Top Takeaways
- Your passion can be your dream profession.
- Invest wisely in music copyrights.
- High-quality music doesn’t simply means ‘sound good.’
- It’s riskier to bet on brand-new music than evergreen songs.
- Take advantage of the current trending artist to rerecord an old catalog to bring it to life.
Guest Profile
Josh Gruss is the Chairman, CEO, and founder of Round Hill Music.
Before founding Round Hill Music, Josh Gruss was previously a partner at Gruss & Co., a private investment firm based in New York City.
He also worked in investment banking at Bear Stearns & Co.
Before his career in finance, Gruss worked at Sony Music, Atlantic Records, and Clear Channel’s Live Music Division.
Gruss earned his B.A. from Trinity College in Hartford, Connecticut, and an MBA from both Columbia University and London Business School. He served in the U.S. Coast Guard for six years.
Episode Highlights
- Starting with Music
He become obsessed with music at around the age of 12 and he loved playing guitar.
During his teenage years, he wanted to be in the music business. He did an internship when he was 16 at a recording studio. And did another internship during high school at Sony. And during his stay at Trinity College, he did an internship at the Meadows Music Theater.
He took a lot of music, business classes and guitar classes back then, that led him to his first post-college job which was at Atlantic Records in New York.
He was offered a job by an old friend as a guitarist in his band. That was his dream come true, he always wanted to play in a band like that, so he drops Atlantic Records to play in a band.
- Mixing Finance with Music
“If investors are curious about pharmaceutical royalties, then what about music royalties?”
He was 23 or 24 when he felt the pressure to get a real job. so he made a complete shift to finance and worked at Bear Stearns for 10 years.
He started thinking about how he can mix finance with music. He researched the marketplace and saw that there were no private equity funds in existence dedicated to music copyright investing and that just screamed opportunity to him.
- Intellectual Property of Music
“Our job is to go and invest wisely in music copyrights.”
You make money from streaming, from YouTube, from TikTok to Peloton, from synchronization licenses (when music is applied to any type of visual media).
Publishing is very diversified as a revenue source and it is very low risk and not very volatile.
The recordings are much more volatile, it had a really rough go from about 2003 to 2014, but then since streaming came about, it really took off thereafter.
- Royalty Investments in Evergreen Songs
“We buy older, time-tested and very durable copyrights. Very famous songs that have stood the test of time.”
Evergreen songs are consistently performing, year in year out.
“The riskier more venture side of the business is betting on brand new music.”
Evergreen just means that the relevancy and the consumption of the music has a long shelf life.
People still listen to rock from 60s, 70s, 80s, and 90s. Rock is most durable and has the longest shelf life.
During rock concert in US a little less than 1% of ticket sales goes to pay the songs on the setlist. While in Argentina, it’s 12% of ticket office or box office.
- ASCAP and BMI
“You have to be really proactive to these societies. They work for everybody, and it’s up to you as a publisher to be on top of them and be proactive to make sure that they’re doing a good job.”
ASCAP and BMI are the Performing Rights Organizations or PRO’s handling all the performance royalty category.
There are also other organizations like CSAC and GMR but they’re much smaller than ASCAP and BMI.
ASCAP is about 110 years old, and BMI about 85 years old. They’re the ones who monitor all the radio and television stations.
For every country around the world, there’s a local ASCAP or BMI type of society.
- CDs and Vinyl
The vinyl business has grown strong with double digit growth every year for the last six or seven years. And in 2020 grew by 48%.
People love vinyl.
CDs definitely dying out in the US.
In places like Japan and Germany, there’s still a very strong CD culture.
- ZYNC
Synchronization happens in two worlds, for the film and TV world it is base in Los Angeles, while the advertising world is New York based.
Zync has a number of clients they interact with on a regular basis, and help them find the right piece of music for their project that they’re working on.
The music supervisor for a specific movie or TV show will reach out to someone in Zync for some suggestions, and then it’s up to them to look through Roundhills repertoire and make a few good suggestions.
Roundhill bought Zync over the course of 10 years, and Zync generated over $100 million in synchronization revenue for their clients.
