that is a lot of these firms investing in all of these artists at 25, 30X multiples, hoping that one of them does become the next Stabble Voyage experience, the next Bohemian Rhapsody, the next Michael biopic. I think what you said is mostly right. Other than that, on our part of the market in this independent, middle-class, whatever you want to call it, certainly we hope that one or more of them becomes the next major artist. It doesn't have to happen in order for us to do very well and for our platform companies to do very well. It just needs to work out well enough on average across dozens, hundreds, thousands of artists and tens of thousands or millions of tracks.

24:31And the other thing I think that stuck out to me about your strategy at Flexpoint Forward is that you're not making 15,$20 million investments hoping that the company can then be sold for a couple hundred million dollars. You yourself are making the nine-figure investments, which then implies 10-plus figure exit potentially from those types of investments, which in this industry, there's probably been fewer and farther between in terms of companies that end up getting sold as opposed to so much of the M &A activity, frankly, happening even below what may fit within most of the deals from the investments that you've all made.

25:08Yeah. I think you got that without talking about our strategy too closely. You got most of that right. There have been plenty of nine and 10 figure exits in the music industry, even in the last year or two without speculating over what DistroKid was. Look, it is a relatively niche business. There aren't going to be hundreds of billion dollar plus companies within the music industry. So we're very, very selective about where we invest, but you're right. We're not investing at the kind of like traditional VC stage. And we're also not investing at the kind of mega cap stage. You're not going to see us take universal music private anytime soon, but we're trying to get behind really those handful of best in class players that can go from being eight or nine figure businesses to nine or 10 figure businesses.

25:57We feel confident, especially given some of what we talked about before in terms of fragmentation and the growth the independent sector, that there are going to be opportunities like that for years to come. And with those public companies, whether it's the labels or even Spotify itself, we've seen how the public markets have discounted them. There are a number of reasons why, but one of them is AI and just the markets being a bit uncertain on how AI is going to impact those companies. But we know that AI also impacts the companies that you all invest in too. So how do you look at both from the future companies that you may be looking at, but also your own portfolio, AI itself, and just ensuring that, okay, this is a company that is more defensible versus being less defensible.

26:39Yeah. I mean, look, I think it starts with the question of whether we're all going to be listening. We're all going to drop all of the music that we've been listening to our entire lives and discover, and to the extent that you still at 41 years old, like me, still discover new music, whether that's all going to be artificially generated three, five, 10 years from now, I feel quite certain that the answer to that is no. On the other side of that is what is AI going to do to the operations of these businesses and how they're run every day, how they sort new data that comes in, how they optimize their own internal processes for running a business day to day.

27:19The best businesses are going to embrace it. They're going to optimize and they're going to end up growing a lot faster because of it. And those that don't are going to have a tougher time going forward. And knowing you and even through this conversation, you are very focused on what you're investing in and what you're not investing in. And even though you have that discipline, do you ever feel a bit of that pressure or a bit of that focus, whether it's internally at the firm or outside to be like, okay, well, should we do something more with iconic catalogs? Should we do something more with this buzzy thing that other investors in music are looking at?

27:50There is some degree that varies widely from firm to firm of that oscillates from time to time, depending on what's going on in the world. I think at FlexPoint Forward, we're pretty lucky, both in terms of the types of investors that we have, as well as just our culture and mentality that we are certainly never pressured to chase fads. If anything, we probably are more mindful of and reluctant to go after things that have the appearance of being fads or having some layer of FOMO sprinkled around them within the industry. So whether it's investing in businesses that have some kind of AI orientation, whether it's chasing big catalogs for the sake of being able to say, name your major artist, we don't feel a lot of pressure to do that.

28:32We're very focused on the nuts and bolts, cash flows, unit economics, and again, the quality of the management teams and the entrepreneurs that we back. That's what we're all about. And then, of course, I'm sure that part of your underwriting process when you're looking at these companies is looking at, okay, what do the exit opportunities look like? And do you have a feel for the company specifically, whether or not you think that, okay, the exit opportunity for this would be more likely to be a financial acquirer or a more strategic move? We worry or we think less about who specifically the buyer is and more about, again, kind of building these enduring businesses that are able to compound growth over time.

29:14Because it's my experience, having done this for a while, that trying to over-orient yourself to a specific exit and trying to force exits is kind of a losing strategy. The best companies are bought and they're not sold. The exits end up taking care of themselves when you build a really good business. So fortunately, within music specifically, there is a very robust buyer universe around this independent sector from the majors and Universal having bought downtown not all that long ago to now very large strategics like BMG and Concord to more and more private equity firms coming into the space, which is a little bit to my chagrin because I don't like competition, but it's good to have more buyers for assets.

29:59And then maybe more interestingly, as a prediction, you're having new forms of credit capital come into the industry, especially from a catalog standpoint. Now with insurance companies actively doing it indirectly, but doing it through managers going and buying up these long duration catalogs that they're putting on their insurance balance sheets because they want very long duration, uncorrelated yield in their portfolio. You can even now see with Sony and GIC, sovereign wealth entering the space. It's a pretty robust set of buyers out there. Who the most likely are depends on the business and the asset.

30:39But again, I go back to if you build a growing business that compounds value, that has predictable cash flows, the exit is going to take care of itself. So as you're looking through, you're looking at 2027. Are there any trends that you think will be growing conversations there? Maybe this marketing one you mentioned, maybe one of them as you think about these opportunities. But are there any things that aren't big conversations now, but you think will be? Look, I think the marketing thing is a big topic that everyone is focused on, or at least the more forward thinking kind of companies in the music ecosystem are focused on.

31:14I think what you're going to see as we move forward in 2027 and really beyond are more novel forms of financing catalogs and partnerships with artists. I'm not sure if you've covered what happened with the weekend's catalog, but those types of transactions, especially around the iconic or soon to be iconic artists, I think you're going to see a lot more of that in terms of X artists took control of their catalog, entered into a commercial partnership and financing partnership with forms of institutional capital. They're not simple transactions to pull off, But I think I'd be surprised if you didn't see one or two more by the end of 2027.

31:51Well, we'll definitely have to follow that. But Mike, this was fun. I appreciate you coming on and sharing a bunch of insights and predictions on where we think things are going. So thank you again for joining us on the podcast. Thanks for having me, Dan. And that is a wrap. Thank you again to Mike Morris. Thank you to Trevor and the team at Empire for letting us record at your studios. Thank you to G, Eric, and Rwana on our team for everything you do to help make Trapital possible. And most importantly, thank you for listening. If there's one person you know that would really enjoy Trapital and get a lot out of it, whether it's this episode on investing or any of the conversations that we have, send them a link to the show.

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