Should I Invest in Songs and Musical IP Rights?
Over the past few months, music catalogues have been trading hands heavily as musicians, such as Bob Dylan and John Legend have been selling the publishing rights to their songs. We explore why music royalties are becoming so attractive in the current market environment, delving into the investment side of the music industry.
“If Donald Trump did something crazy, the price of gold and oil are affected whereas songs are not… [Songs] are always being consumed.”, says Merck Mercuriadis, founder and CEO of Hipgnosis Songs Fund – a company that is disrupting the way the music industry operates. Listed on the London Stock Exchange, the company acquires music rights and offers investors exposure to songs and all associated musical intellectual property rights.
Typically, publishing rights stay with publishers and songwriters, while recorded rights belong to labels and performers. However, in recent months, world-famous artists like Bob Dylan, Shakira, John Legend, Fleetwood Mac, Neil Young and more have been selling all or part of their catalogues – in what is expected to be a continuing trend. Royalties from publishing rights are a reliable source of income, but for the artists, selling their rights presents them with an excellent opportunity to receive a big sum of money at once instead of a steady trickle of revenue over time. With the COVID-19 pandemic and the inability for artists to tour and hold concerts (and get paid for it), many musicians are looking for alternative revenue sources to pay their bills.
Once acquired, the funds that buy music rights, negotiate licensing and collect the royalties every time a song is streamed, downloaded or used in an advert, a TV show or a movie, and receive any other revenue stream that would have gone to the artist from the use of their song. Currently, there are 11 funds that do this – mostly owned by music publishers or IP managers.
This has presented an excellent opportunity for investors to cash in on the steady and valuable returns of music. The rights to songs generate royalties every time they are played on the radio or TV, sold on CD or vinyl, covered by another performer or licensed for TV productions, movies or adverts. However, the main thing that’s captured investors’ attention to the sector and fuelled the spree of buying musicians’ back catalogues is the recent boom streaming has seen, especially during the COVID-19 pandemic. After 15 years of piracy and a drop in physical albums sales, digital streaming has driven the growth in global recorded revenues over the past couple of years. Owning music IP assets and the royalty income which comes with them has certainly become more attractive.
This ‘gold rush’ has been intensified by the very nature of the industry and the fact that no events can impact the reliable returns of hits that are being constantly consumed.
What’s more, this ‘gold rush’ has been intensified by the very nature of the industry and the fact that no events can impact the reliable returns of hits that are being constantly consumed. Historically, music spending has shown little correlation to broader economic activity, while music publishing income has been more resilient through economic cycles[1].
Although most funds that acquire music rights are geared for private equity or institutional money, companies like the aforementioned Hipgnosis and Round Hill Music Royalty Fund trade on the London Stock Exchange. According to Morningstar, Hipgnosis, which has over $1.6 billion of assets, returned $6.7 in 2019 and was up 14% in 2020. The fund owns the song rights of songs by Debbie Harry, Barry Manilow, The Chainsmokers, Richie Sambora, Journey and many more. Round Hill Fund launched in November 2020, raising $282 million ahead of its IPO and was up 2% within its first month.
Both firms have benefited largely from investors realising how stable the value of music assets is – especially during the current lockdowns across the globe, with everyone streaming and buying records. Investing in musical rights is certainly a trend, which will continue growing in the coming months.
“We have a two-year window where we will probably get to between £2bn to £3bn invested [in catalogues] where these songs will remain at attractive prices,” says Merck Mercuriadis, the founder of Hipgnosis and former manager of stars like Elton John, Beyoncé, Guns N’ Roses and more. “The focus is buying while the songs available are at attractive prices.” So, like with any gold rush, the bubble will not last forever but investing in musical rights could be something worth considering if you’re looking for alternative investment ideas that will help you diversify your portfolio.
*NO INVESTMENT ADVICE
The content is for informational purposes only and should not be construed as financial advice. Nothing contained in this article constitutes a solicitation, recommendation, endorsement, or offer by Katina Hristova, CEO Today or any third-party service provider to buy or sell any securities or other financial instruments.
[1] https://www.toptal.com/finance/market-research-analysts/music-royalty-investing