Roundhill gets those trending artists to do rerecord or cover versions of their older catalogs. Then these older catalog songs gets brought back to life in an interesting way.
Synchronization for all the publishing is usually around 25% of the entire business. And 30% or something of Roundhill’s revenue.
Roundhill acquired Zync, and they didn’t want to ruin the great thing that Zync had already established, which is being a tastemaker, people trusted their taste.
- Service Provider for Catalogs
From the very beginning Roundhill wanted to do it themselves because they wanted to be able to add value to their catalogs.
Roundhill administers their own catalogue for all the territories, except for secondary type territories in Europe, Asia, Africa and South America.
- Investment Decisions on High-Quality Catalogs
Roundhill have an investment committee who source a ton of deals.
Younger music from the last five years, (it’s almost 99%) is going to be a pass because they don’t like buying into that risk of the newer income streams.
There’s a list of the Rolling Stone magazine has of the 500 Greatest Songs of All Time, and about 10% of that list was own by Roundhill.
About the Host:
Justin Fortier lives in Brooklyn, NY, and works for a consulting company serving industrial companies.
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Transcript
Justin Fortier: When did you decide, or how did you decide to go into investing in music royalties? What had led up to that? You had a financial background before. I saw coast guard in your bio; what stuck up to music?
“Convinced that I wanted to be in the music business, I remember doing an internship when I was 16 at a recording studio, thinking that was amazing.” – Josh Gruss
Josh Gruss: There are a lot of things that came together. Probably starts with me starting to become obsessed with music at around the age of 12 and playing guitar. And really, in my teenage years, convinced that I wanted to be in the music business. I remember doing an internship when I was 16 at a recording studio and thinking that was amazing. And then, I did another internship during high school at Sony. And then, when I was at Trinity College, I did an internship at the Meadows Music Theater, I don’t know what it’s called now, but it was a big amphitheater in town. I did an internship at the Webster Theatre; I don’t know if you’ve ever heard of it or not.
Justin Fortier: I’ve been there; I went to a few shows there.
“When I researched the marketplace and saw that there were no private equity funds in existence dedicated to music copyright investing, I couldn’t believe it… That just screamed opportunity to me, and that’s how things started.” – Josh Gruss
Josh Gruss: Not the fanciest or most professionally run venues by any means, but that’s what Hartford had to offer for music jobs. And then, I went to Berklee College of Music for the summer while I was at Trinity, as well as the whole year after graduating from Trinity. So I took a lot of music business classes and guitar classes. Then, that led me to my first post-college job, which was at Atlantic Records in New York. And I spent a great year and a half or so doing that. But one day, I get a phone call from one of my oldest friends, who offered me a job, offered the role of guitarist in his band. He went to Duke, and he had a band at Duke that did really well. And when they graduated, everyone, except the guitar player, decided to continue on with the band and live in Boston. And so, that really was my dream come true, I always wanted to play in a band like that, so I dropped Atlantic Records to play in a band. After about two years, the band fizzled out. And at that point, I was like 23 to 24, and I’d really felt the pressure to get a real job. So to speak and my father came from a finance world, and his father came from a finance world, so I really felt it was upon me to understand something about finance at some point. And so, that’s when I did like a complete shift to finance and worked at Bear Stearns and so on, and did that for about 10 years. But then, I really start to miss music again. And I also was going to business school part-time, and so it got me thinking about something about business school makes me think entrepreneurial, and I started thinking, ‘how can I mix finance with music?’ And I saw that a lot of capital was going to pharmaceutical royalty funds. There was royalty pharma and others that were really kicking off and getting into gear. And I just said to myself, if investors are curious about pharmaceutical royalties, then what about music royalties? And that was really it, and then when I researched the marketplace and saw that there were no private equity funds in existence dedicated to music copyright investing, I couldn’t believe it; actually, as this was 2010, it wasn’t that long ago. You have private equity funds for everything from real estate to infrastructure, hedge funds that specialize in this area, that area, but none dedicated to music, and that just screamed opportunity to me, and that’s how things started.
