Oct 25, 2024 14 min read

Mitchell Asset Management boss says the future of the music business is kids “buying P Diddy skins” in Fortnite. Is it time for Proper Group's investors to ask for their money back?

John Mitchell - boss of Melbourne’s Mitchell Asset Management and top banana at zombie-unicorn shitshow Proper Group AG - waxes lyrical about the future of the music business and shows off his attention to detail where it really matters. Bonza!

Mitchell Asset Management boss says the future of the music business is kids “buying P Diddy skins” in Fortnite. Is it time for Proper Group's investors to ask for their money back?

It’s got to be tough being John Mitchell, top banana at the company formerly known as Utopia Music

One day you’re quietly trundling along operating your “corporate advisory, investment and lending solutions” outfit from an office above a nail salon in a Melbourne suburb. You’ve managed to survive one of your directors embezzling a bunch of money and, as the years go by, you manage to avoid doing business with any other embezzlers. 

And then - BOOM! You’re thrust right into the heart of a cut and thrust battle for the future of a failing Swiss music data/fintech/blockchain/AI company and you find out that everyone knows that a big cheese consigliere to the firm spent time in chokey for embezzling. To have one associate accused of embezzlement maybe regarded as misfortune; two just looks like carelessness. 

Is this the future you hoped for? Probably not. Making the best of a bad job, you roll up your sleeves and put in some hard yakka. Rattle a can round the investors, make it clear to them that it’s all or nothing; cough up some more cash, or the whole thing goes up the wazoo. 

You take an “inbound call from professional investors in the music industry who were looking to take a stake in a company that was on its knees”, and maybe you can do a deal and then… What’s that Skippy? You forgot to pay some lawyers and now they’re demanding 23000 Swiss Francs? 

And because you didn’t pay, they’ve had you declared bankrupt and the whole kaboodle is up shit creek? What’s a bogan got to do to catch a break?

Proper Group's bankruptcy proceedings have been suspended... for the time being

In a lengthy interview with CMU, John Mitchell and other executives of Proper Group AG talked through the current state of the company and what the future might hold. The bankruptcy proceedings were, Mitchell told CMU, “an unfortunate mishap” that “came out of leftfield”. 

After hiring two expensive sounding Swiss law firms - Staiger Law and Homburger AG - a “small group of executives” from Proper Group “worked tirelessly for ten days” to submit an appeal against the bankruptcy. That worked - sort of - in that the Swiss courts have temporarily suspended the bankruptcy proceedings, pending the full outcome of that appeal. 

That temporary suspension could be reversed and the company declared fully bankrupt though, if the courts are not convinced that there’s money in the kitty and everything is OK. That would be fine if Proper Group had not gone two months without paying the few remaining staff it hadn’t managed to fire yet. Those staff are owed half a million euros - give or take. 

The good news is that half a million pales in comparison to the nearly $2 million Proper Group owes to the founders of Lyric Financial as a result of a botched acquisition. And that $2 million pales in comparison to the €30 million the company owes to its creditors. Which, in itself, pales in comparison to the €80 million the company’s biggest investor is rumoured to have dropped down the gaping unicorn gullet of Utopia.

Mitchell's cunning plan for the future...

Don’t worry though - Mitchell has a cunning plan. And it’s BONZA!

A big part of the overall problem at Proper Group in the past, said Mitchell, was the “fantasy of a 300 million funding round and a $2.5 billion valuation put forward by UBS. We’ve tried to debunk those myths”. 

In a deck used for that failed $300 million funding round, Utopia claimed that by 2026 it was somehow going to commission on more than €20.15 billion of third party revenues - the “gross transaction value” - to bring in a full €2.5 billion of income for the company. 

Given global music copyright revenues in 2022 were estimated to be $41.5 billion, Utopia would, by 2026 - according to the “fantasy” deck - have been commissioning on an incredible 48.6% of the global music industry’s combined copyright revenues as they were in 2022. 

Even allowing for growth across the industry, that seemed a fairly bold claim - particularly given it had a “gross transaction value” figure of just €328 million for 2022. That bold claim was one that immediately stood out to many people CMU has talked to who saw that deck.

Not Mitchell, though. “I personally invested off the back of the strength of the UBS brand, like a lot of us did”, said Mitchell, adding “it’s not until you read the fine print…” 

“In my investor presentation since May”, continues Mitchell, “I used as a prop one of the [old] presentations that had adjusted revenue of consecutive five pages stated three different ways - I hadn’t picked that up. I hadn’t picked that up in August of 2023 or earlier, in September of 2022. I didn’t pick it up in the presentations because Mattias [Hjelmstedt, Utopia’s founder] went through everything with his usual salesman hat on”. 

