Valuing Music Assets David Dunn Shot Tower Capital

August 2019 Shot Tower Recent Assignments

Shot Tower advised on the largest global music transaction in 2018 (EMI), 2017 (Imagem) EMI Music Publishing Codigo Entertainment sale to Prince Estate New Recorded Imagem sale of Phil Collins Jackson Estate New Sale of Imagem to Concord and 2016 (Sony/ATV), sale to Sony Corporation Concord Music Group Music Agreement publishing to Hit N’ Run Recorded Music Agreement Music Group representing in excess Sell-Side Advisor Sell-Side Advisor Financial Advisor Sell-Side Advisor Financial Advisor Sell-Side Advisor of $6 billion of total (Exclusive) (Exclusive) (Exclusive) transaction value. Select recent music valuation and valuation advisory assignments Jackson Estate on New Valuation services to Roc Valuation of Intellectual Valuation services to Roc Jackson Estate on the sale of Nettwerk Music Group on include Estates of Administration Agreement Nation Sports Management Property Assets Nation Recorded Music 50% interest in Sony/ATV sale of its Music Publishing Aretha Franklin, for MIJAC Assets to Kobalt Michael Jackson, Mac Financial Advisor Valuation Services Valuation Services Valuation Services Sell-Side Advisor Sell-Side Advisor Miller, Prince, Elizabeth (Exclusive) (Exclusive) Taylor and Robin Williams

Fintage on the sale of its Jackson Estate Cirque du Ease Entertainment Services Valuation of Intellectual WPT sale to Ourgame Verse Music on its sale to music businesses to Kobalt Soleil Shows on its sale to Property Assets International BMG Rights Management Entertainment Partners

Sell-Side Advisor Financial Advisor Sell-Side Advisor Valuation Services Advisor Sell-Side Advisor (Exclusive) (Exclusive) (Exclusive)

CONFIDENTIAL | 2 Music Publishing vs. Recorded Music

MUSIC COMPOSITION MASTER RECORDING

Recorded performance of a Words and lyrics composition Royalty income paid on every Royalty income paid only on the version of the song specific recording of a song

Monetization and exploitation is the Monetization and exploitation is the responsibility of a music publisher responsibility of a record label

Royalty income typically split Record label typically owns the master between a publisher (NPS) and a recording and the performance artist songwriter (writer’s share) receives a royalty

CONFIDENTIAL | 3 Music Catalog vs. Music Company

Definition Music Catalog The term catalog is usually used to reference a collection of songs owned by a publisher or (IP Rights) songwriter or a collection of master recordings owned by a record label or performing artist. Music Publisher A music publisher works with songwriters to market and promote their songs, resulting in (Company) exposure of songs to the public and income generation. Music publishers "pitch" songs to record labels, movie and television producers and others who use music, then license the right to use the song and collect fees for the usage. - May own an interest in the copyright subject to the Copyright Act of 1976 (publishing catalog); or - Perform exploitation and royalty collection services without ownership under an administration arrangement. Record Label A record label identifies songs and works with producers and artists to create, market and (Company) promote the recordings. The label also coordinates manufacturing and distribution of physical product and licensing of the recording for other uses. - The label typically owns the master recording with the performing artist receiving a percentage fee depending on the nature of the sale or use of the recording (recorded music catalog); - In some instances, the recording artist and the label may form a joint venture entitling the artist to a 50% profit share after expenses.