Justin Fortier: Yeah, that’s interesting. And for the listeners who don’t understand what the music royalty is, that’s when a song is made, then there’s the publishing royalties for the song like the lyrics and the melody, and then there’s something, the actual recording of, this is the sound that was recorded that now people would think mp3 file or something like that, and those two gets split off, and you invest in the song like the publishing, the written melody that could be performed several times, but not so much on the… like we owned the Master.
“Our job is to go and invest wisely in music copyrights. Think of every piece of music behind your favorite movies, TV shows, and video games. All that music had to be licensed at one point to be legally synchronized to the visual media. So the list of earnings goes on and on, and because of that, publishing is very diversified as a revenue source.” – Josh Gruss
Josh Gruss: Master, right. So our job is to go and invest wisely in music copyrights, right? The intellectual property of music and that really comes in only two forms; what you just described, publishing which is what a songwriter generates; it’s the composition. It embodies the lyrics, the melody, and the chords of a song. Then you have the recording or otherwise known as the masters or master, that is an artist’s interpretation of a song on a recording. And the publishing is really interesting because it earns money from dozens and dozens of different sources. Everything from when music is broadcast on radio or on television, or performed live in concert in bars and restaurants. Any type of public performance is paid a royalty. You make money from streaming, from YouTube, from TikTok to Peloton. You make money and more we call synchronization licenses that’s when music is applied to any type of visual media. So think of every piece of music behind your favorite movies and TV shows, and video games. All that music had to be licensed at one point to be legally synchronized to the visual media. So the list of earnings goes on and on, and because of that, publishing is very diversified as a revenue source. And it is very low risk actually, because of that and not very volatile. The recordings are much more volatile, like when in the Napster era when there was a lot of piracy, remember music one from CDs to downloads, then to streaming, but there’s a time in there where, you know, a lot of people were also just stealing it.
Justin Fortier: Yeah.
Josh Gruss: So the recording side had a really rough go from about 2003 to 2014, but then, since streaming came about, it really took off thereafter. So we make masters like about a 20% portion of what we do but not more than that, just because we feel that the right mix that way.
Justin Fortier: Yeah, that makes sense. So is that something you came to as you’re building a thesis of where I should invest in royalty? I think, like, now you’ve started a record label more recently, which I’m mentally comparing more towards like venture investing, it’s like an earlier stage, maybe some later stage acts where it’s still being made, but there’s more risk. Your business mostly is investing in proven songs where you’re able to have numbers over a large number of years of saying, this is how many plays, this is when it gets reperformed, this is when it gets referenced in movies. Is that right?
“95% of what we buy is older, time-tested and very durable copyrights, very famous songs that have stood the test of time.” – Josh Gruss
Josh Gruss: You nailed down the head. 95% of what we buy is older, time-tested, and very durable copyrights, very famous songs that have stood the test of time, right? So, whether it’s songs that we known like ‘What a Wonderful World’, or ‘Total Eclipse of the Heart’, or ‘All by Myself’, or even ‘I Want it that Way’ by the Backstreet Boys, the list goes on and on. But these are evergreen songs we call them. They’re gonna be consistently performing, year in and year out. And then, the riskier, more venture side of the business, like you said, is it’s betting on brand new music. And we do some of that, but it’s a smaller percentage, and when you have 95% of your business dedicated to the very steady cash-flowing type music catalogs, then it gives you license to take a little bit of risk and do that with a small amount.
Justin Fortier: That makes sense. And when you say evergreen, that term when I was reading an article that mentioned it, it’s fascinating to me. Is this something where you see music get uptake by new generations as well? You watch something where it’s not just the people who started listening to Elvis always listen to Elvis. It’s do actually see people in their 20’s, when they turn 30, they actually start listening to that. Is that part of the analysis, or what does it mean to be evergreen?
