Aside from changing the way music is made worldwide, it's also creating exciting new opportunities for investors, especially smaller ones who previously had limited access. Those who want to enter the growing world of music royalties.
Yes, music royalties. Though a lot of people might find the idea strange or even scary, it's still a one-of-a-kind chance to make money from the steady streams of music consumption.
This article will help you understand how music royalties work in new markets. We will talk about the main areas that are causing this growth, what is making them grow, and the investment opportunities they might offer.
Global Music Industry Market Growth
A big change in the world of music is happening because of the growth of emerging markets in the music business. This growth isn't just more music being bought. It's also a big change in how music is accessed, made money, and controlled in these areas.
Streaming has truly been a game-changer for the industry. As you can see in the graphic below, the global value of music copyright has bounced back tremendously from its 2014 low to reach $39.6 billion in 2021.
Source: Tarzan Economics
As a reminder, the global music industry market size is comprised of both revenues from Sound Recording copyrights and Music Composition copyrights. Let’s look at how each of these copyrights has performed over time. For the former, we will look at the recorded music industry, and for the latter, we will focus on the music publishing industry.
The impact of streaming adoption can be clearly seen in the revenue of the global recorded music industry. According to industry trade group IFPI, global recorded music industry revenue increased from $13.1 billion in 2014 to $26.2 billion in 2022. Over that same period, streaming grew from less than $1.8 billion to $17.5 billion. This impressive growth is depicted in the chart below via the blue section in each bar, which represents streaming’s contribution to overall recorded music industry revenue.
Source: IFPI Global Music Report 2023
Meanwhile, Spotify, the music industry’s largest streaming provider, reflects streaming’s incredible growth. Spotify currently boasts north of 500 million monthly active users (“MAUs”) and has realized double-digit year-over-year user growth rates every quarter since becoming a publicly listed company in 2018.
Source: Spotify
In comparison to the recorded music industry, global music publishing industry revenues have been more resilient over the past 10 to 15 years. According to The International Confederation of Societies of Authors and Composers (“CISAC”), publishing revenue has increased gradually from €6.1 billion in 2008 to €8.5 billion in 2021. Will Page, the former chief economist at Spotify, estimates that the global publishing business – CISAC collections plus estimates of non-CISAC publisher revenues from Music & Copyright – reached $13.5 billion in 2021.
Source: CISAC
It’s worth noting that CISAC collections declined ~10% in 2020 due to the loss of live music and performance revenue stemming from the COVID-19 pandemic. However, CISAC collections rebounded in 2021, and it would not be surprising to see revenue return to pre-pandemic levels when the 2022 collection data is released.
Looking to the future, analysts are bullish on the global music industry’s future growth prospects over the intermediate-term. Goldman Sachs forecasts that both recorded music and music publishing will grow 8%+ and 6%+, respectively, each year through 2030.
Source: Goldman Sachs.
Source: Goldman Sachs.
Reasons Behind The Growth Estimates
For recorded music, paid streaming revenue is expected to increase at a 10% CAGR through 2030, as a result of higher paid streaming penetration rates and increasing subscription prices. Goldman Sachs estimates that there is still room for streaming penetration growth in emerging markets, where they forecast paid streaming revenues to grow at a 16% CAGR from 2021-2030 (compared to just 8% in developed markets).
Meanwhile, JPMorgan Chase estimates that a Spotify price hike could create incremental revenue of ~$200 million from just US subscribers. We won’t have to wait long to see how that prediction will play out, as Spotify itself recently announced plans to increase rates. Meanwhile, Amazon and Apple have recently raised their own streaming subscription prices.
Source: Goldman Sachs.
For music publishing, growth is expected to be driven by similar factors as recorded music, such as continued streaming adoption and higher subscription streaming prices. In addition, publishing industry revenues are expected to benefit from higher statutory royalty rates in the US, with the recent increases in physical mechanical royalty rates from 9.1 cents per track to 12 cents and in streaming mechanical rates from 10.5% of digital streaming providers’ revenue to 15.1%.
Key Regions to Watch
China and India, which have the most people in the world, are leading this growth. Streaming platforms are, without a doubt, the main reason for this growth.
China has more than 520 million music streaming users, making it the world's biggest market for music streaming. In China, there were 66.4 million paid subscribers in 2020, and that number is likely to keep going up.
Statistics show that digital music streaming brought in $763 million of China's impressive $1.44 billion in 2020, which came from the music industry. Before a few years ago, this was a huge step forward because China wasn't even on the radar of the world's music industry.
Another powerhouse, India, is also showing a lot of promise, even though its numbers aren't quite as high as China's yet. The 2019 Global Music Report from IFPI says that India is not even one of the top ten music markets in the world. But the country's recorded music sales have grown by 19%, which shows that the market is moving very quickly.
