Investors are turning to music royalties as an alternative asset exposure, either directly through music exchange platforms like ANote Music or through access means such as the Hipgnosis Song Fund and the Round Hill Capital Music Royaly Fund. I will.
But how do you make money from music? Music royalties are paid on the basis of streams, downloads, physical album sales, live performances, and film and television listings.
In a nutshell, the consumption of music facilitates the payment of royalties, which is powerful. Also, weakening stock market sentiment and rising interest rates are unlikely to change music consumption.
Consistent cash flow
Music royalties are particularly attractive because of their ability to generate consistent cash flow on quarterly or semi-annual royalties checks, their relatively low volatility, and their potential for capital valuation.
In addition, royalties can be considered the ultimate long-term asset, with the right to publish songs for 70 years after the death of the last surviving songwriter. Therefore, in the current environment of solid bond yields and questionable stock market valuations, it’s no surprise that investors are using this alternative asset for diversification.
The music industry is undoubtedly hit by a Covid-19 pandemic, but the recession won’t last long due to the blockade of streaming services.
Options such as Spotify cost just £ 9.99 a month, and it’s no wonder music has changed from luxury to utility purchases.
New players such as Amazon Music and ByteDance continue to enter the market, and the increasing number of available streaming devices such as smart speakers, smartphones and tablets makes it easier to consume music. Therefore, according to Goldman Sachs, global music revenue is expected to rise from $ 77 billion in 2019 to $ 142 billion in 2030.
On top of that, music royalties seem to be the answer to investor prayers.
However, as with any investment, it is important to have an accurate understanding of what you are buying and the risks associated with it. Loyalty buyers can easily overestimate the value of loyalty streams. For example, one might find out that a new “hot” band has earned $ 10,000 over the past year and conclude that a reasonable price to pay for a catalog is $ 120,000 (paid for the catalog). Assume that the average price is 12 times the revenue).
This may seem reasonable, but it ignores the potential depreciation associated with popular music. Loyalty from new songs tends to peak around the release date due to high streaming levels and then decline in popularity.
Some studies on music as a capital asset suggest that 75% of expected royalty revenues will be generated in the 12 months after release and may be depreciated at a rate of 10% over the next five years. doing.
If you don’t make a good choice, you may have purchased royalties for which most of your immediate income has already been generated for the original rights owner.
But then you can argue that investing in today’s top hits can be rewarded if they’ve been listening to it for 20 years.
Another point to consider is that the latest artist catalogs are constantly evolving and new tracks are being added. Similarly, the artists themselves are evolving to help the lesser-known independents who will be number one next week. This offers investment opportunities for further growth.
For low-risk options that provide a stable income (intended for puns), the stream of songs released in the 2000s is growing at half the rate of songs in the 1960s, making investors classic. You can rely on it. According to data from the brokerage firm Jeffreys.
In fact, in January of this year, Fleetwood Mac’s Mick Fleetwood sold the rights to the song to BMG, one of the world’s largest music publishers, and made a lucrative deal from behind their songs. dreams Resurfacing as a hit thanks to TikTok.
If you don’t know what to look for, the risks remain like any other risk. The main challenge for investors is to avoid overpayment for music by estimating recent returns, performing appropriate due diligence and ensuring that the catalog has at least three years of experience. That is.
Navigating the industry with consumer behavior in mind can lead to Top of the Pops instead of Top of the Flops.
Marzio F Schena is CEO of ANote Music
Music royalties are hitting the right notes
https://www.investmentweek.co.uk/opinion/4032744/anote-music-schena-music-royalties-hitting-note Music royalties are hitting the right notes