The Way Forward: Five Topics, Five Days, One Goldman Sachs...Talks at GS with Marc Morial and Scott Mills...The Business of Music

[Goldman Sachs]( [BRIEFINGS] June 24, 2020 The Way Forward: Five Topics, Five Days, One Goldman Sachs Above (L to R, clockwise from top): Esther Krofah of FasterCures, Dr. Janet Yellen, former Chair of the Federal Reserve System, Ray Dalio of Bridgewater Associates and Adena Friedman of Nasdaq Business leaders, health care experts and policymakers shared insights last week at Goldman Sachs’ first-ever firmwide virtual client conference, The Way Forward: Five Topics, Five Days, One Goldman Sachs. “These are challenging and complex times for everyone right now—from navigating the health and economic impact of the global pandemic, to grappling with important questions around racial injustice that have gripped the globe in recent weeks,” Goldman Sachs CEO David Solomon said to more than 20,000 clients who registered for the five-day conference via webcast. More than 20 industry-leading speakers participated, including: Esther Krofah, Executive Director, FasterCures, a Center of the Milken Institute, on the future of COVID-19 treatment: "I do think what we're going to see, eventually, is that it's not going to be just a one therapy solution, but rather a combination solution that will come to market. We have a number of platform clinical trials like Recovery in the UK, like Solidarity led by the WHO, that are looking at potentially these combination therapies that are going to be studied either with antivirals [or] with a combination of anti-inflammatory drugs." Dr. Steven J. Corwin, President and CEO, New York-Presbyterian, on the toll of the pandemic on health care workers: “In my 40 years of medicine, I’ve never seen anything quite like this—the level of illness, the degree of contagiousness…The profundity of the psychology effects on frontline workers can’t be ignored and I worry about whether people can go through this a second time.” Ed Bastian, CEO, Delta Air Lines, on the future of the airline industry: “I talk a lot about pulling our future forward. We're going to use this period of time where we've got all the planes on the ground, we've got a lot of our activity stopped, to figure out what we want to pick up and what we're going to get rid of...I think we’ll be 10 to 20 percent as an industry smaller as a lot of those inefficiencies are wrung out, but I think we’ll be healthier. I think we’ll be more resilient and I think we’ll be more agile having taken advantage of this time while everything is low to continue to invest in the future.” Ray Dalio, Founder, Co-Chairman and Co-Chief Investment Officer, Bridgewater Associates, on managing through the economic downturn: “Most people think that cash is safe. Cash is the least safe investment. It just doesn't have the same volatility to it. Because they're producing so much cash, it has a negative real return. It's a tax. That may be two percent a year you lose money in terms of cash. So you have to think about risk differently. And you have to diversify.” Dr. Janet Yellen, former Chair, Federal Reserve System, on the policy response to the pandemic: “On monetary policy the FOMC should be pulling out all the stops given the state of the economy. With unemployment at the highest levels in the post war period, and inflation that's fallen even further below the Fed's two percent target, any standard monetary policy rule like the Taylor Rule, would be calling for a funds rate deep into negative territory if that were possible. So I would be favoring further measures.” Adena Friedman, President and CEO, Nasdaq, on the role of markets: “The markets are the place where there is what we call permanent capital available. When a company goes public, the primary reason they do it is to have access to permanent capital. Capital in good times and bad. And so, the importance of keeping the markets open, keeping them operating really allowed for those companies that were facing a great amount of change to work with their investors and find a means to raise capital to help stave off some of the early crisis, but also to help them manage through this very challenging situation.” Jon Gray, President and COO, Blackstone, on the outlook for real estate: “It's as if we've turned the entire real estate world upside down, and the best looking piece of real estate today is a warehouse that is proximate to lots of human beings so that an e-commerce retailer can deliver their goods in the next hour or two.” [Learn about Goldman Sachs Insights]( Talks at GS: National Urban League President Marc Morial and BET Networks President Scott Mills Above (L to R): Scott Mills of BET Networks and Marc Morial of the National Urban League On Juneteenth, the oldest national commemoration of the end of slavery in the US, National Urban League President and CEO [Marc Morial]( talked with Goldman Sachs President and COO John Waldron about his longtime work as a civil rights