In This Issue

1. Our Top Story - UMG vs TikTok

2. News Roundup

3. New Resources - EquityMultiple Overview

4. Site News And Commentary

‼️ TOP STORY
Music Wars

The title “Star Wars” flashes across the screen, while the iconic crawl scrolls across your screen. In your ears you hear that familiar, and exhilarating… silence!? Not quite the same, is it?

The Time To Fight Is Now

Welcome to Music Wars. On many levels, nothing here is new, though the battlegrounds have changed considerably over the past few years.

Universal Music Group (UMG) recently took what may be seen as a dramatic step by many. They pulled their songs from TikTok. Drake, Taylor Swift, the Weekend, and more are now unavailable on the platform.

As Billboard reports, the impact is even broader than you might first expect. Artists such as Harry Styles will have their music removed from the platform, despite having never recorded for UMG.

The reason? The songs are written, in part, by UMG Songwriters. As the article details, this means the impact will be very wide and felt across multiple publisher’s catalogs.

Your Focus Determines Your Reality

Media companies feuding over pricing, fees, and contracts is nothing new. Disney and Charter communications recently had a dispute that resulted in ESPN and other Disney channels being unavailable on the carrier (this was eventually settled in September).

So, what is the cause of UMG’s new battle with TikTok? Here’s what the company shared in an open letter (emphasis ours):

I’m not the right person to speak about the safety of TikTok’s users, though I will note that TikTok and other social media companies just had their CEOs testify to congress on child exploitation.

So, instead we’ll focus on the other two.

I’ve Got A Bad Feeling About This

Let’s start by understanding the compensation that TikTok currently provides. This can vary between labels and companies based on the specific agreements, but we have some reference points from a Billboard article on the topic for late 2022.

Here’s some of what they found from talking to different people within the industry:

• <$5000 from 500K videos and billions of views

• $8 for every 1 million views

• $100 after being used in 60,000 video clips

• $350 after being used in over 80,000 video clips

As a reference, according to the piece, artists typically see about $500 to $2000 for 1 million views on YouTube. So $8 is more than 100X less than YouTube, which isn’t known for its generous royalty rates.

At the heart of the debate on payments to artists is what TikTok really is. The company insists it’s a social video platform and not a music service - so, while the music does add value to videos, it’s not essential to it.

On the other hand, music companies argue that many people are consuming music through the platform. Some people even have music playlists through the service and are going to TikTok over other, traditional streaming services.

These Aren’t The Droids You’re Looking For

In December we wrote about AI and whether or not that would threaten music royalties. I generally lean towards it being a valid concern, but not currently an existential threat.

Of course, I’m not the only one worrying about this. UMG cited this as one of their 3 concerns with TikTok. It doesn’t help that one of the most famous examples of an AI-generated song going viral (Heart on My Sleeve) happened on TikTok.

The AI dynamics are complicated, but I believe there are two main concerns here.

1) The simplest concern is that users listening to an AI copycat song would have otherwise listened to a legitimate song, thus reducing creator revenue. These copycat songs can also cause potential brand and image damage, depending on the content.

2) The other issue is around “crowding out” legitimate artists. Let’s assume for a moment that no AI-generated songs directly copy an existing artist. If people can generate tens of thousands of passable, middle-of-the road results with AI, then it makes it far harder for human creators to have their songs discovered.

May The Force Be With You

So, how might this play out?

If TikTok is indeed paying royalty rates two orders of magnitude below what other video streaming services offer, it’s hard to imagine them ever paying a “standard rate.” There is simply no way TikTok can agree to 100X one of their expenses. Especially when they do not see that music as core to their service.

That leads me to believe a huge success for UMG would be managing to 10X payments, though even that sounds far fetched. The question mostly comes down to - who has the leverage here?

UMG’s open letter seems (to me) clearly intended to unify the industry against TikTok and provide them a common set of talking points to use across a myriad of different contract discussions. Certainly, having more companies pulling their songs from TikTok will create more pressure on the company to respond to the demands of the music industry.

If music turns out to be core to the TikTok experience and they start seeing meaningful attrition and declining user engagement metrics, then the needle could sway more towards a “landmark” win for UMG (which again, I think is realistically limited at far below the payout benchmarks of other services).

However, this strategy could backfire. If TikTok is completely unfazed by the absence of these popular songs, then they will have very little incentive to meaningfully compromise - especially if public opinion places the blame on the artists and music industry.

Actually, in the absence of UMG’s library, it could create more room for AI-generated music to make further waves. While UMG can counter by sending take-down requests for anything they believe is copyright infringement, TikTok can drag its feet on these requests.

The more combative the relationship between the two organizations becomes, the less upside there is for TikTok to respond at anything beyond the minimum required speed.

TikTok could also elect to not respond at all, forcing UMG to draw them into an expensive and high-stakes court battle over thorny topics like who really owns the rights to the use of the likeness of an artist’s voice.

Of course, the simplest outcome is that the two sides reach an agreement.

Maybe payments are doubled or tripled and TikTok makes some vague promises to more proactively moderate the use of unsanctioned AI-generated music on the platform.