“Rock is our favorite category because it’s the most durable and has the longest shelf life.” – Josh Gruss
Josh Gruss: Just means that the relevancy and the consumption of the music has a long shelf life. And you mentioned Elvis, you won’t necessarily see Elvis on the top of the Billboard 100 this week, sitting next to Justin Bieber or something. But people are aware of Elvis through, you know, having his music be in commercials, or maybe it’s in a new movie that they just saw, or a new television show they just saw, maybe it’s… you know, there’s a Elvis peloton class that they took, or maybe is just from walking around in life, like elevator music or just music in the background of places you go, you pick up on and all those kinds of things. Yeah, yes, so that’s what I mean by longer shelf life and within rock category. If you look at the statistics, rock music, people still listen to rock from like the 60s, 70s, 80s, and 90s. Not so many people are listening to R&B and hiphop from like decades that go that far back or even pop. So for us rock is our favorite category because in our mind the most durable and has the longest shelf life. Think of like Bohemian Rhapsody Queen, like that’s one of the top streaming songs and that’s a rock song from the 70s.
Justin Fortier: Yeah, back to the Elvis briefly, just in preparation for this, I went on Spotify and looked at 25 million plays a month on Spotify, which is in line with maybe not radio worthy, that’s bad radio play worthy and just very quietly, getting massive artists of today, so surprising.
Josh Gruss: There are weird pockets around the world of Elvis freaks, right? I remember when I learned this a long time ago now, but after graduating Trinity, I went with my one of my classmates on a trip to Sweden, and we rented a camper van, and went kayaking in the north of Sweden. And as we’re like, trying to find this river and driving on some non-paved forest road in the middle of nowhere, we came across all these people with 1950s American cars and like pompadours and there was like a surreal scene out of nowhere, there was just like this Elvis convention in the woods of nowhere. And in some places around the world, they just still are infatuated with that dude. So that’s a good example, actually.
Justin Fortier: That makes sense. And so, on the rock concerts, rock concerts fall into something where if you have the copyright, that is something where you’d get a royalty from that? Or is that? So those acts are touring into their ages.
Josh Gruss: It’s how it works and it’s not a large amount in the US, around a little less than 1% of ticket sales goes to pay the songs on the setlist. In other countries, it can be a lot more, like in Argentina, it’s 12% of ticket office or box office. So, if you own Rolling Stones as publishing and they’re touring Argentina, like you probably want to double-check that you got paid correctly on that. But so this is how it works. You play a show at Madison Square Garden. Your manager is going to submit the setlist to someone at Madison Square Garden. They’re gonna take that and submit it to ASCAP and BMI; we’re gonna make sure it gets paid that way. And like, in one of our catalogs, for example, which is a former guitarist from the band KISS, this guy Vinnie Vincent. Because he wrote, you know, three or four songs that KISS pretty much every concert, they play the songs when KISS goes on tour. It meaningfully affects the level of income from this one catalog.
Justin Fortier: Yeah, so is that a factor in investment decisions if the band still touring or something like that?
Josh Gruss: Yeah, if KISS was about to hang it up and retire and not play anymore, and a good portion of the catalog came from these live concerts then you want to discount for that.
Justin Fortier: And you mentioned ASCAP and BMI. Those are organizations that follow up to make sure people get paid appropriately? Are they the major players in that space where your firm has a good chunk dedicated to what looks like administrative, like royalty collection and stuff, what’s being handled by those two things you named and what’s being handled by your firm?
Josh Gruss: Great question. ASCAP and BMI are what we call Performing Rights Organizations (PROs). And they handle all of what we call the performance royalty category. So anything having to do with performance royalties in the US is going to go through ASCAP and BMI. And there’s actually two others, there’s SESAC (The Society of European Stage Authors and Composers), and another one called GMR (Guaranteed Minimum Royalties), but they’re much smaller. And interestingly enough, ASCAP and BMI are founded a really long time ago. ASCAP is about 110 years old, and BMI about 85 years old. So, they’ve been around a really long time. And what they do is, they’re the ones who monitor all the radio stations, all the television stations. If you go to ASCAP or BMI headquarters in Nashville, you’ll find whole office floors full of people whose job is to call all the bars and restaurants across the whole country, basically, roller rinks, gyms, any type of public business that plays music in a public way. They’re calling up and making sure that they’re licensed. So you think about that, it’s a lot of work, they have hundreds and hundreds of people. It makes it a lot easier on our industry, to have them do all that heavy lifting on behalf of the whole industry, as opposed to Round Hill and each individual publisher having to go out and license like thousands of different groups like that. It’d be actually impossible to do on a radio station or a bar or restaurant, you only have to go to two or three groups to get fully licensed, as opposed to going to like hundreds of different publishers to make sure your butt’s covered. So it works really well for both sides, if that makes sense.
