This past week was one of those where the Block Hunter Surveillance Console was showing things that most traders completely missed.
A 45,000-contract bullish vertical in TLT on Monday.
A 48,000-contract NVIDIA call spread and 37,000-contract AMZN spread on Tuesday — right before Mag 7 took over the session.
A 20,000-contract Citigroup spread on Wednesday.
And on Thursday, an S&P 500 all-time high driven by just 12 stocks making new highs — one of the narrowest breadth readings in market history.
None of that showed up in a standard indicator. The Console found it all because I know what to look for beneath the surface of price movement.
Tomorrow I'm going to show you how.
I'll be walking through the process behind those types of reads — how the Block Hunter console identifies the signal most traders never see, and how I'm connecting the institutional activity, the oil backwardation story, the dispersion breakout, and the natural gas setup heading into this week.
This is the session to be in if you want to understand what's really driving this market right now.
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Good afternoon from Los Angeles and happy second weekend of Coachella to you all. I wrote a piece for Bloomberg about where to eat when Los Angeles is a little emptier.
It’s been a very newsy few weeks in the music business, from the Live Nation antitrust trial to the return of Justin Bieber and Ye. We broke down a few of these stories on The Town while Sam Sanders and I discussed whether Ye is forgiven on his podcast.
Five things you need to know
Netflix co-founder Reed Hastings is stepping down from the company’s board. He says it’s so he can devote his time to other endeavors. Hastings has been laying the groundwork for his departure, transitioning from sole CEO to co-CEO to executive chairman to just chairman.
Hollywood stars and filmmakers signed a letter objecting to the merger of Paramount and Warner Bros. They are hoping this is just the start of a campaign against the deal.
Over half of internet traffic is now made up of AI bots.
Netflix shares plummeted Friday after the company forecast earnings that disappointed investors. The stock had been on a tear since Netflix walked away from the Warner Bros. deal.
Bill Ackman’s hunt for Universal’s missing billions
On Jan. 8, Universal Music Group Chief Executive Officer Lucian Grainge released a memo to explain why the year ahead looked so promising. Grainge has issued one of these mission statements every January for a few years now to offer his view on the state of the music industry, outline his priorities and tout his company’s dominance.
UMG accounted for nine of the 10 best-selling acts in the world last year – including the majority of the five on every major streaming service. “No other company — in music or any other sector of entertainment — has ever achieved such a level of success and done so with such consistency,” Grainge wrote.
And yet, shares in the company slid 8% over the next three months. Shares in Universal had dropped almost 20% since the company went public in 2021 – a period in which Spotify has climbed more than 100%.
This downward spiral in UMG’s stock prompted one of the company’s biggest shareholders, financier Bill Ackman, to propose buying the company and merging it with his special purpose acquisition company.
Few industry executives or Wall Street analysts see Ackman’s proposal as a real offer to buy the company. And while Ackman has criticized the company, he’s not trying to change the CEO. His suggestion for a new board chair, former Hollywood talent agent Michael Ovitz, is a friend of Grainge. Both analysts and industry figures expect the UMG board to politely decline the proposal this week.
Yet Ackman’s criticism reflects a real and growing frustration with the company’s performance. Despite Grainge’s dominance of the music charts, investors haven’t bought into the company’s future. Ackman, a pugnacious investor, has been agitating for UMG to make some changes for years now. After not getting his way, he has gone public with a plan he hopes will force the company to act.
“Ackman’s gambit is to spur a change in behavior at the company,” said Peter Supino, an analyst with Wolfe Research.
Music’s existential woes
Ackman first acquired a stake in UMG in 2021, right before the company went public. The music industry was in the middle of the streaming boom, poised to grow sales by 18% that year alone.
UMG was the top player thanks in large part to Grainge’s acquisition of EMI’s recorded music business in 2012, which made UMG the biggest record label group in the world by a good margin. Year in and year out, Universal’s biggest labels, Interscope and Republic, trounced the competition.
Ackman urged Grainge to use this power to push the industry in a direction that’s more favorable to UMG. Command better terms from Spotify and Apple. Make them raise prices. (Ackman bought into UMG before a brief and unsuccessful dalliance with Netflix.)
Yet UMG went public right before the streaming boom started to ebb. Global record sales have grown at sub-10% four years in a row. UMG, like most media companies, tried to address investor concerns about the economy by firing staff.
The poor public performance of labels like UMG and Warner Music Group has been especially troubling to investors when Spotify, the largest streaming player, has continued to add customers at a record clip and started to turn a profit. Spotify is worth more than all three major music companies – Universal, Sony and Warner – combined.
There are reasons to believe record labels face an uncertain future. Spotify has tweaked its business model by diversifying into podcasts and books, thereby reducing music copyright holders’ share of its sales. Major label market share is shrinking as independent distributors have created a cheaper alternative for artists. There is more competition for catalog ownership.
The label model has long been predicated on investing up front in new artists with the confidence that some of them would become stars, and their catalogs would be controlled by the label. Catalogs are a label’s most valuable asset. Yet The Weeknd, an artist who released his biggest albums through UMG’s Republic Records, later sold a share in his catalog to someone else.
Artificial intelligence is the largest current headache, as investors fret AI music will compete with human music, diluting labels’ share even more. This is one major reason why both Universal and Warner have suffered of late. “Label stocks are going down because of AI,” said Supino.
Great record label, bad public company
Yet Ackman isn’t actually worried about the music business, nor does he want to change the way the company runs day-to-day. He praises Grainge’s execution as a label boss and is asking for his contract to be extended. Ackman doesn’t think the company is in trouble – he just thinks it should be worth more.