CONFIDENTIAL | 4 Music Sources of Income Streaming ▪ Key driver behind the industry’s return to growth. Over the past decade, streaming went from 1% of recorded revenue to 47% and is expected to continue growing. ▪ Spotify and Apple Music are global leaders, holding ~60% of paid streaming market share. ▪ Access, convenience and personalization continues to boost music consumption and engagement. Performance Rights ▪ Analog radio continues to be a dominant form of music consumption despite displacement by streaming services among younger generations. ▪ The ad-funded landscape is dominated by YouTube, who has been under immense pressure from industry professionals to return more revenue to content creators. Synchronization ▪ Increasing number of content creators (e.g., social media, user-generated, film & tv, etc.) and rising content consumption opens the door to more synch opportunities for rights holders. ▪ Becoming an important source of discoverability for music listeners, rivaling traditional mediums. ▪ Film soundtracks were one of Nielsen’s five 2018 year-end music trends, displaying the influence of synchs. Digital Downloads ▪ Consumer preference for digital downloads has been replaced by streaming services as consumers prefer access over ownership. In addition, several streaming platforms provide premium users with full download capabilities, removing the need to purchase individual songs and albums to store on a digital device. ▪ Analysts expect digital downloads to continue declining between 10% – 20% over the next decade. Physical ▪ Largest driver of industry declines over the past decade as consumers transitioned from physical to digital formats. ▪ Still accounted for 25% of recorded sales in 2018 and continues to be the largest revenue source in major music markets, such as Japan (71% of market share) and Germany (35% of market share). ▪ Vinyl continues to be the bright spot in physical formats with sales growing 6.0% in 2018 per IFPI.

CONFIDENTIAL | 5 Key Cash Flow Metrics

MUSIC COMPOSITION MASTER RECORDING

Revenue / Gross Royalties C Revenue / Sales / Royalties A Less Writer Royalties T Less Artist Royalties A Less Administration Costs L Less Manufacturing and O Distribution Costs G = Net Publisher’s Share = Net Label’s Share

Less Operating Expenses Less Operating Expenses - Artist & Repertoire C - Artist & Repertoire - Licensing - Licensing O - G&A - G&A - Talent Expense M - Talent Expense = EBITDA P = EBITDA A Amortization N Amortization Advances Advances Recoupments Y Recoupments Capital Expenditures Capital Expenditures

CONFIDENTIAL | 6 Key Valuation Considerations

ASSET OR COMPANY SPECIFIC MACRO

Duration of Rights U.S. Copyright Act of 1976 Media Backdrop Ex. U.S. Law Streaming Services Growth Rates Contractual Retention Periods Advertising Market Expectation of Diminution TV/Film/Video Streaming (Front list/Catalog/Evergreen)

Control of Exploitation Legal Backdrop Administration Blanket License Rates None (Passive) Compulsory Licenses Approval Rights Consent Decrees Co-Publishing Territorial Differences Full Control

Cost of Exploitation Tax and Cost of Capital Functions (e.g., A&R) Interest Rates Operating Costs Tax (Rates and Amortization) Administration Buyer Target Returns

CONFIDENTIAL | 7 Music Valuation Methodologies

▪ Based upon a projection forecast, the DCF analysis discounts all expected future cash flows to their present value; favors high free cash flow enterprises. DISCOUNTED ▪ Advantageous for growth businesses expecting to increase terminal year cash flow. CASH FLOW ▪ Heavily influenced by the expected rate of return or weighted average cost of capital (WACC) and the assumed terminal exit multiple.

▪ Investor returns analysis derives a value for a business based upon a likely investor’s INVESTOR required rate of return and assumed exit value, which are directly influenced by the RETURNS quality of the operating business or catalog being acquired. ANALYSIS ▪ Based on unlevered and levered equity capital structures.

▪ Relies on the purchase multiples recently paid for similar businesses or catalogs to derive an implied market value for a company or catalog. MARKET ▪ Applies an NPS/NLS or EBITDA multiple, whether a catalog or company, based on MULTIPLE recent precedent transactions. ANALYSIS ▪ As music publishing and master recording rights differ based on the nature of rights and opportunities, this analysis provides an instructive guide but is not dispositive.

CONFIDENTIAL | 8 Positive Secular U.S. Industry Trends – H1 2019 vs. H1 2018

While royalties generated U.S. MUSIC CONSUMPTION U.S. MUSIC CONSUMPTION/SALES BY FORMAT 1 from physical ownership of music continue to decline, Overall Music growth in music streaming Audio Vinyl has led to an overall Consumption Streams Albums increase in music consumption and revenues comparable to the 1990s. From a consumer perspective, streaming is a great product and is Formats Growing driving the consumption of +15.7% +27.8% +9.6% music. While there is reason to be optimistic, the Total Consumption 2 ability of Spotify and other Physical Digital 1 Album = 10 Downloads = 1,500 Streams standalone services to (units in millions) profitably sustain service Albums Albums offerings is crucial to the financial health of the 351.6