Justin Fortier: Yeah, so your administrative team is mostly making sure that your records and your music is appropriately filed with those two organizations.
Josh Gruss: That’s right.
Justin Fortier: And then, maybe doing periodic audits of whatever you think should be the highest earning or any place, like Argentina, you said, maybe they’ll go back, and they’ll check Argentina extra close to make sure that…
“We’re making sure all of our songs are registered across the whole global social network, and there’s a lot to it. It’s a pretty complex ecosystem, the whole music publishing royalty world.” – Josh Gruss
Josh Gruss: Exactly. And then, our royalty and admin people are also directly collecting other types of royalties that are not performance, like mechanical royalties and synchronization royalties, and other royalties. And also, for every country around the world, there’s a local ASCAP or BMI type of society. So, we’re making sure all of our songs are registered across the whole global society network. And there’s a lot to it. It’s a pretty complex ecosystem, the whole music publishing royalty world, and a lot of people have a hard time grasping how it works, and even after doing this for 10 years, I’m still learning some aspects about it myself.
Justin Fortier: As things have gotten more advanced on the software side, are there any tools that are used, that allow for much easier administration that are an industry standard, or does your firm have to develop any sort of proprietary software? I see you have a CTO. What does that entail on your end?
Josh Gruss: Yeah, there’s definitely some efficiency so for example, there’s something called CWR, which is like a common excel format for how you deliver some information to all these different parties so that you can have a master list and just kind of send it off to lots of different groups in the industry and they can suck it in and ingested and get the the tap flowing so to speak. That being said, in general, though, the the ecosystem is pretty antiquated still, and there’s talk about blockchain and all sorts of other things that could make the whole network run a lot more efficiently. But we just haven’t seen that happen yet. Real basic stuff like in Europe, like I mentioned, there’s a society in every country, and in the UK they have PRS (Performing Right Society), in France it’s SACEM (Society of Authors, Composers, and Publishers of Music), in Switzerland it’s SUISA, in Germany it’s GEMA (German Society for Musical Performing and Mechanical Reproduction Rights). And these are like ASCAP and BMI. These are institutions that have been there for a long time. So they’re embedded locally. But what if you just had one European society and you took out all those different layers of costs, just something as simple as that, in this modern day and age we haven’t seen happen yet.
Justin Fortier: Yes, there’s plenty of room for organizational improvements before any sort of technological revolution.
Josh Gruss: Yeah, under the Spanish society a couple years ago, the discovery was completely corrupt. And, you know, a lot of weird hands in the pot. And like in Italy, I’m sure in some of these societies, like the CEO drives around in like a chauffeured limousine all day, you know, I mean, like, yeah, those kinds of things are culturally still locked in.
Justin Fortier: Yeah, that makes sense. And even just thinking about the, what has to happen, when every time a song gets made, gets split up, there’s a million piece, or at least 10, or something like that, only different people involve.
Josh Gruss: You have to be really proactive to these societies. They work for everybody, and it’s up to you as a publisher to be on top of them and be proactive to make sure that they’re doing a good job.
Justin Fortier: Yeah. Is that relationship-building? Or is that more auditing?
Josh Gruss: I think it’s both.
Justin Fortier: So on the mechanical royalty, you mentioned for a while, the music industry was very profitable, because of CDs and vinyl before that, you have more classic evergreen catalog. Is our CDs still a portion that you guys see? Are people buying CDs anywhere or any more of those, or is most of it still through streaming in terms of people actually playing your songs not live or any of the other things you mentioned.
