The Update Issue: Good Times for Bruce and Spidey, No So Much Fun for Foley and Cathie

I'm switching up the order this week and starting with the updates and returning to some of my favorite 2021 topics... I've written several times about why I think the music business is a great one, because of how durable a cash-generating asset popular music is. Of course the music publishers would agree, but lately […] Not rendering correctly? View this e-mail as a web page [here](. [Empire Financial Daily] The Update Issue: Good Times for Bruce and Spidey, No So Much Fun for Foley and Cathie By Berna Barshay I'm switching up the order this week and starting with the updates and returning to some of my favorite 2021 topics... I've written several times about [why I think the music business is a great one,]( because of how durable a cash-generating asset popular music is. Of course the music publishers would agree, but lately we've seen more financial types get involved in scooping up music rights... Those recurring royalty cash flows sure do look good in a world of near zero interest rates. The thirst for recurring cash flows allowed [Bob Dylan to sell his catalog for $300 million]( and Paul Simon to similarly cash in for a cool $250 million. But the Boss has rolled in with a deal that blows both of those out of the water... Last week, it was reported that Bruce Springsteen sold his masters and publishing rights to Sony (SONY) for a whopping $500 million. Springsteen had recorded all of his albums with Sony's Columbia Records, and in exchange for re-upping with the label after his original contract ended, he was given ownership of his masters. According to estimates from music bible Billboard, the Springsteen catalog generates just under $20 million per year in revenue. These revenues have negligible costs associated with them and convert almost entirely to profit. Even with a near 100% margin, Sony paid a very healthy 25 times cash flow... essentially betting that people will still be rocking out to "Thunder Road" and "Born to Run" in 2046. The pop culture website Vulture cheekily commented... Now, we're not saying he should or even that he could under the details of the sale, but what if in a few years Springsteen starts rerecording his whole catalog with a bunch of Bruce's Version albums? Could be funny! The joke is a reference to [Taylor Swift's act of revenge re-recording her past albums]( hoping to cannibalize revenues from the new owner of her masters, after her former manager refused to sell them back to her... a strategy that currently looks to be working out pretty well for her. Hopefully things will work out better for Sony, given its working relationship with Springsteen dates back almost 50 years to 1973 and his debut album, Greetings From Asbury Park, N.J. Why are we seeing so many of these deals now? In addition to Dylan, Simon, and Springsteen, Stevie Nicks and Neil Young have also cut similar deals recently. Part of this has to do with age... everyone I listed above is now 70 or older. Whether they want to cash out now while they can enjoy the money or want to make sure someone tends to their legacy after they are gone, no time like the present. And as Billboard reporter Melinda Newman explained to NPR, it's also about demand being so high right now... There has been an incredible influx of private equity money into publishing and catalogue purchases. So the time is right to buy – I mean, to sell your catalogue if you'd like to sell because you can get 30 times what it's worth. I think when she said "30 times what it's worth," she really meant "30 times revenues." There's no doubt though that these deals are trading rich – kind of like most financial assets these days – so the artists are smart to hit the bid. But while valuations may be stretched right now, to me the bigger takeaway is that smart people think these are great assets. The growth of the metaverse will only serve to increase the value of these music rights over time – since now music can be sold in the real world and the digital one. This is bullish for our Empire Stock Investor holding Universal Music Group (UMG.AS), as well as other industry players like Warner Music Group (WMG). Sony is also in the news as its latest film release, Spider-Man: No Way Home, pulled off the seemingly impossible this past weekend... The flick hauled in a whopping $253 million at the domestic box office and an equally stunning $587 million globally... and that's without any contribution from China, the world's largest movie market, where it has yet to secure a release date due to regulators and politics. This wasn't just the biggest movie opening since the pandemic started... it was the third-biggest global box office