music industry. 304.0 Declining Declining Formats -15.1% -24.4% H1 2018 H1 2019 Source: Nielsen Music Mid-Year Report, U.S. 2019. 1. Audio streams measured as number of streams, while vinyl albums, physical albums and digital albums measured by sales. 2. Nielsen’s measurement of total consumption includes the number of physical and digital albums that were sold and the total number of album equivalent songs from downloads and song streaming volume. Track equivalent albums ratio for Nielsen represents a ratio of 10 tracks to 1 album and a streaming equivalent albums ratio of 1,500 streams to 1 album.

CONFIDENTIAL | 9 Shifting Music Economics

LOWER PER UNIT PRICING REQUIRES MORE SHIFT TO CONSUMPTION MONETIZATION DRIVES HIGHER TRANSACTIONS TO MAINTAIN ECONOMICS ROYALTY PAYMENTS IN THE U.S. The transition from music ownership to access has Despite lower per unit economics, the shift towards monetizing on consumption lowered the per unit economics of music transactions, drives high royalty payments to content creators. The exception to this is requiring more streams/plays to maintain economics. YouTube, who the industry views as a value gap that drastically needs fixing. DECLINING FORMATS GROWING FORMATS Royalty per million streams/plays in U.S. Three Largest Streaming Services PHYSICAL SALES STREAMING 1 $9,000 0.78 CENTS 9.1 CENTS $7,830 Pay-per-stream $8,000 per reproduced $7,400 copy of a song 0.74 CENTS $7,000 Pay-per-stream DOWNLOADS 0.40 CENTS $6,000 Pay-per-stream 9.1 CENTS $5,000 per reproduced 0.07 CENTS copy of a song Pay-per-stream $3,970 $4,000

PERFORMANCE Dollars $U.S. PERFORMANCE Satellite Radio $3,000 Value Gap Analog (AM/FM) 15.5% $2,200 Flat percentage $2,000 $1,700 $0 of gross revenue Not legally $740 required to pay Online Radio $1,000 labels or artists 0.172/0.223 $0 CENTS $0 per song Ad-Based Sub-Based Analog performance Online Online Radio Radio Radio Sources: U.S. Copyright Royalty Board; The Trichordist. 1. Pay-per-stream rates reported for calendar year 2017 and represent a mid-size indie label with an approximately 200+ album catalog generating over 200m+ streams annually. 2. $.0017 per song performance is the statutory royalty rate set for ad-based commercial non-interactive webcasters. 3. $.0022 per song performance is the statutory royalty rate set for subscription-based commercial non-interactive webcasters.

CONFIDENTIAL | 10 What the Data Tells Us

Users and Estimated Revenue The online radio market still has room for growth Online Radio Listening (Weekly) of Online Subscription Services but saturation in the U.S. 19:12 $U.S. Monthly Subs/Users (mm) Est. Annual market will likely come in 16:43 16:48 Millions Costs Paid Total Revenue the next five years as the 14:39 Spotify 14:24 13:19 13:40 percent of the U.S. 12:53 $9.99 100.0 217.0 € 6,735 11:56 12:08 population listening to 12:00 iHeartRad 9:17 9:46 $9.99 NA 128.0 $3,167 online radio is expected to 9:36 8:02 io near 70%. 6:31 TuneIn 7:12 $9.99 10.0 75.0 NA 4:48 Without increases in time Pandora spent with online radio, 2:24 $9.99 6.9 66.0 $1,517 the online radio market Online Radio Listening (Hours:Minutes) 0:00 Apple $9.99 60.0 60.0 $5,040 should see consolidation '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19E Music or investments across SiriusXM Online Radio Listening (Percent $10.99 34.2 34.2 $7,714 platforms, as LiveXLive did of U.S. Population) with Slacker Radio in 2017 Amazon $9.99 32.0 32.0 $3,345 and SiriusXM did with 70% Music 60% Pandora in 2018. 57% Google 60% 53% $9.99 15.0 15.0 $851 50% Play Spotify and Apple Music 50% 44% Deezer 36% $9.99 7.0 14.0 $400 continue to dominate the 40% 33% 29% U.S. streaming market with 30% Napster iHeartRadio and TuneIn 22% $9.99 4.5 4.5 $172 20% 17% 17% competing to provide % ofU.S. Population Slacker 10% $9.99 0.7 1.4 $34 online radio alternatives to terrestrial radio listeners. 0% Tidal '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19E $9.99 1.2 1.2 $120 Sources: S&P Capital IQ; companies’ filings; press releases; Edison Research; The Infinite Dial.