“Unbelievably, the vinyl business has grown, strong double-digit growth every year for the last six or seven years. And I think in 2020 grew by 48%, so people love vinyl!” – Josh Gruss
Josh Gruss: So a better place to look at that is on the master recording side, what percentage of your income is still coming from the physical product. And for us, and for the industry as a whole, it’s not a lot at this point. It’s maybe down about 10%, still comes from the physical product. Vinyl, I think is eclipse the CD in that category. And unbelievably, the vinyl business has grown strong double-digit growth every year for the last six or seven years. And I think in 2020 grew by 48%. So people love vinyl. CDs are definitely dying out in the US for sure. But in places like Japan, believe it or not, there’s still a very strong CD culture, and in Germany as well, so that there are pockets in the world where people are still buying CDs.
Justin Fortier: Was it 2017 you acquired Zync, the synchronization company? And I see that’s based in LA, their job is to help get things placed in TV and movies, correct?
Josh Gruss: Yup.
Justin Fortier: And is that a relationship business? Or is that something where, are they building when a new movie comes up, are they trying to see when that movie set? Is it set in the 50s? Let’s go push some of this, is it set in the 80s, but we know that these are like, high point or songs of the decade? How can we make sure that’s in there? Is that kind of what’s happening? Or is that more administrative?
“If someone already knows what song they want, they’re just going to call up our licensing department, and they’ll negotiate it.” – Josh Gruss
Josh Gruss: No, it’s definitely along the lines of what you were just saying. So synchronization happens really in two worlds in the film and TV world, which is very Los Angeles based. And then the advertising world, which is more New York-based. Chicago and other cities have big advertising firms. So we have a group of people that sit in LA that handle the film and TV world, and then some in New York that handles the advertising world. And what they’re basically doing is they have a number of clients they interact with on a regular basis, and they help them find the right piece of music for their project that they’re working on. Yeah, maybe it is a movie about the 80s and someone, the music supervisor for that movie or TV show we’ll reach out to someone in Zync for some suggestions, and then it’s up to them to look through Round Hill’s repertoire and kind of make a few good suggestions. And the ultimate goal is to have them choose your song for an opportunity. A lot of times the music supervisor might already know what song they want to use. And with that example, Zync licensing is less about the sort of creative, let me call it an outward facing angle of Zync but more on the just backend Zync licensing. If someone already knows what song they want, they’re just going to call up our licensing department, and they’ll negotiate it. But we do have about 15 people who are on that outward facing creative front end, and they just do an amazing job. I’ll just give you a quick stat that still blows my mind, which is, before Round Hill bought Zync over the course of 10 years, Zync generated over $100 million in synchronization revenue for their clients. And that just blows my mind because the repertoire that they represented back then did not include any evergreen catalog songs. Their clients were very new, trending, cutting edge artists that most people had never heard of. Which means in order for them to generate $100 million, they had to really hustle for that. They weren’t just like picking up the phone signing licenses for ‘What a Wonderful World’ or something. And so, they continue to be able to generate that same type of revenue, like around $10 million a year for mostly kind of more cutting edge newer music. And that just blows my mind. And what we do to take advantage of that is we get those trending more current artists to do rerecord or cover versions of some of our older catalogs. And then, all of a sudden, the older catalog song gets brought back to life in an interesting way.
Justin Fortier: That really makes sense now looking at. So that’s a way for you to take an energetic team, and then combine that with your massive catalogue that you’re putting together and extend the life. In compared to streaming, where does synchronization fall in terms of revenues, the industry or you?
Josh Gruss: Synchronization for all the publishing is usually around 25% of the entire business. And I think for us, it might be 30% or something of our revenue. It’s growing, because think about all the content creation, on Apple, on Amazon, on Hulu, on Netflix. Each one of those companies is spending over $10 million a year, so on new content, and all that needs music. And if it’s a show like it was ‘Amazing Mrs. Maisel Mazal’, (might be screwing up that title). But that’s like a period piece, right? That’s maybe like 1930s or 1940s type of music. A lot of these programs might need music from a certain decade. And Round Hill has music basically across every decade that we can a full sales bag for any of those situations.