leader and his hopes for the current moment in US race relations. “George Floyd was a spark,” Morial said. “Those feelings—that outrage, that anger, that sense of disappointment —it was there and it was just ignited. And it ignited a consciousness among the American people, which we're seeing playing out today. This moment, I'm hopeful, is a movement and not just a moment. I would have thought that the level of outrage after Sandy Hook took place, or after Mother Emanuel took place, would’ve spurred some level of action yet, it stalled out. In this instance, we have to ensure that these efforts are continuing.” In another episode of Talks of GS, BET Networks President [Scott Mills]( emphasized the role of media in shaping perspectives on inequality. “Racism is a result of the messages—the communication, the images, the portrayals. It’s a result of what we communicate to the world about different populations,” Mills told Asahi Pompey, global head of Corporate Engagement and president of the Goldman Sachs Foundation. Mills hopes to leverage BET’s programming to drive changes in the conversation about social justice. “The long term thing we're focused on is this idea that we will double down in our commitment to create, distribute, market and promote content that is designed to begin to address the underlying issues driving racism in this country, not just on our platforms, but in partnership with others across an array of platforms.” [Watch videos]( The Future of Sustainable Nuclear Energy While nuclear energy has been around for quite some time, it’s had a complicated history. On the one hand, it’s a true zero-carbon energy solution—but concerns around reactor safety as well as reactor waste have slowed (and in some cases, reversed) its adoption. That doesn’t mean, however, that innovation in nuclear power has stalled, and as startups attempt to address concerns, nuclear is commanding an increasingly large share of venture capital investment in clean energy. In a recent episode of our Venture Capital Horizons series on [Exchanges at Goldman Sachs]( GS Research’s Heath Terry spoke with Jacob DeWitte and Caroline Cochran, co-founders of Oklo, an early-stage advanced fission company developing small-scale nuclear power plants that have the potential to be safer and more sustainable. “We think going smaller and simplifying things is really one of the key factors here to realizing the promise that we have in the atom,” DeWitte said. By making their reactors smaller and faster, Oklo is able to decrease waste from nuclear power plants. Smaller reactors could also be more cost effective to build, safer to operate, and easier to locate—particularly in places where other green technologies, like solar and wind energy, cannot efficiently provide power. “The need for power is only going to increase across the world—especially when you think about the fact that there’s about a billion people who don’t really have access,” DeWitte says. “Fission is going to have to be one of the heavy lifters here.” Listen to the podcast on [Apple Podcasts]( or [YouTube](. [Listen to podcast]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=GS&body=https%3A%2F%2Fwww.youtube.com%2Fwatch%3Fv%3DsH0z1UBSt3M) The Daily Check-In With Goldman Sachs The pandemic has underscored the importance of the “S” in “ESG” for investors, explained [Sheila Patel]( chairman of Goldman Sachs Asset Management (GSAM), in a recent episode of [The Daily Check-In with Goldman Sachs](. Patel, who also oversees GSAM’s Environmental, Social and Governance and impact investment initiatives, cited a study of the correlation between a company’s financial performance and the morale of its employees. “Those in the top quintile [of employee morale] have outperformed by over 10%, while those in the lower quintile have underperformed by over 16%," she said. "That’s meaningful difference and shows us that these factors really matter to our investing strategy and to our returns.” When it comes to factors like diversity and social justice in analyzing a company’s ESG practices, Patel emphasized the need for more data. “It’s clear that the markets systematically undervalue women and minority-led businesses. That’s an opportunity for return and it’s also an opportunity for us to engage with the companies where we invest,” she said. “When you think about the moment we’re in today, with such a focus and an eye on social justice and changing the norms, this is a moment when that kind of data can help us pick the companies to help us get there.” In other episodes of The Daily Check-In, [Philippe Camu]( global co-head of the firm’s Infrastructure Investment Group, discussed the shift to digital infrastructure from traditional projects like roads and airports, while [Jernej Omahen]( head of the European Financial Institutions Group for Goldman Sachs Research, shared insights from the firm’s 24th European Financials Conference. [Lars Humble]( of Goldman Sachs’ Financing Group discussed