As a result, says Mitchell, the company spent investors’ money “building something that nobody’s ever purchased” blowing through “60 to 70 million” in the process. The company’s leadership team were guilty of “arrogantly building something that nobody ever checked”, employing an approach Mitchell characterises as “bullshit”. 

“And there’s nothing like truth to defeat the bullshit”, he adds.

Defeat the bullshit with FACTS!

“Cut the bullshit and follow on with facts” is Mitchell’s mantra, with “defeating with facts” being a constant refrain in the conversation with Mitchell - and in a subsequent rambling email he sent to CMU, alleging that we had somehow libelled him by reporting the connections to Utopia consigliere and convicted embezzler Peter Löhr. 

Quite what “cutting the bullshit” means in reality is not so clear though. And quite what “facts” Mitchell and his team have at their disposal to execute a turnaround of Proper Group is even less certain.

What is clear is that Mitchell’s own understanding of the music business is - to put it politely - very much big picture, and the facts and the detail are something he’s happy to leave to someone else.

Running through the various parts of Proper Group AG, Mitchell says “Currently the business looks and feels like a compact version of its former self”. He highlights three strands: the two UK distribution businesses, Proper Music Distribution and Utopia Distribution Services; the royalty advancing business; and the software side.

Proper Music Distribution

“Proper Music Distribution is a great little boutique business”, says Mitchell, “It does what it does really well and it makes a profit”. UDS, which was purchased out of a prepack administration, was “haemorrhaging money” to the tune of £1.5 million a month, but has now turned a corner. 

“The music industry in the UK, the majors, the indies, the staff, the shareholders, the landlord, we all beat a drum to the same tune”, says Mitchell, something that required significant negotiations with all the stakeholders involved. 

“One of the most gratifying things has been seeing people come together as a collective. Everybody was willing to assist; it’s not just the shareholders; it’s not just the clients paying more, it’s not just the landlord allowing us flexibility. It’s been a combination of all of that. Plus the staff have worked tirelessly for over a year to try and lift this thing to a point where we can support the entire group with physical cash equity”. 

Royalty advances and Proper Group's software business

Exactly what the royalty advancing business and software business are is far less clear. With Lyric Financial - the former crown jewel of the royalty business - still enmeshed in legal disputes, and Utopia Accelerate (UK) Limited apparently insolvent, and having operated without even a single director - a requirement of UK company law - CMU asked how exactly Proper Group AG could hope to build the royalty advancing business back up. 

The answer was not clear. Mitchell claims that he understands the advancing business well saying, “I’ve got a business here in Australia that does exactly the same thing, makes two or three million bucks a year”. That appears to be at least partially true, based on court papers CMU has obtained showing “Mitchell Asset Management Pty Ltd in its capacity as Trustee for the Mitchell Asset Management Innovation Finance Fund” engaged in litigation in Australia.

However, the advancing part of Mitchell’s business appears to be based on advancing loans against future R&D tax credits received by Australian companies for developing innovative products and services. 

That said, Mitchell Asset Management, via it’s website, was offering its clients an opportunity to invest in the “Utopia Music Royalty Accelerated Advance Fund”, telling prospective investors “Utopia Music is a Swiss Music fintech that delivers transparent, data-based solutions for labels, publishers and distributors to monetising undervalued music catalogues”. 

That section of the website was still live as late as 12 Oct - despite Utopia Music having changed its name to Proper Group AG months earlier. As Mitchell said before, “It’s not until you read the fine print…”

CMU was subsequently told that the royalty advancing business is, in fact, entirely separate from Proper Group AG, with Proper Group simply receiving introduction fees for royalty advance clients. Whether or not the actual advancing is carried out by Mitchell Asset Management - as could be inferred from the pitch on the firm’s website - is unclear.

Which leaves just the software business. On this, Mitchell was short of facts and full of bullshit. The software side, said Mitchell slowly and hesitantly, is “licensing in the gaming sector, so in game app purchases and those sorts of things. We own the patents, and we’ve got a go to market strategy with the 15 million that we had been raising”. That “15 million” includes money raised from investors locked in an escrow account - which Mitchell says currently amounts to €6.64 million. 

