“Money and music is like oil and water,” a senior major label executive was quoted in the Financial Times. “Music is a hard thing to project revenues for – it’s a human business.”

Bill Ackman’s Pershing Square Capital Management has launched a $64 billion bid to buy Universal Music Group – the company behind Taylor Swift, Kendrick Lamar, The Weeknd, Sabrina Carpenter, and roughly a third of all recorded music on earth. The pitch was smooth, the premium was 78%, and the narrative was seductive.

When Ackman’s fund took a 10% stake in UMG five years ago, he explained, “I can’t think of an asset I’m more confident in being consumed over time. You need food and water to live, but music comes next.” He added, “you can’t license IP from food and water.”

Streaming has transformed music from a hit-driven lottery into something closer to a toll road. Reliable, recurring, annuity-like. The kind of business that looks great in a slide deck and even better on the New York Stock Exchange.

It’s a compelling thesis and it might even be right. But there’s a variable at the heart of this deal that no financial model has ever successfully tamed. It isn’t interest rates, or platform risk, or the regulatory environment in Amsterdam.

It’s the artist.

The Annuity Thesis, and Why It’s Only Half the Story

Let’s give Ackman his due first. The case for music as an asset is genuinely strong. Streaming has done something remarkable to the industry’s revenue profile, converting the old boom-and-bust cycle of album releases and tour cycles into something that flows more like a utility bill. UMG now generates over two-thirds of its recorded music revenue from streaming. Spotify alone paid out more than $10 billion to the music industry in 2024 – ten times what it paid a decade earlier. UMG has set targets for subscription streaming revenue to grow at between 8% and 10% annually through 2028. 

The bulls compare it to Netflix, except better. UMG owns the content rather than licensing it, the copyright term stretches for decades after an artist’s death, and the marginal cost of the hundred-millionth stream is essentially zero. Pershing Square has christened this, “Music-as-a-Service.” It’s a neat phrase that venture capitalists love.

But the thing about services is they depend on people delivering them. And the people delivering UMG’s service are Taylor Swift, Drake, Billie Eilish, and their successors. None of them are interchangeable, none of them are entirely predictable, and none of them signed up to be infrastructure.

The economics of superstars

To understand why this matters, you need to meet Sherwin Rosen. In 1981, the University of Chicago economist published a paper called “The Economics of Superstars” that remains a devastating analyses of how creative industries actually work. He explored why the very best performers earn so astronomically more than those who are merely excellent?

Two things combine to create superstar economics. First, audiences refuse to treat talent as interchangeable. “Hearing a succession of mediocre singers does not add up to a single outstanding performance.” Second, technology allows the best performers to serve the entire market at near-zero additional cost. The phonograph did it. Radio did it. Television did it. And streaming, of course, does it better than anything that came before.

The result is a winner-take-most market, and it intensifies with each new distribution technology. Spotify’s recommendation algorithm, trained on the listening habits of hundreds of millions of people routes attention toward the most compelling artists and away from the rest with a kind of cold mathematical efficiency that no radio programmer ever managed. The gap between the superstar and the merely very good is wider in the streaming era than it has ever been.

For a public company, this creates a paradox. At the portfolio level, UMG’s revenue looks beautifully smooth. Drill down into any quarterly earnings call, and you find the same handful of names driving the swings: Swift, Carpenter, Post Malone, Kendrick. The catalog provides a floor; the frontline artists provide everything above it. And those frontline artists, the ones who actually move the needle at a company of UMG’s scale cannot be predicted, manufactured, or modelled in advance.

USC Marshall’s Institute for Outlier Research in Business has made the Media, Entertainment, Culture and Creative sector a strategic research priority precisely because of this dynamic. Their work on what they call “outlier economics” shows that in winner-take-most industries, financial models built on averages are systematically misleading. The top 1% of artists don’t outperform the portfolio; they are the portfolio.

The Taylor Swift Problem

If you want a single case study that captures everything uncomfortable about music as a financial asset, you could do a lot worse than the TikTok saga of 2024.

In February of that year, UMG pulled its entire catalogue from TikTok after licensing negotiations broke down. Swift, Drake, Billie Eilish, Olivia Rodrigo and others all went silent on the world’s most culturally influential short-video platform. UMG’s position was that TikTok was paying artists a fraction of what comparable platforms paid, and someone had to make a stand. CEO Lucian Grainge argued, “There must not be free rides for massive global platforms.”

