Most music lovers have a deep and personal connection to the artists they admire. They collect ticket stubs, concert T-shirts, guitar picks, you name it. But what if you could feed your fandom in a way that has the potential to meaningfully impact your investment portfolio while simultaneously supporting your favorite artists?
Investing in music royalties provides the opportunity to do just that. Many investors don’t know that they can directly invest in the artists and the music they love. And when you look at the growth of the music royalty business, it’s easy to understand why even non-music lovers would want to get involved. Consider the following 7 reasons to invest in the music royalty business:
- The music royalty business represents a $40 billion+ market that is anticipated to grow 9 percent annually through 2030. It has been rapidly expanding since the streaming era took hold in 2015 and shows no signs of slowing down. The explosive growth in streaming services from platforms such as Spotify, Apple, and Amazon, as well as other digital platforms such as YouTube and Facebook, is expected to further drive stable and predictable music IP monetization.
- Music royalties have near-zero correlation to other financial markets, meaning the royalty streams are largely independent of overall market volatility. This can be a great way to hedge the cyclical risk inherent in most other business sectors.
- Multiples for music royalties have been increasing significantly, with large catalogs trading above 15x cash flow and even above 20x cash flow in certain cases. This is a function of growth expectations driven in large part by increasing accessibility to music content through digital service providers. It also reflects the demand for yield in what has otherwise been a low-interest rate environment.
- Long-lived copyrights, particularly on music publishing, create an enduring asset that will generate cash flow for the rights holder in near perpetuity.
- Positive regulatory tailwinds in the United States and European Union should benefit songwriters and rights holders, including efforts to increase the songwriters’ share of streaming revenues, as well as multiple recent regulations ensuring rights holders are appropriately compensated by music streaming services.
- The expanding presence of social media platforms such as Instagram, Snapchat, and TikTok continues to keep music at the forefront of consumer experience and introduces artists to massive potential fan bases. These social platforms can also lead to potential licensing agreements for an artist’s music, such as through TikTok videos. Beyond social media, there is increasing potential for licensing in films, TV, commercials, eSports, and live events, known as synchronization.
- Nascent technologies, such as blockchain and non-fungible tokens (NFTs), could disintermediate huge portions of the music industry. They will also increasingly allow artists and creators to better monetize their content by providing it directly to consumers. Jay-Z, Kings of Leon, and Steve Aoki have all started to delve into this space. With fewer dollars to split up along the chain of cash flows, the actual owners of the IP are expected to generate higher yield on their assets. Moreover, this should enable much faster revenue delivery to the rights holders through the use of immediately executable smart contracts, with cash flowing in minutes or hours instead of weeks or months.
Taken together, music royalties present an attractive opportunity to sync a passion for music with a growing and potentially quite lucrative long-term investment strategy.