Josh Gruss: The Marvelous Mrs. Maisel, sorry, not amazing.
Justin Fortier: As your content library grows, do you feel that the relationships become easier to sell like each additional, now that people know Round Hill has this, people know that Zync has access to that, has that allowed them to forge new relationships in terms of the service business as well? Or do you focus more on serving your own Round Hill’s needs?
“When Round Hill acquired Zync, we didn’t want to ruin the great thing that they had already established, which is being a tastemaker, like people trusted their taste.” – Josh Gruss
Josh Gruss: I think we’ve been very careful to, because when Round Hill acquired Zync, we didn’t want to ruin the great thing that they had already established, which is being a tastemaker, like people trusted their taste. And we didn’t want to be that company that just sends out emails like ‘here’s the song of the week from the catalog’. So they are very careful not to lose that sort of tastemaker aspect of what they had. That’s why we still use the brand name Zync at the front because without that, then we just be Round Hill, maybe people would just view us as a catalog-only type of situation. That being said, there’s definitely synergy there because they never had catalog to sell before. So now opens up the doors for tons of opportunities for them to pitch to you.
Justin Fortier: Yeah, and one of your interviews with music business worldwide, I saw that you were talking about the service providers that could potentially service your catalog.
Josh Gruss: Right.
Justin Fortier: Instead of you have some of that in house. And you were saying that there’s some tension in between, how big are you of somebody’s focus? How much focus are you getting from whoever serving you? How do you decide to balance that with your own service businesses at Round Hill and Zync and things like that? How do you say, when do we focus internally? When do we focus externally? How do we operate both businesses?
Josh Gruss: That’s such an amazing question. That whole decision tree, if you will of what to insource, what to outsource, definitely a major factor for any music publisher. And from the very beginning, Round Hill, wanted to do it ourselves because we wanted to be able to add value to these catalogs and really mean that, and be able to follow through with that. There’s a lot of competition for us, they have the checkbook, they can buy catalogs, no problem. But in terms of what they do with that catalog, after they own it, they might say, oh, you know, we’re going to use our relationships, no KKR came out today, no, I’ve seen other kind of like purely financial groups, enter to the space. And I just don’t see beyond being a checkbook, what their capabilities are going to be for servicing the catalog. So Round Hill, we administer our own catalogue for all the territories, except for secondary-type territories in Europe and in Asia, and Africa and South America. We outsource it to Warner Chappell and pretty much what any smaller-sized publisher has to do, until it becomes large enough to be able to afford having an office in Hong Kong and in Berlin, in Paris. We have offices in London, Nashville, LA, and New York at the moment, and we handle Scandinavia directly, but we don’t have an office there. Point is that, as you grow, you’re going to start in sourcing more of that sub publishing network, as we call it. Round Hill can’t be a Sony with an office in every country, it just doesn’t make financial sense. So that on that sort of very basic level, that’s the major insource versus outsource split that we have.
Justin Fortier: Yeah. Some people will come to you for services, or is that only on Zync?
Josh Gruss: They come to us for admin services that could be just for Zync, like we would call those Zync-only representation deals, but more often it’s handling their publishing overall.
Justin Fortier: Interesting. And so the thing that I saved for last and we’ll get you off for four or five, is investment decisions. I know on the front end, there’s A&R and add a label who’s listening to new music or maybe the bigger labels, they’re seeing what’s popping on Instagram or SoundCloud, things like that. I don’t know exactly how it works. But how do you make these investment decisions? Is it an investment committee? What does that look like for Round Hill?