Analysts and investors cite a few gripes with how the company has managed public markets. UMG also hasn’t been transparent about how it is spending money or what the returns on that investment have been. The company has prioritized growing sales over generating cash, which is harder to justify when the industry is slowing down. UMG did just announce plans for stock buybacks, which juiced the stock for a few days.
While Grainge is brilliant at breaking acts and running his company, he is less adept at financial engineering. He and his team had little experience delivering quarterly earnings reports or managing investors. They don’t want to tell people what they are paying artists in advances, or how much they’ve made from the Taylor Swift deal.
Ackman’s biggest gripe remains that the company is listed in Amsterdam. He wants the company listed in the US.
“There’s a much broader investment base in the US,” said Clay Griffin, an analyst with MoffettNathanson. Listing in the US would allow UMG to be eligible for the S&P 500 and other indices. US investors who want exposure to music can more easily invest in Spotify or Live Nation.
UMG was always an odd fit as a public company. Nearly 30% of its stock is owned or controlled by the Bollore family, the French media moguls who lead Vivendi. The Bollores are a big reason why the company is listed in Amsterdam and they have yet to support relisting in the US. (The same goes for Tencent, the Chinese internet company that owns about 11% of UMG.)
An Ackman-Grainge detente
While investors welcome many of Ackman’s proposals, according to analysts like Supino and Griffin, they concede there is no clean way for UMG to just relist in the US. They are also skeptical that Grainge is going to support ousting his friend Sherry Lansing as chair.
“Lucian does not want to work for Ackman,” Supino said. “He likes his power on the board just the way it is. Ackman knows that.”
The easiest way to end all this agita is to deliver better results. That’s easier said than done. UMG depends on streaming services for most of its sales, and the labels have secured higher rates from streaming services in their latest deals. (That is why the price of your streaming service is going up.)
Considering the negative impact AI is having on the stock price of so many companies, UMG and its peers would like to see sanctioned AI products from Spotify and YouTube as soon as possible. That, like however, is outside their control.
There is one scenario that could please both Ackman and Grainge, which is that someone else ties to buy UMG. There have been whispers of the company going private, though no credible suitor has emerged.
While having Ackman agitating for change isn’t a fun situation for any CEO. Grainge and Ackman actually agree on a key point: They believe the company is undervalued. They just have to agree on a solution.
The movie business is going to have its first great year since the pandemic. Sales are up about 18% from a year ago thanks to hits like Project Hail Mary and Hoppers and the trend should continue with a blockbuster-heavy summer. The Super Mario Galaxy Movie is one of at least four films that are guaranteed to top $1 billion at the box office – and there could be more.
However, Hollywood executives are unsure what comes next. The pipeline for 2027 and 2028 isn’t as strong as this year, and the potential merger of two studios, Warner Bros and Paramount, could further depress the number of movies in theaters. The merger of Disney and Fox depressed the total output of movies, and is only now being offset a bit by the arrival of Amazon.
Paramount CEO David Ellison sought to reassure theater owners and the broader industry during a brief appearance at CinemaCon. He said the combined company will release more than 30 movies a year and will leave those movies in theaters for at least 45 days before they are available at home (and 90 days before streaming).
Ellison is going to have a hard time convincing people until he actually releases that many movies. Executives don’t usually combine struggling assets and then increase spending. While Paramount says it has boosted its output to 15 movies for this year, it’s only released two horror movies so far.
Ellison appeared at CinemaCon the day after he declined to appear at a Senate hearing probing his deal. Adam Aron, the head of the largest theater chain in the world, voiced support for the deal, breaking with his colleagues.
Live Nation loses. What do people want?
Live Nation lost its antitrust trial, as a federal jury found that the company illegally monopolized the live events industry and overcharged fans for tickets. This is a big win for the state attorneys general who pursued this case even after the Department of Justice settled.
It will be up to a judge to decide whether to break up the company, forcing a separation of Live Nation and Ticketmaster. And this is the tricky part. Will this improve the live event experience for consumers?
Politicians have been attacking Live Nation and the live music industry for the surge in concert ticket prices. But breaking up Live Nation isn’t going to reduce ticket prices dramatically. The court found that Live Nation inflated prices by an average of $1.72, or about 1% of the current average ticket price for the top concert in the world right now, Bad Bunny.
I asked a couple of Live Nation critics and they said it would have little immediate benefit for fans. It could, however, impact the entire industry if Ticketmaster were spun off.
Legendary February boosts NBC
The Super Bowl and Olympics boosted NBCU’s share of US TV viewership by 48% in February. It was the No. 1 distributor, topping Disney and YouTube, per Nielsen.
TV networks, led by NBC, attracted a lot of viewers. Nielsen includes cable networks like CNBC and MS Now, the cable channels that were once part of Comcast and are now part of Versant.
Peacock also benefited, climbing to 3% of TV viewership – its biggest share ever.
Nielsen is in the middle of a fight with TV companies over how it measures the gauge. It was supposed to incorporate a new methodology that would boost linear TV at the expense of streaming. It has held off on rolling that out after streamers squawked. Patrick Coffee at the Journal has been covering this closely.
The home shopping company QVC Group filed for bankruptcy to help get out from under more than $6 billion in debt.
Weekly playlist
I’ve been on six planes in two weeks, which has been a good opportunity to catch up on some movies from last year I missed. Roofman is the kind of movie that would have worked at the box office 20 years ago. I don’t think Ella McCay would have worked in any era.
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