As Mitchell started talking about the “software business”, another senior executive present on the call - who asked not to be named - jumped in. “John, do you want me to take this one?”

Kids buying P Diddy skins in Fortnite. Unless they're girls...

Mitchell ploughed on regardless. “Look”, he said, picking up an iPhone and waving it, “In layman’s terms my kids play Fortnite, Mario Kart or Grand Theft Auto, and whilst they’re playing on their computer they listen to my Spotify account playing music. They can choose a skin in the game. It could be everything from P Diddy to Taylor Swift - if you’re a female playing - and you’ve got to pay for that. In Grand Theft Auto you steal a car, you can choose the music that you’re listening to. All of these experiences are coming from disparate areas: three different things in one medium”. 

P Diddy skins in Fortnite. Let that sink in for a moment: a man, holding himself out as top dog at a music technology company, thinks - in October 2024 - that P Diddy is a good reference point to talk about the future of the music business. 

“We can do it all internally. We have the patented software that we built”. At this point Mitchell trails off, and hands over to his colleague.

That colleague jumped in, clarifying, “What we’ve created is a way to track music in games quantitatively. We can see where it’s being played, when it’s being played and it kind of changes the entire licensing model from just a straight licensing fee to license music laterally to then looking at more of a consumption model”. 

“You’re looking at games that are doing hundreds of millions of players per year. They’re effectively DSPs in their own right. We’re trying to reduce the friction and the barriers in order to get these licences into games. If you’re an independent game developer you have to know who to talk to. You have to figure out all these different things in order to even know how to license music, which isn’t really the forte of independent game developers”. 

“So typically what they end up doing is, they end up paying for AI music or royalty free stuff, which doesn’t really make it as equitable for artists. So in order to kind of bridge that gap we’ve developed this technology called IPx. We’ve actually built it out in demo status. So we know it works. This isn’t just vapourware”.

A go to market strategy using €15 million raised from investors for a product with patents that isn’t just vapourware! Sounds like the real deal, right? BONZA! 

Only, there are problems. And the problems start as the Proper Group execs keep talking. “If you’re looking at Fortnite, and some of these other games, they can essentially go to any music company or a label, publisher or artist, and say ‘hey, we’ll give you three grand and then you get exposure’, right?”, continued the unnamed exec. 

“And that’s a raw deal for an artist who is being exposed to hundreds of millions of players constantly having their music played. When I first got Grand Theft Auto, that Kendrick Lamar song that was really popular, I probably played that a thousand times or more over the course of me playing hundreds of hours in that game. Where’s Kendrick’s take on that? He got a licensing fee and that was it. We have the ability to actually track the consumption physically in the actual game engine in 3D space”.

Definitely not vapourware.

“We understand the technology and have developed the technology to basically understand the difference between you hearing background noise and then you definitively hearing what is music. So if you take that layer and then you add in the microtransaction layer of gaming, you have tons of different ways to license and monetise music and games that currently aren’t possible because there’s no enforcement”.

Sounds, GREAT, right? Apart from Proper Group’s misunderstanding that a “label, publisher or artist” gets just “three grand” and some “exposure” from a sync in a video game of the scale of Fortnite or Grand Theft Auto. 

That misunderstanding appears to come from a recent post on X made by Heaven 17’s Martyn Ware, which said, “I was recently contacted by my publishers on behalf of Rockstar Games re the possibility of using ‘Temptation’ on the new Grand Theft Auto 6. Naturally excited about the immense wealth that was about to head my way, I scrolled to the bottom of the email re the offer… it was $7500 - for a buyout of any future royalties from the game - forever”. 

Ware is one of three writers on the track, so his offer of $7500 would presumably also have been made to the other two writers, potentially bringing the total for publishing rights to $22,500. On a track with the popularity and profile of ‘Temptation’, the label, which owns the recording rights, would expect to get a similar sum. Meaning a deal probably somewhere in the region of $45000 minimum.

It’s easy to get the wrong end of the stick though. Maybe there are deals out there where people are being offered “three grand” and some exposure to license music into games. Probably not games of the stature of Grand Theft Auto or Fortnite, but maybe there is still some sort of opportunity here.

That’s until you continue to listen to what the team is saying. If you take “the ability to track the consumption physically in the actual game engine in 3D space” and “technology to basically understand the difference between you hearing background noise and then you definitively hearing what is music”, and translate it from incoherent techbro to something meaningful, then maybe what Proper Group is pitching is basically a MRT music recognition solution for gaming. 