“The easiest first step to deciding whether to move forward is just… what are you selling in terms of music?” – Josh Gruss
Josh Gruss: We have an investment committee, we source a ton of deals, we probably only do about only close on maybe 10% of all the deals we look at. The easiest first step to deciding whether to move forward is just what are you selling in terms of music? Are you like, what are the songs that you’re selling and what is the quality of that? So if it’s younger music from the last five years or so, it’s almost 99%, it’s going to be a pass because for us we just don’t like buying into that risk of the newer income streams. Were they big hits, were they A Class, B class, C class type songs, a lot of the times they’re in the sort of C to D category, and that just doesn’t meet the quality that we’re looking for. And quality means like, was it a number one song? Was it a top 10 song? Was it a hit just in the US? Or was it a hit all around the world? Is the song embedded in lots of movies and TV shows? But if it’s, we bought Eddie Holland’s catalog, that’s 20 number one hits from the Motown era like ‘Stop in the Name of Love’ and ‘You Can’t Hurry Love’. Those songs are known globally. They’re in literally thousands of movies and TV shows. And you will just not find a better sort of culturally relevant catalog like that. That’s just an example of kind of a no-brainer from a quality’s perspective. But after that, it turns to, ‘do you have administrative control?’ That’s a big deal. Obviously, the valuation is a huge deal. Then, other things like, is the legal due diligence sound. Is there some legal heir on this catalog for some reason? Are there any reversions of these rights that might be coming up? As they’re ever been someone that’s come out of the woodwork and, you know, claimed that they wrote the song or things like that, we’ve had several deals fall apart, once we discover those kinds of situations. It all plays out but we’ve, we’ve done over 100 deals, and we just really know what to look for and how to get through the process.
Justin Fortier: Yeah, that makes sense. Spent a lot of proof points it’s easier to see what quality means, it’s not people bickering over whether it just simply sounds good.
Josh Gruss: Well, there’s a list of the Rolling Stone magazine of the 500 Greatest Songs of All Time. And about 10% of that list we own, so that helps us just that statistic probably means that we’re qualitatively in the right place.
Justin Fortier: And on that quality, and what you do with it, are you discussing strategies of what we would do with this song? Or is it basically like, ‘we know how to operate in the music space.’ ‘We know we continue to drive, help this song appear in the ways that it has performed.’ Or are you ever saying, ‘this is a catalogue, we think that it’s been mismanaged, we can do a turnaround.’ Are you mostly just saying, ‘this is strong, we know how to operate strong catalogs’.
Josh Gruss: Yet, sometimes just a high-quality catalog that just need to continue operating how, you know, level that it has in the past. Getting our input from the Zync team is important and sometimes they say, there’s not much we can do with this Zync wise. And other times they say, this would work great for Zync and we think we can do a lot with it, that factors in. But sometimes, music is not syncable at all, it’s just not going to have the right messaging. And the lyrics, maybe one of the reasons why we don’t have a lot of hiphop and rap is that no one can really license a song with bad words in it, or at least for ads and things. So that takes away from some of the opportunities. But like with our master recordings, the idea there is not really synchronization, it’s just let’s own things that are going to make a lot of money from streaming. So synchronization doesn’t have to be part of the thought process on every deal.
Justin Fortier: Yeah, I spoke with a data analyst at Universal Music. And he was talking about some of the things that they would try, since they’re mostly working with new music, stand of the arc of songs to prevent them from just dropping off and playlists things on Spotify, trying to find ways to promote there, is that capabilities that you guys are working on it Round Hill or?
Josh Gruss: I think that’s something that the record companies are definitely working on. I think that with music discovery platforms, like TickTock, and that song dreams from Fleetwood Mac. And as soon as it went viral, the streams increased by about five times, so 500%, and the rest of the Fleetwood Mac catalog got a big lift alongside of that, because people were like, ‘oh, I’ll check out their other music’. I think those types of moments are going to happen for at some point for just any all good songs. Like, if a song is good there’s a good chance that something special will happen virally with it that way. Over time. Yeah.
Justin Fortier: Thank you so much. I’ve learned a lot. I really appreciate your time and thank you for sharing.
Josh Gruss: Yeah, Justin, you learn this industry pretty well. You asked some great questions. So thanks for reaching out as a fellow Trinity alum. This is more special because of that. So it’s awesome to connect with you.
Justin Fortier: Great. Have a good rest of the day.
The Toolkit 