A true oddball: Mills Music Trust

My goal when starting this blog was to find and profile companies far off the radar for most investors.  I usually profile small caps, net-net's, and a lot of foreign companies.  For most investors bombarded by the mainstream financial media the things I write about are really offbeat.  For investors who invest in deep value global small caps a lot of names I mention seem to be common.  After all there are only so many stocks globally and there are a lot of people picking through them.

From time to time I uncover a truly oddball stock, something that is both unknown and a different creature all together, Mills Music definitely qualifies.  I find these stocks interesting because due to complexity or details most investors pass over them.  Mills Music Trust qualifies as something hard to grasp, yet has the markings of a good opportunity.

Imagine a stock without any tangible assets, or a book value.  If it was liquidated it would be worth something yet there is no balance sheet.  The income statement is seven lines long, yes just seven lines.  This is the quick description of Mills Music Trust.

What is it?  Mills Music is a cash collection and distribution machine.  Where's the cash come from you ask?  It comes from EMI the music company.  Mills Music owns the rights to some "oldies" songs, nothing more, nothing less.  Every time a royalty event happens with a song Mills has the rights to EMI makes a note and eventually sends over a royalty.  Four times a year Mills Music pays out the cash received from EMI minus some bookkeeping fees to unit holders.

The business is simple enough, cash in, cash out.  The simplicity is fascinating, here is last year's income statement:


A random thought, I love the fact that they will keep less than $100 undistributed at the end of each year.

The first question to ask is why would anyone want to buy Mills Music Trust?  The answer is blindingly obvious, for the yield of course.  They have paid out $2.62 per share so far this year, and have paid out between $3 and $4.50 over the past five years.  The stock yields close to 9% currently.  Of course no one knows how much they'll pay out in the future because no one knows how many times The Little Drummer Boy will be played on the radio this Christmas either.

Here is the historic dividend history:


There really isn't much else to say about Mills Music Trust.  In short old songs are played on the radio or downloaded in iTunes and Amazon, the cash is sent to EMI, who sends it to Mills Music, who sends it to you.  Mills has rights to over 25,000 songs, but only about 1,500 songs actually generate royalties.  The next copyright of a top 50-income generating song expires in 2018.  Amazingly 66% of the royalties comes from the top 50 songs.  The rights Mills Music owns seem to be as obscure as the stocks I write about.

Oldies are probably pretty stable at this point meaning the dividend is probably pretty stable until some of the songs start rolling off the copyright rights.  For an almost 9% dividend this seems like a pretty safe bet.

Purchase Information:
Mills Music Trust (MMTRS.PK)
Avg Volume: 300 shares (use a limit order!!)
SEC Filings

Disclosure: No position

24 comments:

  1. If you look carefully you'll see that Paul McCartney is the largest shareholder...

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    1. I noticed that probably five minutes after I posted this. It's pretty safe to say that Paul McCartney knows the value of rights, so if he owns a lot he must see value in this.

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  2. Thanks for the write-up Nate. Wow, only 277K units outstanding and an $11mil market cap, teeny tiny. So, if I read this correctly unless the trust acquires new assets (or copyright laws), its copyrights will expire and revenues will gradually decrease over time?

    Anyway, sounds like a great business model. Easier than managing a building and collecting rent.

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    1. You're right, the trust will slowly distribute less and less cash eventually ending at zero. The next expiration is in 2018 and they slowly roll off after that. I need to emphasize slowly, copyrights last 95 years. So for a song that came out in 1940 you're looking at 2035 before the copyright is done. The ones rolling off now came out in 1917...quite a while ago.

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  3. Hey Nate... cool idea... thanks for the post. I don't mean to seem thick but how can you tell that Paul McCarney is the largest shareholder? Thanks, Thomas

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    1. I saw it when I googled the company. If you Google "Mills Music Trust Paul McCartney" you'll find a few articles mentioning that he's a major shareholder. Apparently there was a dispute back in 2001 over how Mills Music calculated his dividend.

      Nate

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    2. I have owned MMTRS since 1974. I have the prospectus from the 1964 rights offering by Utilities and Industries Corp. The Trust's expiration date is when the last descendant of John F. Kennedy dies.

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    3. ginbum, would you mind posting a copy of the prospectus?

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  4. Awesome post, Nate - thanks! I'm sure McCartney hates that its called the Mills music trust...!

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  5. The fact that they have an audit firm looking over the EMI calculations is also a positive in my view. If EMI underpaid, there is a potential windfall gain through a settlement, if nothing comes out, $17.5k won't hurt much. The audit only started in Nov 11, so it will likely be a while before we hear results.

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  6. Aren't the rights of the songs enough of an asset to make a balance sheet?

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    1. Lorenzo,

      Yes you could make a balance sheet but it really isn't necessary. They pay out all of their cash except for $67 or so. There are no liabilities outside of dividend payments to trust holders.

      With the music rights I think it would be hard to value them. I'm sure they have some value, but how do you carry that on the balance sheet. Most of the rights don't produce income so I'm not sure if they even have any value. The best way to figure out an asset value is probably just a dividend discount on the present value of the cash flows.

