Universal Music Group could be the greatest pure play music entertainment stock in the market.

First to get this over with let’s go over why Universal Music Group (UMG) is a worthy target for rockstar investor Bill Ackman. UMG is the current premiere market leader in exclusive music IP rights. They own: Taylor Swift, Justin Bieber, Ariana Grande, BTS, Drake, The Beatles, Bob Marley, the list goes on. In fact one out of every three songs you hear streaming globally is owned by UMG. Of the top 10 artists globally UMG owns exclusive IP rights to all 10. These rights last anywhere from 70 to 100 years and even after the artist dies. Furthermore the partnership between label and artist is often mutually beneficial. It does not make sense having artists deal with the day to day problems of building a brand, royalties, and merchandising when they could be focusing on creating content. One could even argue the most valuable human assets UMG has are the production teams and eyes/ears that finalize the product. This would suggest that labels like UMG make the stars and not the other way around. Disney is the classic example of this scenario, and Ackman argues the same could be said about UMG.

This all leads to the question: Why should I own a company that owns music IP that could be easily pirated even if it is the clear market leader when I could invest in streaming instead? The answer to the billion dollar question is: Pirating music has become a thing of the past. Streaming competition has become so heated that the distribution for artists music to reach customers globally is effortless. The music industry has found new ways to monetize digitally. Concerts like Travis Scott’s Fortnight event easily brings in millions of streams per event with ticket sales and subscriptions to follow. Music rights exposure in movies and television are jump started by the likes of Netflix, Disney+, Amazon Prime. Ad revenue through free streaming platforms like YouTube. All the way down to McDonalds Happy Meal partnerships with BTS increases UMG’s bottom line. As well as, largely unexplored opportunities in NFT monetization. In the chart below you can see that trend. An industry plagued by piracy has found new ways to monetize and better faster ways to reach customers brought to them by streaming platforms laying the pipeline. It is also notable that it is far easier for content companies like UMG and Disney to build a platform and disrupt streaming. Than it would be for streaming platforms to create decades worth of content, brands, and characters other than by acquisitions. The only companies in the music streaming industry with that purchase power being Google, Apple, and Amazon. If one were to enter the content world they would have to settle buying the second best content at best.

Now let’s talk about the valuation. The only comparable music IP rights owning company in the market is Warner Music Group (WMG) and UMG is the obvious bigger player, but trading below valuation of WMG. Following is a quote from JPM Chase analysts:

Of course should the overall music streaming industry decline UMG and WMG would follow. That being said the Reddit and WallStreetBets infused run up anticipating Ackman bringing a high profile tech company public and then subsequent sell off as the market turned and the UMG deal announced has brought PSTH down to its SPAC redemption value. I believe that at this price with this exceptional market leading company the stock is a compelling buy and Ackman’s thesis may be correct while the raging Reddit retail investors who fled chasing a high growth tech startup deeply wrong. Universal Music Group currently owns an unrivaled music IP moat, is trading at below its lesser competitors valuation, and possibly is the best pure play at music streaming in the market. Also, UMG is not a streaming platform therefore not competing in the costly streaming wars and only benefiting from them. Not getting into the multi layer structure of the SPAC vehicle that Ackman has created it’s primary target UMG is a must own for any investors aimed at the media, entertainment, and streaming industry.