Emerging markets, like China and India, are only just starting to pay for music IP. These countries have huge populations and high smartphone penetration rates, representing potentially massive opportunities for industry growth. Even still, according to IFPI’s most recent Global Music Report, China was the fifth-largest music market globally, and India had not yet even cracked the top 10. In the past year alone, streaming revenue in China surged by 28.4%.
Source: Goldman Sachs.
There is also growth in these regions because regulatory frameworks are getting better. China and India have both done a lot to improve royalty collection systems and make copyright laws stronger. Online music theft dropped by 32% in China in 2020, showing a move toward legal ways to consume music.
But there are still problems. In India, for example, only 13,500 of the 60,000 or so people who make music are registered to get royalties. This shows that there are still problems with awareness, complicated registration processes, and not being clear about how royalties are distributed.
Aside from China and India, Latin America and Sub-Saharan Africa also saw growth. Latin America has been a consistent performer in the world music market, with huge growth rates mostly due to streaming. With huge jumps in paid streaming revenues, Sub-Saharan Africa has become the world's fastest-growing music market region.
Latin America
- Consistent growth: The recorded music industry in Latin America has grown its sales for 14 years in a row.
- Growing faster than the world: In 2023, Latin America's recorded music sales grew by 19.4%, which was faster than the world's growth rate.
- Dominance of streaming: 86.3% of the region's music sales came from streaming.
- Big markets: Growth rates of over 10% were seen in Brazil (13.4%) and Mexico (18.2%), which are the region's two biggest markets.
Sub-Saharan Africa
- Unprecedented growth: In 2023, Sub-Saharan Africa was the only region to see growth of more than 20%, with sales rising by 24.7%.
- A surge in streaming: The growth was mostly caused by a 24.5% rise in paid streaming revenues.
- The dominance of South Africa: South Africa remained the biggest market in the region, making up 77.0% of regional sales and growing by 19.9%.
New Licensing Opportunities
Another potential positive catalyst is the increase in new licensing opportunities, particularly in areas of consumer tech like short-form videos (e.g. TikTok), connected fitness (e.g. Peloton), and video games (e.g. Fortnite, Roblox). TikTok boasts upwards of 1 billion users globally and 70% of its videos have music as a central element. According to Goldman Sachs, other short-form video providers (Snap, YouTube Shorts, Triller, etc.) also see a high proportion of their user engagement come from music-related content.
Source: Goldman Sachs.
New licensing opportunities are also popping up in connected fitness, where companies like Peloton, Equinox, Orange Theory, Barry’s and Soul Cycle all utilize music to a large degree in their business models. Peloton has seen its subscriber numbers continue to grow coming out of the pandemic (depicted in the chart below), and competitors like Echelon are incorporating music into their product offerings. Indeed, for many fitness companies, music licensing is frequently used as a differentiating factor to woo potential customers.
Source: Statista, Peloton.
Gaming, too, has seen its fair share of music licensing opportunities in recent years. As gaming hours surged during the pandemic, many artists turned to so-called “virtual concerts” as a means of reaching fans stuck at home. Games like Fortnite, Minecraft, and Roblox have hosted numerous music events on their platforms, while others like Grand Theft Auto V prominently feature in-game “radio stations.” These all represent interesting opportunities for innovative partnerships between game operators and music IP holders.
Source: Goldman Sachs.
Taken as a whole, this new landscape of licensing channels presents novel opportunities for licensors to spread music IP (both new and old) far and wide, with potentially large upside. Goldman Sachs estimates that music licensing on “emerging platforms” (e.g., TikTok, Peloton, Facebook, etc.) will represent 14% of global recorded music industry revenue by 2030 (up from only 6% in 2022). By way of example, consider the impact that culturally significant media properties like Netflix’s hit TV show Stranger Things have had on music consumption. Two songs featured prominently in the show’s most recent season, Kate Bush’s “Running Up That Hill (A Deal With God)” and Journey’s “Separate Ways” (below), both saw huge spikes in engagement as a result. Broadly speaking then, all types of music royalties – even those associated with older songs – should continue to benefit from innovative new use cases.
Source: Hipgnosis
Investment Opportunities
Streaming platforms will continue to dominate. And with this, music royalties offer a stable and potentially lucrative asset class.
Because royalties are based on how much music is played and not on the economy as a whole, they are stable because they are predictable.
Investors can pick from a number of music catalogs featuring both well-known artists and up-and-coming artists. This variety lets investors make portfolios that fit their risk tolerance and investment goals. Catalogs from well-known artists often offer more stable ways to make money, while catalogs from new artists may have more room to grow.
With music royalties, you can diversify your investment portfolios beyond traditional assets through payments that artists, producers, and songwriters earn whenever their work is played, streamed, or sold. By purchasing a stake in these royalties through platforms like Royalty Exchange, you can tap into a steady income stream tied directly to the performance of music.
Remember the ‘90s hit, "I Got 5 On It"?
An investor purchased its royalties (including that of two more tracks) for $150,000 in May 2023.
In August 2024, they sold it for $235,000. Talk about earning $85,000 in just 15 months! Not only did they profit from the increase in the sale price, but over the course of holding the catalog they also earned $21,379 in royalty payments as well!