opening of all time. Spider-Man: No Way Home sits behind only fellow Marvel films Avengers: Endgame and Avengers: Infinity War in terms of first-weekend global revenue. The film is a co-production of Sony and Disney (DIS), which bought Marvel after it had already sold the Spider-Man film rights to Sony. The numbers are even more impressive when you consider the omicron variant wave that is hitting right now, driving up COVID-19 case numbers. The New York metro area – the epicenter of the outbreak right now – was the second-highest grossing region for the film, and two Manhattan theaters – the AMC Empire and AMC Lincoln Square – were in the top five grossing theaters nationally. As news started to come out about the big numbers for Thursday night previews, shares of short squeeze favorite AMC Entertainment (AMC) soared 19%. Does this mean the movie theater chains are out of the woods? In a word, no. Spider-Man: No Way Home had all the ingredients for a major hit. It is the latest chapter of a beloved franchise... and it's one that skews young. Older moviegoers continue to avoid theaters, but that clearly didn't matter to Spider-Man, which pulls a young crowd. There was also a sense of immediacy about seeing this film – people wanted to avoid spoilers about plot points and surprise casting. The film also enjoyed great exit polls and word of mouth. Spider-Man: No Way Home's success belongs to it alone, not the industry as a whole. Looking at this chart of releases since the pandemic hit, it's easy to see that Spider-Man: No Way Home sits in a league of its own... Source: Variety As news site Puck's Matthew Belloni explained in his newsletter this morning... No, Spider-Man's success doesn't mean the box office is fixed. Those Nightmare Alley numbers (a $3 million debut on a $60 million production budget) are indeed nightmarish for Searchlight/Disney, and West Side Story continues to sink. Hard not to see anything but failure for 2022 adult dramas that don't have a streaming component. None of the other new releases did well, and neither did the holdover movies from prior weeks. Another tell that Spider-Man's read-through to the health of theaters overall is slim... AMC's rival Cinemark (CNK) was only up a nickel on Friday. The AMC apes got a little ahead of themselves last week, and despite the stunning results for Spider-Man, AMC shares were up less than a buck shortly before the market close. --------------------------------------------------------------- Recommended Links: [The five best stocks to buy before 2022]( How would it feel to begin the new year with five brand-new chances to make 500%? You can access forensic analyst Joel Litman's top microcap ideas in a brand-new report. [Simply click here to learn more](. --------------------------------------------------------------- [Buy This Stock NOW! (Ticker Revealed for Free Inside)]( After analyzing 25,000-plus stocks recently, one analyst uncovered a massive trend that's currently underway. One that's about to turn a $12 trillion industry on its head. And there are five stocks that have the potential to be massive winners thanks to the tsunami of cash that's about to be unleashed. [Click here to see one of them for FREE](. --------------------------------------------------------------- The hits keep coming for Peloton (PTON)... Shortly after I filed [my lengthy update on the home exercise company last Monday]( the company got hit by a trifecta of bad press. First, Peloton co-founder and CEO John Foley came under pressure in the wake of hosting a lavish holiday party at New York's tony Plaza Hotel on December 8. Peloton instructors attended the event and posted pictures to their social channels. Under fire, Foley explained that the gathering was a "personal party" hosted by him and his wife for family and friends, and not an official company event. But this didn't sit too well with some Peloton corporate employees... With the company's current business troubles, a company-wide hiring freeze went into effect in November and there was also a moratorium on holiday parties. The display of opulence came at a bad time, as one Peloton insider told the New York Post that "Company morale is at an all-time low." Shortly after news of the ill-timed party broke, Peloton quietly pulled its highly successful ad featuring Sex and the City/And Just Like That actor Chris Noth – aka "Mr. Big" – after a third accuser came forward alleging sexual assault by the actor. The spot had been very well-received after Peloton's unfortunate cameo killing Noth's character in And Just Like That... but the ad's expiration date came quite quickly. Finally, the Post – which seems to take great interest in kicking Peloton when it's down – reported