Investing in music royalties can be enjoyable and rewarding as an alternative investment in your wealth building strategy. However, it comes with some risks as does any other investment vehicle.
Many investors make the mistake of putting all their money into one genre, artist, or type of royalty. This approach can leave them vulnerable to market changes, shifts in audience preferences, or unexpected events in the music industry.
The good news is that diversifying your investments can help reduce these risks and increase your potential returns. On Royalty Exchange you can sign up as an investor and search through thousands of music catalog listings that include producer and songwriter royalties to some of the biggest songs of the past few decades. Discover why song royalties are one of the best investments to grow your wealth in 2024 and download the free Ultimate Guide To Music Royalties to learn everything you need to know about investing in royalties.
You can create a stronger and more stable music royalty portfolio by spreading your money. It could be across various genres, types of rights, and even different regions.
This article will go over how to distribute your music royalty earnings and offer useful advice and suggestions for creating a balanced portfolio. If you want to take advantage of the many possibilities in the music royalties market, this will help you keep up with the changes. You can also check out hundreds of music catalogs available to invest in today by signing up as an investor on Royalty Exchange. This is the leading platform for music catalog deals, having completed 2,000+ music royalty sales and completed over $170M in transaction volume.
Importance of Diversification
Diversification in music royalty investing is all about spreading your investments across different types of music assets.
This approach helps reduce risk and build a stronger portfolio. Here’s how.
Protecting Against Industry Ups and Downs
The music industry can be pretty unpredictable. An artist who is riding high on the charts today might fall out of favor tomorrow, which can lead to fluctuations in income.
When you spread your investments across various genres, you create a safety net against these changes.
For instance, if pop music starts to decline, your investments in country or hip-hop might still do well. This way, if one area takes a hit, you have others who can help balance things out.
It keeps your portfolio stable through ups and downs.
Tapping Into Different Revenue Streams
Music makes money in several ways, and each revenue stream has its own rhythm. For example:
- Streaming royalties can skyrocket when people spend more time at home, like during a pandemic.
- Performance royalties usually rise when live concerts make a comeback, drawing crowds back to venues.
- Sync royalties come into play when songs are used in TV shows, movies, or commercials, and this income can increase as more platforms look for content.
Having a mix of these different revenue streams means you’re ready for whatever comes your way.
Let’s say streaming royalties are booming while live events are still on pause. You’ll still have other investments to keep the income flowing.
Keeping Up with Changing Listening Habits
How we listen to music is always changing.
Remember the time everyone was shopping for CDs? These days, streaming services rule.
Recent industry trends highlight the importance of diversification. According to the Global Music Report by IFPI, the music industry experienced substantial growth in 2023, with global recorded music revenues increasing by 10.2%. This growth was largely driven by paid streaming subscriptions, which grew by 11.2% and now make up 48.9% of the global market. In fact, over 4 trillion songs were streamed on-demand in the US alone in 2023.
These numbers show the changing nature of the music business and stress the need of diversity in a music royalty portfolio to seize different income sources and industry trends.
Tomorrow, who knows what new technology will pop up?
Investing in various platforms and ways people enjoy music keeps you ahead of the curve. You want to be ready for the next big thing in music. A diverse portfolio ensures you won’t be left behind.
Combining Potentially Breakouts with Steady Earners
A wise investment portfolio strikes a mix between dependable old favorites and fresh, interesting talent.
Through their hit songs, classic musicians can offer a consistent cash source. Newer musicians, meanwhile, could have explosive potential and generate large returns.
Including both kinds of investments results in the best of both worlds—regular income combined with the excitement of seeing a newbie strike it big.
Going Global with Your Investments
Music is a global phenomenon, and every region has its unique sounds. Investing in music from different countries opens up new opportunities.
If one country’s music scene hits a rough patch, your investments in other regions can help cushion the blow. This global approach adds an important layer of security to your overall portfolio.
Riding Out Major Industry Changes
Over the years, the music business has undergone some notable transformation. From fighting piracy to embracing digital platforms, it's been an exciting trip.
These changes are better handled in a well-diverse portfolio. Spreading your investments lessens the possibility that one disturbance will equally affect all of your holdings.
Every element of your portfolio might react differently to changes in the market, offering stability in trying circumstances.
Strategies for Diversifying
Diversifying your music royalty portfolio is all about smart planning and spreading your investments wisely. Let’s explore some effective strategies that can help you create a balanced and profitable portfolio.