Another highly successful sale comes from Harry Styles' debut album whose domestic royalties fetched $214,500 in April 2023. A year and a half prior, the investor only paid $85,000 for the listing. After earning $33,295 in royalty payments during the course of holding the catalog, their ROI was a massive 175.4% in just over a year and a half of holding!
Royalty Exchange offers investors a way to support the arts while diversifying income sources. You can enjoy both financial rewards and the satisfaction of contributing to the ongoing success of the artists and creators they admire. Plus you can earn money from some of songs by some of your favorite artists of all time!
Also, the music royalty world is changing because of new technologies that make it more efficient and clear. Artificial intelligence (AI) and blockchain technology are two important new ideas:
- Artificial Intelligence (AI): AI is changing the way the music business looks at data. It can look at a huge amount of data to guess what will happen in the future, figure out how popular songs are, and predict trends. This lets investors make smart choices based on market data and predictive modeling.
- Blockchain Technology: Blockchain provides a safe and decentralized way to keep track of music royalties. It makes sure that royalty payments are clear and correct by using smart contracts to send payments directly to rights holders without the need for middlemen. This lowers the cost of administration and builds trust between everyone.
With these technologies, not only is it easier to keep track of royalties, but licensing on digital platforms and social media also makes it possible to make more money. Music licensing and synchronization are possible on sites like TikTok, Instagram, and YouTube, which brings in even more royalty money.
Fans of Yellowcard were excited to take part in the sale of the rock band's music catalog in 2018. The term of this deal was for just 10 years of future earnings, but the investor who acquired the catalog for just $56,900 has already collected $105,353 in royalty payments in just over 6 years of holding the catalog so far! That's a total yield of 183.3% already, with 4 years to go of continuous passive income royalty payments. Now you can see why investing in music is so lucrative. Buying music rights from music catalogs is one of the best passive income ideas in 2024.
90's Dance music from Fatboy Slim, was resold on the secondary market to a new buyer in July, 2021 for $25,000. Since then, the earnings have exploded after the song "Ya Mama" was featured in TV and Film. The earnings from this catalog soared from $2,526 in 2021 to $12,860 in 2022! The current holder has already made a total yield of 114.5% in just over 3 years and can continue to collect passive income royalty payments for life! Song royalty acquisitions can be extremely lucrative investments as you can see from this example.
Quentin Tarantino’s 1991 movie “Pulp Fiction” isn't only popular for being a cult favorite, but also for its soundtrack. The initial royalties buyer paid $129,000 in March 2021, then eventually sold it for $189,000 2 years later! That's a very impressive ROI of 65.2%.
Conclusion
Yes, the quick growth of streaming services in these new markets has been a game-changer. This change is good for both well-known artists and up-and-coming artists in the area because it gives them new ways to reach people around the world.
With that, Royalty Exchange is very important for connecting investors with new market opportunities. Royalty Exchange is a one-of-a-kind market where people can buy and sell music royalties from a wide range of artists and genres, even those from new markets. That means you can take part in the growth of these markets, even if you don't have a lot of money or connections in the industry.
Check out the hundreds of music catalogs that are up for auction today, and see how you can invest your money wisely and earn a huge ROI. Register now to get started. Invest in music today and reap the benefits of earning passive income from music rights whose value is independent of macroeconomic markets.
We’ve prepared this guide on Royalty Investing Made Easy to help you get started with investing in music royalty catalogs. This is the best guide for understanding why music royalties are one of the best passive income ideas of 2024. Learn everything there is to know about the complexities of song royalties, investing in royalties, and how to buy the rights to a song. Sign up now to begin your journey into music royalty investing. Discover why so many investors today are using Royalty Exchange to buy royalties to expand and diversify their portfolio. Get your hands on your favorite music catalog today!
As the music business worldwide changes, emerging markets will become more important. There could be significant benefits for people willing to deal with the challenges and chances of the changing world.
Frequently Asked Questions (FAQs)
What are emerging markets in music royalties?
Emerging markets in music royalties refer to developing countries or regions where the music industry is experiencing rapid growth, particularly in streaming and digital consumption. Key areas include Asia, Latin America, and Africa.
Why are emerging markets important for music royalties?
Emerging markets represent significant growth potential due to their large populations, increasing internet and smartphone penetration, and growing middle classes with disposable income for entertainment.
Which countries are considered emerging markets for music royalties?
Notable emerging markets include China, India, Brazil, Mexico, Indonesia, and various countries in Africa. These markets are showing rapid growth in music consumption and royalty generation.
How do streaming services impact royalties in emerging markets?
Streaming services are driving growth in these markets by providing accessible and affordable ways to consume music legally, leading to increased royalty payments for rights holders.
What challenges exist in collecting royalties from emerging markets?
Challenges include underdeveloped copyright laws, inefficient collection societies, piracy issues, and complex licensing agreements across different territories.