on Thursday night that Foley had closed on a $55 million compound in the Hamptons. While the real estate deal was clearly in the works for months, the timing could not have been worse with the company's sales slowdown and inventory glut causing the stock to drop 75% from its highs, leaving many an employee stock option underwater. I was critical of Foley in my update, suggesting that Peloton needs new leadership to get through its growing pains. While a post-pandemic slowdown was inevitable, waiting too long to raise cash and having to sell stock at fire sale levels was not. I've seen this movie before... There is just too much hubris here. The [mishandling of the communications around the treadmill recall]( was the first tell, and the tone-deafness of conspicuous displays of wealth while rank-and-file workers suffer is the latest one, with many others in between. I'm a bull on Peloton's long-term potential... but Foley at the helm makes me nervous. While I still think Peloton could pull itself out of this tailspin with the right leadership, one headwind to a quick bounce back in equipment sales is the growing secondary market for bikes on Meta Platforms' (FB) Facebook Marketplace, eBay (EBAY), and Craigslist. The New York Times noted last week that bikes were selling below $1,000 on these sites (versus the $1,495 current price and $2,295 they originally sold for). One other interesting note from the Times... One striking thing about the secondhand ads is how so many bikes are described as "like new" or "barely used" – a sales tactic, perhaps, but perhaps not. I remain a long-term believer but a short-term bear on PTON shares, and I'll repeat what I said last week... I would rather buy it at $50 with some things looking up than at $40 or $30 with everything going the wrong way and with a team that has let shareholders down. Another entry in how the mighty have fallen (at least for now)... The ARK Innovation Fund (ARKK), run by Cathie Wood – who I called [the "reigning queen of the markets" back in February]( – now sits down 22% year to date, versus the S&P 500 and Nasdaq 100 indexes both up around 21%. It's a stunning reversal of fortune from earlier in the year when the manager was attracting a cult-like audience. ARKK is down around 40% from its peak in February. With inflation on the rise and the U.S. Federal Reserve signaling that tapering could come sooner rather than later, valuations have compressed for the kinds of disruptive technology companies that Wood favors, which often make no money now but offer the promise of ample cash flows far in the future. With the prospect of higher rates, cash flows farther out in time get discounted more today. The pullback in ARKK also mirrors that of its largest position: electric-car maker Tesla (TSLA), which has receded over 25% from recent highs. But ARKK shares have done worse than TSLA shares, dragged down by some of the fund's smaller-cap holdings... In response to recent performance, Wood released commentary last Friday noting her enthusiasm over the fund's holdings, stating that they were in deep value territory, and asserting that ARKK "could deliver a 40% compound annual rate of return during the next five years." That's a bold prediction for any manager to make, and the same crew that greeted the tough times at ARKK with schadenfreude were quick to pick apart the claim... Source: Twitter/@BradMunchen While I wish Wood well, a price-to-earnings (P/E) ratio of 69 times isn't "deep value" territory for me – not in this tape, or any other one. And promising 40% returns just seems a tad aggressive. So count me among the skeptics still, even with the big drawdown. This was a long one, so I will return with the mailbag on Wednesday... Do you think we are in a bubble for music rights, or does it make sense to value these royalties like annuities that will pay for decades? Which of these deals do you think will pay off as the music indeed persists longer than the artist... Springsteen, Dylan, Nicks, Simon, Young... or maybe someone more recent recording today? Did you rush out to Spider-Man this weekend, and if so... what made you get off your sofa for it? Do you agree Peloton might need a management change? Are you #TeamCathie, or do you think this is the beginning of an unraveling for ARK Invest? Share your thoughts in an e-mail by clicking [here](mailto:feedback@empirefinancialresearch.com?subject=Feedback%20for%20Berna). Regards, Berna Barshay December 20, 2021 If someone forwarded you this e-mail and you would like to be added to my e-mail list to receive e-mails like this every weekday, simply [sign up here](. © 2021 Empire Financial Research. All rights reserved. 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