Deep Dive: Shrek Royalties

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Julia

Hi, everyone. Thank you so much for joining us. My name is Julia Rothacker. I'm the director of concierge here at Public. And we're thrilled to be with you today to talk a little bit about the reggae IPO of Shrek music royalties. Keith, would you like to introduce yourself?

Keith

Hey Julia, for those who haven't met me yet? I am Keith Marshall GM of alternatives here at Public.

Julia

Perfect then let's dive straight in. Keith. I know this is a serious investment. But I'm also guessing everybody wants to hear about Shrek.

Keith

Of course. You know, as most of you should already know. Shrek is a bad tempered but good hearted ogre, who goes on a variety of quests in his fairy tale world. So Shrek is just a massive media franchise. It's the 17th highest-grossing film franchise of all time. And the second-highest-grossing animated film franchise which generated over $4 billion in box office sales just wild stats. And interestingly, there's actually a rumored fifth film possibly to be called Shrek Five. And you know as it's grown, the Shrek franchise has just really kept pace with streaming becoming evermore important in this media landscape. So the first two films launched on Netflix in March 2022. And were in the top 10 viewed when they were launched. Another wild stat customers watched 20.8 million Shrek and Shrek Two in the week they launched on Netflix. Those two movies have since shifted over to Peacock, which is obviously the affiliated owner of the Shrek franchise, but some are still visible on Netflix.

Julia

Great. And now let's shift a bit to what the investment offering is here. What exactly is a royalty?

Keith

Yeah, most people actually don't know what royalties are so short answer royalty interests are intellectual property. They're part of the copyright law. So really, the royalties are the actual payments. So the royalties are the payments that come to us from use of this content, the Shrek underlying content, and they're collected by what's known as performing rights organizations basically just like large clearing houses. These PRO's are what actually manage the rights on behalf of rights holders. So royalties are actual payments PRO's their job is to collect these payments from all these underlying sources of content distribution when the music from the Shrek franchise really you know the actual movies are used.

Julia

Thanks Keith and can you explain what exactly triggers a royalty payment for FRAC?

Keith

So this catalogue generates royalties from a bunch of different sources you know, use of the tracks in the movies when the movies are streamed or sold on theme park rides there's a holiday TV special called Shrek The Halls there are even Broadway plays about Shrek all of these different things lead to royalties being generated. And you know, that's it even makes money when the movie I Am Legend plays because Will Smith's character actually watches Shrek during I Am Legend. So a significant portion of these royalty earnings have come from international sources. So this asset actually benefits from not being tied solely to the US market as well. Relatedly there are a ton of references on Reddit videos on YouTube about people actually learning English from watching Shrek, that may be one of the reasons that international viewing is and has been so strong for Shrek. But you know, of course, broadcast and streaming represent the main portion of earnings just because you know the people watching Shrek so a question that's come up a few times from people that I want to clarify. This is the score, not the soundtrack. So Smash Mouth all-star is not included. But like Fairy Tale which some of you may know from recently going viral on TikTok is included. So this is the score just the underlying orchestral music.

Julia

Yes, I certainly have seen Fairy Tale a lot recently. So that gives a lot of clarity on how Our Shrek royalties work, and I am a big Shrek fan. So I love it. But this is also a an investment. Why would someone invest in royalties?

Keith

First, as an attorney, we have to present a disclaimer, investors should always do their own research and understand all of these risks to consider before investing. But, you know, stepping back public's goal as a platform is to give investors tools that's investment products, and actually the education as well to build these modern diversified portfolios. And to answer your question, royalties can produce cash flow, which you know, in the current interest rate environment can definitely be appealing to investors. So in the case of the Shrek offering, any royalties received by the entity that holds these royalty interests will be paid out in the form of quarterly dividends. So royalties also benefit from being less correlated with other assets, you know, like Exchange Traded equities, because, again, they're driven by content consumption, not you know, for example, what the stock market is doing going up and down or doesn't, those things don't directly impact how people are watching Shrek and reduce correlation, cashflow. These can help investors lower portfolio volatility and hopefully increase returns on a risk-adjusted basis. So royalties are an investment tool.

Julia

Thanks. And I understand that royalties are actually an established asset class.

Keith

Yeah, so most people don't realize that this really is an investment product. And, you know, to date, institutional investors have just dominated the space is a direct example, the Michigan State employee pension funds have billions of dollars invested in music royalties, and catalogs can just sell for massive amounts, like the recent $225 million sale of Katy Perry's catalogue. You know, most people just can't participate in something like that. So with the Shrek royalties offering, investors can access royalties with as little as a $10 investment. And, you know, most of us don't have hundreds of millions to spend on a single asset, but Public wants to make these public markets actually work for all people. So this offering makes royalties more accessible to everyone.

Julia

That makes sense. And why Shrek music within all music royalties,

Keith

you know, we talked about the Shrek franchise, and that's actually not the starting point for this thing. First and foremost, it's a mature asset. It has a 20-plus-year earnings history. And while we can't predict performance, you know, that means we're not relying on like how a single song by a single artist has done in the past year to assess what could happen in the next five years. It's also a strong recent historical performance, you know, earnings have actually grown in recent years due in part to streaming. We saw that last year with an earnings bump from Shrek on Netflix. And again, past performance is, of course, no guarantee of future results, but it makes our own analysis more meaningful. So comparing the 2022 calendar year earnings to the offering amount, the asset produced an eight-and-a-half percent return after fees. So it's also a life of rights interest, meaning this royalty interest is valid for the life of the composer Harry Gregson Williams plus seven years and Gregson Williams is 61 As of today. Lastly, it is Shrek we already discussed like it's an awesome media property and you know, Shrek Five could theoretically reinvigorate interest in the rest of the franchise, which could potentially increase royalty earnings. So again, Shrek Five does not yet have a release date. And recent strikes could of course, delay that, but we hope the movie is indeed forthcoming.

Julia

Okay, Keith, last question for you. How does the process work if someone wants to invest?

Keith

So the offering is $889,700 in total $10 a share, but it can be oversubscribed. So we can actually take in requests for more than the 889k. As of today, the offering is reached about 77% of its total allocation. So it really just you go in the Public app or on our site and you can request shares at the Shrek asset page. After we receive these requests for at least the total offering amount the 889,700 we will process the closing and at that point, investors will be eligible for dividends after the closing. In addition to being eligible for these dividends, investors can participate in a secondary market, meaning they can buy and sell shares from one another on the Public platform. And I want to close out with a reminder that dividend payments aren't guaranteed. They depend directly on the consumption of Shrek to keep generating royalties. So, always do your own research.

Julia

Absolutely. Keith, thank you so much for providing this overview of the Shrek music royalties offering. And thank you all for joining and listening to us. So with that, have a great rest of your day. Thanks so much.