Which isn’t necessarily such a bullshit product. But, then, went on the same exec, with that technology in place then “in Fortnite you could just play your favourite music rather than listen to whatever is being played on the deck”. In many games, that’s already possible, via things like the Playstation Network’s Spotify integration.

But no! Proper Group’s solution is better. In fact, it will “completely change those dynamics” of licensing music into games, including “how music is priced within that entire industry”. A literal game changer, right? “You can basically charge a consumption rate” for music in games, continued Proper. “We’re starting with gaming because that’s where the technology was originally developed for. But we’re talking brands, we’re talking YouTube, we’re talking all those different things that are completely possible”.

So - it’s MRT and a one-stop licensing solution for indie games, with Proper Group seemingly convinced that it can negotiate to pre-clear a sufficiently large and attractive catalogue of recordings and publishing rights - to be able to offer game developers something beyond “AI music or royalty free stuff”. 

With that in place, they seem to think that there is an opportunitiy to enable gamers to “just play your favourite music rather than listen to whatever is being played on the deck” with “a consumption rate” for use of that music. That sounds AMAZING, right? A huge market! A whole new paradigm of use and money! And the recovery of Utopia - sorry, Proper Group AG.

It’s at this point that Mitchell jumps back in. “Bruce Springsteen doesn’t want his song played at a Trump rally because he’s a Democrat. If the Trump team used our media player, you could probably toggle it to turn off mid-speech”. Right.

So what’s the actual size of the opportunity that Proper Group sees here? Back to Mitchell, “It’s $7.6 billion, and rather than the arrogance of saying we’re going to fix the music industry, it’s a bite-sized piece that we can concentrate on. We already own the patents. It’s already built. We already have the customer segment. Proof of concept with revenue paying customers”.

But what’s $7.6 billion? What does that $7.6 billion figure actually mean? And where did it come from. “Uhh, I’m going to pull that in real quick”, says the executive. “We’ll get that for you in one moment”, says Mitchell.

There’s a long pause, the sound of paper being shuffled, keys being clicked on a computer keyboard. “One second here…”

Eventually, they find it. “Mordor Intelligence”, says Mitchell eventually, before his colleague steps back in. It  turns out that the “$7.6 billion opportunity” is the value of music use “combined with brands, TV, film, social media, content creators, all of those things. When we’re talking about music licensing in all these different formats, it’s a very large market, right?”

Until you think about the licensing. Striking a licensing deal with every publisher and every label - and then putting in place deals with collecting societies in multiple territories - that’s a pretty big undertaking. And with the poor track record of the company, any publisher or label with catalogue worth having is going to want a hefty advance up front if - and it’s a big if - they trust the company enough to even enter into a negotiation.

“You’re talking about the strategy moving into the future”, interjects Mitchell. “These are discussions where we know what the road looks like. You have to start somewhere, right? Why do you think advances, software and physical distribution meet? Where do you think they meet? They all meet with money. They all meet with tracking. They all meet with payments”.

Proper Group certainly used to have access to money - it was able to raise a huge amount from investors, which was blown through in record time, and it was able to convince creditors to give it €56 million. Those creditors now face a future where they will be lucky to get cents in the euro, according to Mitchell. 

But money isn’t the actual problem. The sheer complexity and overhead of carrying out the negotiations to get the licensing deals in place is enormous. One licensing consultant CMU spoke to - who has done similar work for platforms and technology companies - suggested that it would take years and cost “millions” before the company could “begin to make any impact at all”. Asked for one word to describe Proper’s apparent strategy, they responded “delusional”. 

“We‘re not doing things like this business did in the past”, says Mitchell, apparently exasperated by push-back against his pitch. “We’re taking professional baby steps to resolve a problem that both the label, the rightsholder and the market understands is an issue. And we are making progress. We ARE making progress. I don’t need a critique. I don’t need to… We’ve got a deck. I don’t need a critique on this call. We were asked to answer questions. We’ve answered those questions. Probably more” 

At this point, Mitchell, visibility irritated, is getting more and more exasperated. “If I had taken you through the deck, like I have taken 76 other people, you’d understand it a little bit better. I wasn’t aware that I’d be having to do this again”.

The question is - if seventy six people have been taken through that deck and no one has asked the obvious questions, do Proper Group’s investors really understand what they are backing? With the money they’ve put into the “future” of the business still safely locked in escrow, maybe now is the time for them to ask for it back.

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