CONFIDENTIAL | 11 Music Streaming – Paid Streaming ARPU

As more competitors have ARPU BY STREAMING SERVICE entered the streaming space, ARPU has steadily 2014 2015 2016 2017 2018E held in the $6.00 range $10.00 $9.4 over the last four years $9.00 $7.9 $7.6 $7.5 $8.00 $7.1 with the most significant $6.9 $6.7 $7.00 $6.0 $6.3 $6.1 $6.0 $6.0 $5.7 decrease in ARPU coming $6.00 $5.3 $4.6 $4.7 from 2014 to 2015 as $5.00 $4.3 $4.1 $4.3 $4.3 $3.6 $3.6 $4.00 $3.5 $3.5 Apple Music began to offer $2.7 free three month trial $3.00 $2.00 periods to lure customers. Dollars) ($U.S. ARPU $1.00 $0.00 The bundling of family Spotify Apple Music 1 Deezer Pandora Plus 2 Rhapsody/Napster members under family plans and discounted ARPU WEIGHTED AVERAGE OF ALL STREAMING SERVICES 3 student rates originally resulted in depressed 2014 2015 2016 2017 2018E ARPU rates, but given discounted offerings in ARPU across the music streaming sector has bounced back in 2018 due to less aggressive customer foreign territories, we $7.80 would expect the ARPU to acquisition promotions and bundling. continue in the $6.00 range going forward. $6.31 $6.10 $6.00 $6.03

Source: Kagan by S&P Market Intelligence, as of November 2018. 1. Previously Beats and MOG. 2. Pandora revenue is for Pandora Plus subscribers only and excludes advertising. Previously Pandora One. 3. APRU average across all of the streaming services is based on a weighted average and also includes the ARPUs of TIDAL, Slacker, Rdio, eMusic and Muve in the years they were operating.

CONFIDENTIAL | 12 Music Publishing Industry Outlook

Music publishers are ANGLO-AMERICAN MUSIC PUBLISHING INDUSTRY OUTLOOK benefiting from the increase in streaming but at lower Mechanical 1 Paid Streaming Performance 2 Synchronization Other levels than labels in part $7.0 $6.0 $5.7 because of the statutory $5.2 $5.5 $5.0 royalty regime for non- $5.0 $4.7 $4.2 $4.4 $1.1 $1.1 $1.1 interactive services and a $4.0 $1.0 $0.9 $1.0 result of publishers already $0.9 $3.0 $2.1 $2.2 benefiting from U.S. $2.0 $2.0 $1.8 $1.9 terrestrial radio $2.0 $1.7 $1.7 performance royalties. $1.0 $0.6 $0.8 $1.0 $1.2 $1.4 $1.5 $0.8 $0.7 $0.7 $0.6 $0.5 $0.5 $0.4 The benefits of the Music Billions) ($U.S. Revenue Publishing $0.0 2016 2017 2018 2019 2020 2021 2022 Modernization Act will be Source: Shot Tower estimates. positive but it is incremental DISTRIBUTION OF ANGLO-AMERICAN MUSIC PUBLISHING INCOME TYPES compared to the growth driven by streaming and the Mechanical 1 Paid Streaming Performance 2 Synchronization Other potential impact of rising rates. 21.4% 20.5% 20.0%

We see growth over the next 39.2% 38.7% 6.4% 4.8% 4.5% five years averaging 4.9% 40.2% 2016 2019 2022 7.7% versus publishing growth 11.7% averaging 6.0% over the last 18.2% three years. 13.7% 23.8% 29.1%

Source: Shot Tower estimates. 1. Mechanical revenue includes royalties from physical formats and downloads. 2. Performance revenue includes royalties from traditional performances (e.g., radio broadcasting and live venues) and ad-supported streaming.

