Three Things (11/27)

Drake cries RICO

Certified litigator … Drake has filed a legal petition accusing Universal Music Group (parent company Vivendi, VIVHY) and Spotify (SPOT) of manipulating streams for Kendrick Lamar’s hit song “Not Like Us.” The rapper alleges UMG used bots, paid influencers, and reduced licensing fees to boost the song’s popularity amid an ongoing feud between the two artists.

The filing claims that Spotify recommended Lamar’s song to users searching for unrelated music, while Siri redirected requests for Drake’s own album to “Not Like Us.” Drake’s lawyers label this a calculated effort by UMG to inflate streams and suppress competition, citing the Racketeer Influenced and Corrupt Organizations Act (RICO). UMG has denied the allegations, calling them “offensive and untrue,” and insisting their practices are ethical.

Fraudulent activities in the streaming industry, including click farms and AI bots, are not new. Cases in Denmark and the U.S. have uncovered scams generating millions in royalties, although these cases did not involve universally-adored songs from Pulitzer Prize-winning artists.

When it comes to the commercial relationship between record labels and streaming platforms, there’s a historical gray area between media strategy and deception. The practice of payola, or paying for songs to get extra airplay or spots on playlists, has been around for decades. Back in 2017, Spotify began allowing labels to sponsor songs in playlists, though users had the option to turn this feature off.

Interestingly, Apple (AAPL) is not named in Drake’s lawsuit. He appeared in a major Apple Music campaign 9 years back, lip syncing “Bad Blood” by Taylor Swift.

Buffett drops surprise letter

Succession strategy … Warren Buffett dropped an unexpected gift this Thanksgiving—a heartfelt shareholder letter sharing his updated plans for giving away his $150 billion fortune. Known for his annual insights, this surprise communiqué carries a weighty reflection on legacy and decision-making.

At 94, Buffett reiterated his pledge to donate 99.5% of his wealth, much of it via a charitable trust his three children will oversee. The trust now has three successor trustees in case his children—Susie, Howard, and Peter—cannot fulfill the role. “Father Time always wins,” Buffett acknowledged, while reaffirming his confidence in his family’s stewardship.

This week, Buffett also donated $1.14 billion in Berkshire Hathaway stock to family foundations, bringing his lifetime giving to over $58 billion. These gifts fund causes ranging from reproductive health to global hunger, underscoring Buffett’s belief in using wealth as a tool for societal improvement.

Breakdown of Buffett’s Charitable Giving

To date, Buffett has penned 59 shareholder letters, each offering a mix of corporate strategy, investment wisdom, and wry humor. Key takeaways, such as “Be fearful when others are greedy,” have become axioms in financial circles. His 2024 letter is no exception, encouraging parents to engage their heirs in frank discussions about inheritance.

Buffett’s next annual letter, expected in February 2025, will likely continue this tradition of candor and foresight. As Buffett himself writes, “The real action from compounding takes place in the final twenty years.” His legacy proves the same might hold true for philanthropy.

Macy’s earnings delayed by $154M scandal

Cooking the books … An internal investigation at Macy’s (M) has revealed a shocking scheme: a former employee intentionally manipulated accounting records to hide up to $154 million in delivery expenses over nearly three years. This error impacted 3% to 3.5% of the retailer's $4.36 billion in delivery costs during that time. While not affecting cash flow, the discovery has disrupted Macy’s already shaky footing in the retail market.

Some experts hypothesize that the fraud involved shifting costs to balance sheet accounts rather than profit-and-loss statements. As a result, the company delayed its third-quarter earnings release until December 11 to complete an internal investigation. The employee responsible, who managed small package delivery accounting, is no longer with the company.

Why would someone do this? Santa Clara professor Jo-Ellen Pozer told Fortune that it may stem from performance-based incentives. “If tied to profitability, employees sometimes manipulate numbers to meet targets.”

Auditors and experts suggest this issue signals a lapse in Macy’s internal controls. “Errors like this should have been caught earlier,” former KPMG partner Jerry Maginnis told Business Insider, noting that Sarbanes-Oxley regulations require stringent checks.

Despite the scandal, analysts remain focused on Macy’s broader strategy, including its “A Bold New Chapter” plan to revitalize stores and regain market share. David Swartz of Morningstar writes that, “The issue, while disappointing, appears contained.” Still, Macy’s faces pressure to address its oversight and rebuild investor trust as it navigates the critical holiday season.

One more thing: This Thanksgiving is shaping up to be the busiest travel season ever, with nearly 80 million Americans hitting the roads and skies, while TSA expects to screen over 18 million passengers. However, wintry weather, airport worker strikes, and logistical issues like air traffic controller shortages could disrupt plans, adding to the already heightened holiday stress.

Disclosures:

As of writing, Apple (AAPL) is a holding in Titan's Flagship strategy.