the role of multinational development agencies in addressing the pandemic and investors’ growing interest in social bonds. For more Daily Check-In videos, subscribe to [our channel on YouTube](. SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=daily&body=) Briefly…on the Business of the Music The music industry, propelled by the rise in music streaming services, has seen the value of its assets skyrocket. We sat down with Goldman Sachs’ Aaron Siegel to discuss how the industry is seeking to grow in the midst of a pandemic. In early June, Goldman Sachs took Warner Music public in one of the largest US initial public offerings this year. What does that IPO say about the industry? Aaron Siegel: There’s been an enormous resurgence in the valuation of music assets. We saw strong investor interest in Warner Music’s initial public offering—which priced in the upper half of the expected range and has since traded higher. Despite the COVID-19 disruption, we were able to execute the roadshow virtually and reach a strong investor base in a shorter period of time. Warner’s IPO follows a period of growing valuations in the private M&A market, including a Tencent-led consortium’s investment in Universal Music and the sale of EMI Music Publishing to Sony. All three of these transactions reflected substantial growth in value for the owners of the music businesses, who, like Access Industries with Warner, had purchased or owned these businesses during a period of challenge and transition for the music industry. Access invested approximately $1 billion in equity to purchase Warner Music in 2011 (a transaction that was announced before Spotify had launched its service in the US); today, Warner Music’s market capitalization is approximately $17 billion. What has contributed to that growth? Aaron Siegel: The Warner Music IPO echoed many of the same themes expressed during Spotify’s direct listing two years ago—in particular the extraordinary value created by the collaboration of artists, music content owners and the music streaming services. The industry has undergone a complete renaissance. When I started covering the business 17 years ago, the music industry was in the midst of online piracy challenges and collapsing CD sales. It was depressing at times for the music companies—particularly when they were forced to cut costs to try and preserve profitability. The paid streaming model brought the business back to health again. The industry in the early 2000s was massively shrinking. Today, it’s seeing sustained long-term growth. Warner Music’s recent listing is a testament to the industry’s strength. What accounts for the popularity behind the streaming model and how will the industry expand from here? Aaron Siegel: The value proposition for consumers is extraordinary which has driven widespread adoption around the world. It’s consumer friendly, with applications that get delivered to consumers when they want, while the research and development invested in the digital platforms creates personalized recommendations and strong playlists. Consumers typically pay a small monthly cost for “all-you-can-access” music. Since many of these services offer a free tier to allow consumers to try out the service, the conversion rates to becoming paid subscriptions are very high. The flexibility of an on-demand service has only reinforced the value of these streaming services during this period of dramatic change for everyone’s work, commutes and living schedules. There is still meaningful headroom for continued growth in paid subscriptions as consumers continue to adopt music streaming around the world—in both developed markets and emerging markets. And there are also promising signs for growth in pricing for the music industry: In some markets that were early adopters, such as Sweden, Spotify has begun to experiment with higher pricing, while Amazon Music is offering a higher pricing tier for a higher level of audio. The industry is primed for overall growth as well as the potential for higher pricing over time. How have changes in consumer behavior affected the music industry? Aaron Siegel: The consumer is absorbing more audio content than before partly because of the popularity of AirPods and wireless earbuds, as well as the proliferation of smart speakers and devices in homes, many of which are typically used to play music. Both trends are broadening the consumption of music as well as the type of music that gets played. For example, parents who set up a smart speaker in their child’s bedrooms are more likely to stream child-focused songs, which opens up new catalogs of music. People are interacting with music more and in different ways through the proliferation of audio devices across our lives. And every year there are new services that incorporate and license music, like Peloton for example, that deepen consumer engagement with music and broaden the industry’s revenue base. 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