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How You Profit from Beyoncé and Bieber? (9) – Portfolio Allocation?
Continuing from the last post, he said they’ve now purchased over 7,000 songs because in this industry, diversification is particularly important (which industry isn’t, right?). He mentioned that you might have heard of names like The Rolling Stones, Justin Bieber (they once owned his songs, but later sold them), Beyoncé (his dad packaged and sold many of her songs to us), Jay Z, Alicia Keys, and the highest return so far has been from Avicii. They bought his songs for $140,000 and now they yield an annual return of 20-30%.
I said, “The return rate you‘re talking about is not the same as what I’m talking about. Without exiting the principal, it’s not really a return rate, but let’s go with your perspective first. How would you distribute the ‘return rates’ of your 7,000+ songs?”
He replied, “One-third of the songs are not great, with returns around 6-8%. One-third are decent, in the 10-20% range, and one-third are excellent, with returns of 20-30% or even higher. What’s important is that we currently have no debt, so far we’ve distributed over $7 million in dividends, it’s just a pure cash cow. And, if you insist on the issue of principal, I can tell you that the earliest shareholders have recovered over 65% of their investment so far.”
I said, “Now these numbers make more sense to me. But what about the risks? The only ones I can think of so far are: if none of the 7,000 songs work out and there’s no cash flow, and they can’t be sold off, then the game is over. And then there’s the risk of you taking the money and run hahaha”
Tim’s face turned green (of course!) and he began to address my question with details of their model for risk diversification and profit structure. That’s for next time!