      Nate

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  7. If my data is correct, largest shareholders are:
    MPL Communication (McCartney) - 79.6k shares
    First Eagle Investment Management - 34.9k shares
    First Manhattan Company - 8.7k shares

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  8. Where can you see a list of songs that they own? Owning certain songs reminds me of something like Coke where you own an intangible that is engrained in people's minds so much so that it is nearly possible to untrench, ie., Little Drummer Boy.

    How often (if ever) do they acquire rights to new music?

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    1. I think the best way to find this out would be to call the trustee. I found on Wikipedia a listing of some of the top songs: http://en.wikipedia.org/wiki/Waterson,_Berlin_%26_Snyder,_Inc.

      I don't believe they ever buy new rights, this is just a trust holding existing rights that eventually maybe in 50 or 60 years will just run out.

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    2. I've done some research into this, for what's it's worth. See my post from earlier today but don't bet the ranch on my conclusions.

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    3. It's quite simple. All you have to do is use the ACE search through ASCAP; https://www.ascap.com/Home/ace-title-search/index.aspx. Search for Mills Music under Publishers and you will see about 35 results with about 6 or 7 being owned by the Mills Music Trust. All the EMI Mills Music listings and I believe a few others. If you click on these you will see all the songs they own.

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  9. Hi Nate,

    My take is one should value this with a dividend discount model. It's like a perpetuity, the dividend has been in the same range ($3-$5) since at least 1991.

    But my question to you is, what would be the appropriate discount rate for Mills? In your opinion would an eventual increase in interest rates cause the price of the stock to move down?

    Great find!

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  10. I have owned this "stock" for 5-7 years depending on which share you check. I bought most at approx. 32 dollars, but so I could own a nice round number bought about 50 of them at 37. Now I have always just counted the payments as dividends and that's it. I never received any schedule k's or other papers to make things more difficult. Now, I am poor so the IRS doesn't care much, but people on the Yahoo discussion group seem to get all worried about the tax treatment. I have heard enough to be confused. Even that I need pay NO taxes until I have received my purchast price. HA HA Can I just continue as before, the schedule K one the web is unreadable and what is readable is confusing as hell.

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  11. "top 50-income generating song expires in 2018. Amazingly 66% of the royalties comes from the top 50 songs"

    If I am understanding correctly, their revenues decline about 66% following the loss of copyrights on their music rights "inventory"? If that is the case, each dividend is more like a return OF capital, not ON capital, and the stock at $40 is very unattractive. In fact, running numbers based on what I think are reasonable assumptions, and taking into account that overhead is 45 cents/share, I would not buy this until it was at least $15 for a 20% return (because I don't know the expiration of the remaining 33% of revenues, I need a high return hurdle). This is a classic situation of a stock trading off of dividend yield until one day the dividend is cut and the stock plummets - have seen it happen time and time again.

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    1. The yield overstates what you'll actually earn. The actual annual return for holding shares will be less because the distributions will fall over time, eventually reaching zero. Investors would be better served calculating an internal rate of return (IRR) to gauge realistic investment returns.

      The IRR is probably 6.7% at current prices ($41). This scenario assumes distributions are stable until 2018, begin falling in 2018 as copyrights begin to expire, and fade steadily until 2055 when they cease as all copyrights will have expired.

      To get an IRR of 10%, you could only pay $31/unit.
      To receive an IRR of 15%, you could only pay $21/unit.

      (if some of the top 10 hits expire closer to 2018, then the actual IRR would be lower than indicated. Also, if administrative costs rise faster than royalties over time, then the actual IRR would be lower than suggested above.)

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  12. I am of the same view as the last two replies. Under no circumstance would I pay more than $20 for this. You are not going to get your principal back and I would bet that distributions will diminish materially faster than a straight line assumption. The reason is that the older these songs get, the less they will be played. Sentimentality for songs can stretch over a generation or two (e.g., an adult today remembers when she was 7 years old that her grandmother always played a certain song, so she still likes it), but they are not eternal. Thus, not only will the number of songs earning royalties decline over time, the royalties per song will also decline. My guess is the only thing that kept the royalties relatively steady so far is that population growth and the internet have offset the decline in interest of the songs. But the loss of interest will eventually win out, and I don't think it will take 50 more years for most of this material.

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  13. I bought some MMTRS a while back for a Roth IRA and have since communicated several times with the trustee (HSBC in NYC) in an effort to satisfy my curiosity about the list of copyrights held. So far they haven't released the original registration filing (from 1964), but they say they're talking with EMI in England to see about doing that. The SEC doesn't even have a copy of the filing because it's so old their retention standards kicked in.

    Meanwhile, the most recent 10k DOES list what were apparently the 50 most lucrative titles over the past fiscal year. They included (among others): Little Drummer Boy, Sleigh Ride, Star Dust, It Don't Mean A Thing, Mood Indigo, I've Got the World On A String, Ain't Misbehavin', Hold Me Thrill Me Kiss Me, Red Roses For A Blue Lady, Stars Fell On Alabama, Stormy Weather, St. James Infirmary, Shakin' All Over and You've Got Your Troubles.