CONFIDENTIAL | 13 Recorded Music Industry Outlook

Shot Tower strongly believes ANGLO-AMERICAN RECORDED MUSIC INDUSTRY OUTLOOK streaming will continue to outpace revenue growth in $30.0 Physical Streaming Digital Performance Synch the U.S.; however, growth in $25.0 $22.9 mature streaming markets $21.6 $22.4 $19.7 $2.7 is beginning to slow as China $20.0 $18.2 $2.5 $2.6 $17.2 $1.9 accelerates. $15.9 $2.5 $2.1 $1.9 $2.4 $2.4 $2.3 $15.0 $2.3 $2.5 $2.8 Growth in China may not $3.2 $10.0 $12.6 $13.7 $14.1 translate to continued high $6.6 $8.3 $10.4 growth in Anglo-American $4.6 $5.0 repertoire. Moreover, while $5.5 $5.2 $4.7 Recorded Revenue ($U.S. Billions) ($U.S. Revenue Recorded $4.2 $4.0 $3.8 $3.8 China’s growth rates are $0.0 2016 2017 2018 2019 2020 2021 2022 substantial, current Source: Shot Tower estimates. streaming revenues RELATIVE YEAR-OVER-YEAR RECORDED STREAMING GROWTH 1,2,3 generated from the Chinese market were less than U.S. REST OF WORLD (INCLUSIVE OF CHINA) REST OF WORLD (EXCLUSIVE OF CHINA) 380 USA 370 1,200 China $200 million in 2017. USA 1,034 ROW 340 305 1,000 ROW Overall, we are bullish about Global Global 300 J.P. Morgan (WW) 272 J.P. Morgan (WW) 800 689 recorded music but see 242 261 Goldman Sachs (WW) 260 Goldman Sachs (WW) 370 237 272 growth averaging in the 6% 600 460 272 188 238 261 272 220 185 202 232 188 306 167 238

range over the next five 214 400 142 175 305 Indexed Indexed @ 100 180 138 142 Indexed @ 100 185 242 192 138 202

Recorded Streaming Recorded Streaming 167 years versus growth of 7%- 189 Recorded Streaming 132 161 200 132 140 131 163 8% over the last three years. 120 131 145 119 123 127 130 100 0 116 2017 2018E 2019E 2020E 2021E 2022E 2017 2018E 2019E 2020E 2021E 2022E 1. USA, ROW (inclusive and exclusive of China), China and Global are Shot Tower estimates based on MIDiA and IFPI data. 2. Goldman Sachs Investment Research. Equity Research, Music in the Air: Updating our Music Industry Forecasts. April 30, 2018. 3. J.P. Morgan Europe Equity Research. Music Matters – Vol. 8: The Addressable Market, Subscriber Forecasts and the ARPU Ladder. June 20, 2018.

CONFIDENTIAL | 14 Value of Publishing and Recorded (Recent Trends)

Market multiples are up MUSIC PUBLISHING – AVG. MULTIPLE OF ALL TRANSACTIONS BY YEAR substantially for both Major1 Independent 2 publishing and recorded 24.0x (EBITDA Mult.) (NPS Mult.) EMI 19.9x 3 music over the last five 19.1x (19.1x – EBITDA) 17.6x years, reaching levels 19.0x 16.4x consistent with the period 14.5x 12.9x prior to the Great Recession. 14.0x 16.3x 16.1x 10.1x 14.0x – The increase in values has 13.5x 16.0x+ 12.0x 9.0x 11.0x been driven by prospects of 9.8x 10.2x growth from streaming 8.8x 9.2x 9.0x