Then Taylor Swift did a direct deal with TikTok and put her music back.

UMG had offered her extra money to hold the line. She said no. The promotional power of TikTok – the platform that had turned her 2019 single “Cruel Summer” into a phenomenon four years after its release – was worth more to her than whatever UMG was offering. A moment that was supposed to demonstrate the label’s leverage instead demonstrated that the asset with the most leverage was the artist herself.

This isn’t a Taylor Swift problem. The most valuable artists in any major label’s roster are not passive income streams. They are human beings with creative identities, legal rights that accumulate over time, managers with spreadsheets, and the option – which Taylor Swift has exercised more publicly than most – to simply do things differently. They can re-record their back catalogues. They can do direct deals. They can leave.

Berklee College of Music and Southern New Hampshire University run an MBA in Music Business with specifically designed for the music industry, addresses this directly in its curriculum including courses such as The Science of Artist Management. Managing creative talent is treated as a discipline in its own right, one that requires a fundamentally different framework from managing, say, a manufacturing supply chain. The artist is not merely an input. In many cases, the artist is the business.

When Cultural Power Outpaces Financial Return

There’s a second instalment of the star problem that keeps Lucian Grainge’s team up at night, and it doesn’t have a clean solution yet.

The streaming model that underpins Ackman’s thesis was built for long-form audio consumption: Spotify subscriptions, Apple Music plays, albums listened to in full. That world delivers the recurring, predictable royalties that make the annuity thesis work. But increasingly, the most culturally consequential consumption of music is happening somewhere else entirely. On TikTok, Instagram Reels, and YouTube Shorts a 15-second clip can launch a career and monetisation for rights holders is, to use UMG’s own word, “inadequate.”

UMG’s executives have been candid about this. The company has acknowledged that revenue growth has been “challenged by the consumer shift to short-form consumption, which is not yet adequately monetised.” The platform that now drives discovery more effectively than any radio station, record store, or MTV programme in history pays a fraction of what a Spotify stream pays.

The tension isn’t lost on the educators training the next generation of music business professionals. Daniel Findikian spent two decades inside the major label system, at Universal, Sony and EMI, before co-founding EMIC, the École de Management des Industries Créatives, which recently partnered with Rennes School of Business to launch an the MSc in International Music Business.

He has been writing about the value gap problem since at least 2021, when Apple and Amazon used high-definition audio as a loss-leader to sell hardware, effectively destroying the premium streaming tier that services like Qobuz had spent years building. His warning then applies equally to short-form video today: “if value disappears,” he wrote, “there will be nothing left to share.”

That is precisely the trap that TikTok, Instagram Reels and YouTube Shorts currently represent for the music industry. They are the most powerful discovery engines the industry has ever seen. And yet the money flowing back to rights holders remains, by UMG’s own admission, “inadequate.” The platform that makes an artist culturally relevant is not the platform that makes the label financially whole. For a public company heading to the New York Stock Exchange, that is a core business risk.

What No Model Has Figured Out Yet

In a 2025 academic analysis, Music as an Asset Class, Sasha Stoikov, Senior Research Associate at Cornell Financial Engineering Manhattan and fellow researchers from Cornell University and Umit Cetin, a professor at London School of Economics conclude that for music to mature as a true asset class, pricing models “will need to move beyond financial history and incorporate measures of musical quality and cultural relevance.”

Musical quality and cultural relevance, all on a discounted cash flow spreadsheet.

That’s an honest acknowledgement of what this industry actually is. And it brings us back to where we started. Ackman is not wrong about the macro. The annuity is real, the catalogue is extraordinary, and the streaming economics are genuinely compelling. His bet is that all of this is obscured by a sub-optimal European listing structure, a concentrated shareholder base, and inadequate investor communication. For him, a New York address and a refreshed board can unlock $30 billion of latent value.

He may be right. But the investors who follow him into this trade should be clear-eyed about what they’re actually buying. Not a SaaS company or a utility. Something far older, and more interesting: a portfolio of human creative relationships, some of which will generate returns that nobody predicted, and some of which will walk away and do a direct deal with TikTok.

Music is a human business, and Wall Street is about to find out exactly what that means.

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