From there UMG tries to play it as a major win for artists and for its business. TikTok then emphasizes publicly that it shows its continued support for artists and leans into selling the platform as a major win for artist and music discovery. Privately TikTok can explain how it doesn’t affect the core economics of the platform and they still got a “good deal” in relation to all the other streaming services on the market.

Let The Wookiee Win

Given how little money is earned from TikTok royalties, regardless how this plays out, this seems unlikely to meaningfully affect music royalty investors.

The best-case scenario for investors is likely that the music industry extracts greater payouts from TikTok and secures some enhancements related to AI. That should be purely a net-positive, even if only to a small degree.

The more dramatic and litigious this becomes, the more risk there is to the asset class.

I think a court ruling that opens the doors for technically legal songs from generative AI “singers” to use the vocal likeness of major artists is the worst-case scenario. Though that scenario would likely take years to unfold in the courtroom. So even the impacts from that could be far-off.

ALTERNATIVE INVESTMENT NEWS ROUNDUP
🏠 Real Estate

Arrived

It’s been a busy few weeks for Arrived Homes.

First, they announced the Arrived wallet. This will enable them to deliver monthly dividends. Q4 dividends were delivered at the end of January, and the new monthly payouts will begin from February 25th.

We also got the Q4 performance update with the dividend payouts. The average quarter-over-quarter share price change for long term rentals was -2%.

More vacation rentals are starting to share price updates, bringing the cohort to an average share price of -6.5% since IPO. Some of this decline is to be expected, given the cost and time associated with preparing the properties for market and the delay for getting revenue in from bookings.

There have also been additions to the Arrived portfolio page to provide more information for investors. The most interesting is the high and low estimates column, which tries to give a better idea of what investors would walk away with if the property were sold today.

Last, but not least, Arrived announced a very unique new offering. Investors will have a chance to own a share of an upcoming vacation rental - The Buyer’s House of Stranger Things fame. There’s also a contest going on for free multi-night stays.

Other

Here seems to have already sold off one of its previous investment properties. What was offered as “Terracotta” sold for $1.6M. While that’s $100K over the 2022 purchase price, it’s all but assured to be a major loss for investors.

If you missed the recent issues, we covered in detail their path to shutting down operations this January.

Lofty is looking to expand the properties on their platform. To support this, they’ve announced a property referral program. The bonus is $1000 for any referred property that ends up on the marketplace.

🎨 Other Assets

Acres - Created their first API integration with a third-party. This could be an interesting start to having their farmland data more widely available in different investment research tools.

AcreTrader - Exited an Arkansas farm from 2019 for a 9.4% IRR.

CNBC - Recently posted an article highlighting the maturation of fine wine as an alternative investment and its increasing popularity.

Finlete - They’re gearing up for launch in February. The first athlete to invest in will be MLB prospect Echedry Vargas.

He currently projects as a below-average middle infielder expected to reach the majors in 2027. Though this is nothing new as Echedry has been a constant underdog throughout his career.

Rally - Things have been busy recently. A Michael Jordan jersey was bought out for a 37% return from IPO. A Wayne Gretzky rookie card sold for a +15% return since IPO. They also added the ability to exit assets by taking them to auction, and investors have approved sending two assets to auction so far.

Royalty Exchange - You can now opt to receive email notifications for assets you’ve favorited on the platform.

WebStreet - Their latest fund is now open for investment ($60K min).

Yieldstreet - Shared some stats on X. These include the platform having crossed over $4B of investments all time, only approving 7% of offerings they evaluated, and private credit becoming the most popular asset in 2023.

📚 NEW RESOURCES
EquityMultiple Overview

EquityMultiple is an investment platform that provides accredited investors with carefully selected opportunities in commercial real estate and private credit.

They have offerings across 3 different investment pillars: Keep, Earn, and Grow. Each pillar offers different investment types.

• Keep is centered around the short-term “Alpine” Notes

• Earn branches into private credit backed by real estate. These opportunities focus on delivering higher yield, while still trying to maintain shorter holding periods so capital isn’t locked up too long.

• Grow has equity-based offerings that aim to deliver higher total returns, but with longer holding periods and a greater level of risk.

We have a lot more information about EquityMultiple in our detailed overview.

Take a look here

🌐 SITE
Rebranding + Updated Look & Feel

As part of my goal to make things even better for 2024, I’ve been hard at work on a variety of changes to the brand and website.

• Logo - I liked the idea behind the old logo, but it didn’t translate well enough across different formats. I think the new one does a better job at this, while also more strongly conveying our educational and investing niches.

• Colors - These have been updated as well. The hope is to create a pleasing modern aesthetic, while maintaining a trustworthy and professional appearance.

• Typography - Headings have a more distinct font from body text. The new body text was chosen to improve readability on screens of all sizes and with large text.

• Imagery - Instead of stock photos for every post, we are gradually working on having a unique feature image for each post. Hopefully these are also more interesting and engaging as well. I hope you like the one for this post!

• Layout - Desktop users will now have a more standard 3 column, sticky column layout.

There may be more tweaks in these areas as we refine things.