Average Transaction Multiple Transaction Average 7.4x services, historically low 4.0x 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 interest rates and an expansion of well-financed RECORDED MUSIC – AVG. MULTIPLE OF ALL TRANSACTIONS BY YEAR buyers with long-term 18.7x investment horizons. 20.0x Major1 Independent 2 Spotify (EBITDA Mult.) (NLS Mult.) 18.0x (4.0x – EV/Rev.) 4 While publishing has 16.0x historically been the music N/A 14.0x investment of choice given 12.0x 10.8x the diversity of income 10.0x – 10.0x 8.7x 11.0x+ 12.0x+ streams, recent interest has 7.0x 8.0x turned to recorded music as 9.6x 6.0x 7.3x 7.5x its growth is directly related Multiple Transaction Average 6.0x 4.0x to streaming. 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: Shot Tower estimates. 1. “Major” represents larger transactions with a sale price in excess of $200 million and valued on an EBITDA multiple. 2. “Independent” represents transactions with a sale price between $20 million and $200 million and valued on an NPS/NLS multiple. 3. EBITDA multiple provided per press release. 4. Spotify enterprise value measured as of July 22, 2019 and revenue represents last twelve months as of March 31, 2019. Financials translated into USD at an exchange rate of 1.16 USD/EUR.

CONFIDENTIAL | 15 Values are Strongly Correlated to Growth Over Time

Not surprisingly, there is RELATIVE MUSIC INDUSTRY REVENUE GROWTH 1 high correlation between Recorded Music Music Publishing expected growth rates and valuation multiples. CD Era MP3 Era Streaming Era 220 1991 ‒ 1999 1999 ‒ 2016 2016 ‒ ? Drivers: 200 ‒ Streaming Growth; 2 ‒ Low Interest Rates; 180 Music Publishing M&A Multiples ‒ Stability (Publishing); 160 Scarcity/Competition. ‒ 140 Future Drivers: 120 ‒ Streaming Growth; Recorded Music M&A Multiples 2 ‒ Interest Rates; 100

‒ Regulation (e.g., 80 changes to consent to 100 Index % Growth Revenue decree); 60

‒ Ex. U.S. Growth. 40

1995 2011 1993 1994 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2012 2013 2014 2015 2016 2017 2018 The global music industry appears to be emerging from a period of digital disruption and is poised to reach new highs.

Sources: RIAA; Enders Analysis; NMPA; Shot Tower estimates. 1. Revenue growth for music publishing and recorded music is projected after 2017. 2. For music publishing and recorded music M&A multiples, red outline represents independent transactions, while navy represents majors – as presented on the previous slide.

CONFIDENTIAL | 16 Interest Rates in Focus

Music valuations have U.S. INTEREST RATE ENVIRONMENT benefited from low rates as large corporations, pension 2-Year U.S. Treasury 5-Year U.S. Treasury 10-Year U.S. Treasury ↑(1.36% to 1.83%) ↓(1.82% to 1.81%) ↓(2.26% to 2.06%) funds and family offices have 3.4% all been attracted to the potential for higher yields 3.2% 3.1% 3.0% 3.0% 3.0% from relatively stable music 3.0% 2.8% publishing income. 2.8% 2.9% 2.7% 2.8% 2.6% 2.8% 3.0% 2.6% 2.8% 2.6% 2.6% 2.8% 2.4% 2.6% 2.3% 2.6% 2.4% 2.4% 2.5% 2.3% 2.3% 2.2%

Yields 2.2% 2.1% 2.3% 2.2% 2.1% 2.2% 2.1% 2.1% 2.0% 1.8% 2.0% 1.8% 1.8% 1.8% 1.7% 1.8% 1.6%

1.4% 1.4% 1.4% 1.2%

Source: Bloomberg L.P.

CONFIDENTIAL | 17 Disclaimer

Shot Tower Capital LLC 621 East Pratt Street Suite 600 Baltimore, Maryland 21202 +1 (410) 376-7900 [email protected] www.shotcap.com

The principals of Shot Tower Capital LLC are registered representatives of Shot Tower Securities LLC, Member FINRA/SIPC.

This communication does not represent a solicitation of an offer to sell securities. Securities offered through Shot Tower Securities LLC, Member FINRA/SIPC. Licensed to sell securities in Maryland, New York, and California.

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