    Last night I discovered an online database (University of Wisconsin's, I believe) listing sheet music published by Mills Music over the years, and I think it's a reasonably safe bet that many of the titles are held by the trust. Less certain is when the various copyrights run out. I made myself a list of the titles that intrigued me and there isn't space to share them all here, so this is a partial summary from oldest (1923) to newest (1964) - and please note I COULD BE WRONG ABOUT SOME OR ALL OF THESE. Copyright laws have changed frequently over the years both in the US and overseas, records seem murky at best and it hasn't been unusual for various people to copyright the same (or a slightly different) tune at different times:

    Who's Sorry Now, Bye Bye Blackbird, Someone to Watch Over Me, Me and My Shadow, Button Up Your Overcoat, Happy Days Are Here Again, Puttin' On the Ritz, Singin' In the Rain, Tiptoe Through the Tulips, Dream A Little Dream of Me, Who's Afraid of the Big Bad Wolf, Anything Goes, I Get A Kick Out of You, I Only Have Eyes For You, Santa Claus Is Comin' to Town, The Way You Look Tonight, Anial Crackers In My Soup, O Holy Night, I've Got You Under My Skin, A Tisket A Tasket, Hooray For Hollywood, Moonlight Serenade, South of the Border, Fools Rush In, Pennsylvania 6-5000, Woody Woodpecker, You Are My Sunshine, Deep In the Heart of Texas, That Old Black Magic, White Christmas, Oklahoma, Have Yourself A Merry Little Christmas, Sentimental Journey, Sixteen Tons, There's No Business Like Show Business, Zip-A-Dee-Doo-Dah, Everybody Loves Somebody, Rudolph the Red-Nosed Reindeer, In the Cool Cool Cool of the Evening, Glow-Worm, That Doggie In the Window, Your Cheatin' Heart, That's Amore, You'll Never Walk Alone, Earth Angel, I Left My Heart In San Francisco, Love and Marriage, Whatever Lola Wants, Blue Suede Shoes, Graduation Day, Heartbreak Hotel, Hound Dog, Love Me Tender, I Feel Pretty, Maria, Donna, Purple People Eater, Stagger Lee, My Favorite Things, Put On A Happy Face, Try A Little Tenderness, Can't Help Falling In Love, Moon River, Breaking Up Is Hard to Do, Call Me Irresponsible, Dominique, Do You Hear What I Hear, On Broadway, Girl From Ipanema, Hello Dolly, It's A Small World, King of the Road, That's Life.

    There are a lot of holiday songs (esp Christmas carols) and show tunes among the titles associated with Mills Music. As for the McCartney (MPL) ownership, it's worth noting that Mills titles also include Till There Was You, Besame Mucho, Don't Get Around Much Anymore, Ain't She Sweet, Ac-Cent-Tschu-Art the Positive and Bye Bye Blackbird – all of which McCartney has recorded at one point or another in his career.

    There are also a handful of interesting post-1964 titles (things like Strangers In the Night, White Rabbit, Mr. Bojangles, Sunshine of Your Love, You've Got a Friend, Stairway to Heaven and My Sharona, among others) but I believe they are all considered part of "New Mills Music" and therefore their income is irrelevant to MMTRS.

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  14. I think everyone here would understand this company much better if they understood the true history of Mills Music Publishing and if they understood music publishing in general. First off, when it comes to music rights it does not become public domain until 70 years after the death of the composer/songwriter. You can also find the whole catalogue owned by Mills Music by using the ACE search through the ASCAP website; https://www.ascap.com/Home/ace-title-search/index.aspx.

    As for understanding where all these songs came from, here is the history of the company. It was originally founded as Jack Mills Music in 1919 by Jacks Mills. Jack hired his cousin Jack Ecoff (my great-grandfather) to be the general sales manager. Jack Mills' brother Irving Mills acted as VP and they eventually changed the name to Mills Music in 1928. Working out of 1619 Broadway Blvd in New York they worked with many different songwriters and composers of the 20s, acting as one of the few publishing companies who would sign black writers. They had Alberta Hunter, James P Johnson, Fats Waller, Duke Ellington, Cab Calloway, and many other famous acts of the period signed to their catalogue. They owned the rights to many famous tunes, many of which have already been listed in these comments.

    If you research Jack Mills or Irving Mills you will find a lot about their work and about the company. I highly suggest looking through old Billboard magazines which mention Jack Mills, Irving Mills, and Jack Ecoff quite often as they were figure heads of the music industry from the 30s-60s. You can find a lot of this just through google search and google books search.

    If you want to understand where all the money comes from for MMTRS then read up about the different licenses associated with Music Publishing Rights. These include mechanical licenses, synchronization licenses, print licenses, and performance royalties. Also understand that each song is not owned outright by Mills Music because every song has two rights associated with it; publishing rights and songwriter rights. The most Mills Music can own of each song in it's catalogue is 50%, the other 50% is owner by the songwriter(s)/composer(s). Music Publishing is the most complicated part of the music industry and something many have a hard time understanding how it works.

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