Mix Up Your Music Genres
Music genres have different fan bases and popularity cycles.
Different genres tend to attract certain demographic groups. Diversifying across these allows you to tap into various markets and reduce risk. If one genre dips in popularity, another might be on the rise, which helps balance your portfolio.
Here’s how you can diversify across genres:
- Mainstream pop is generally reliable for steady returns due to its large fanbase.
- Rock or country reaches different audiences, adding diversity to your portfolio.
- Niche genres like jazz or classical often have smaller but loyal fans, which can provide consistent revenue.
- Emerging genres may present high-growth opportunities as they gain popularity.
Spreading your investments this way helps you stay prepared for changes in music trends.
Spread Across Rights Types
Not all music royalties are created equal. There are various types of rights, each offering unique revenue opportunities. By investing in different royalty types, you can create multiple streams of income and reduce your overall risk.
Consider these rights types:
- Master recording rights give you income from the actual sound recordings.
- Publishing rights cover the composition and lyrics, generating royalties from songwriting.
- Performance rights pay when songs are played on the radio or performed live.
- Synchronization (sync) rights generate income when music is used in TV shows, movies, or ads.
Diversifying across these rights helps ensure that even if one type underperforms, others can still bring in revenue.
Go Global
The music business operates differently in various parts of the world. Expanding your investments internationally opens you up to new markets with unique growth potential. Different regions may have varying demands for music, so this approach helps protect against downturns in any single market.
Here’s how to gradually expand globally:
- Start with familiar markets like the US or UK, where music consumption is well-established.
- Slowly add investments in other countries, like Latin America or Asia, which have thriving music scenes.
- Look into emerging markets with growing economies, which could become major players in the music industry.
This global approach adds another layer of security to your portfolio by spreading your risk across different regions.
Mix Old and New
The age of a music catalog plays a big role in its earning potential. Older catalogs tend to provide stable, consistent income, while newer catalogs offer growth potential. Mixing the two creates a balanced portfolio that delivers both reliability and opportunity for future gains.
Here’s how to approach this:
- Classic catalogs offer predictable, steady income from songs that have stood the test of time.
- Current chart-toppers may bring high growth as they continue to rise in popularity.
- Up-and-coming artists could be tomorrow’s stars, offering a chance for higher returns if they break through.
- Seasonal music like holiday songs can provide yearly spikes in revenue.
By investing in both established and newer music, you get a balance of stability and growth potential.
Diversify by Platform
Music is consumed through various platforms, and each platform has its own impact on royalty earnings. By spreading your investments across different platforms, you’re less likely to be affected if one declines in popularity.
Consider investing across these platforms:
- Streaming services like Spotify and Apple Music, which dominate current listening habits.
- Traditional radio still generates royalties, especially for older demographics.
- Live performances bring income from concerts and events.
- TV and film placements offer royalties when music is synced to visual content.
- Social media platforms like TikTok, where music often goes viral, driving both popularity and revenue.
This multi-platform approach ensures that no matter how people listen, your investments can benefit.
Consider Artist Career Stages
Artists at different points in their careers offer varying levels of risk and reward. Established stars may offer steady returns, while emerging artists have higher growth potential. Diversifying across career stages helps balance the risk and reward in your portfolio.
Here’s a breakdown of artist types to include:
- Established artists bring name recognition and reliable income from proven hits.
- Mid-career artists may be rising stars, offering a mix of stability and growth.
- New artists provide the opportunity for higher returns if they make it big.
- Legacy acts often have long-term fanbases, providing stable revenue for years.
Investing in artists at different stages of their careers helps you capture both short-term returns and long-term growth.
Use Different Investment Vehicles
There are several ways to invest in music royalties, each with its own set of benefits. Diversifying the way you invest allows you to tailor your strategy to your financial goals and risk tolerance.
Here are some investment vehicles to consider:
- Direct purchases of specific catalogs give you full control and ownership.
- Music royalty funds pool together multiple investments, offering diversification with less risk.
- Shares in music publishing companies give you a stake in the company’s entire portfolio of music.
- Royalty-backed bonds provide a fixed income, which can be appealing if you prefer stability.
By using different investment vehicles, you can create a portfolio that matches your personal investment style and financial goals.
Examples of Diversified Portfolios
Diversifying a music royalty portfolio isn't just about spreading risk—it's about creating a mix that can provide both steady income and growth potential.
Let's look at some examples of how investors have successfully diversified their portfolios.
Case Study 1: A Balanced Portfolio Across Genres and Rights Types
To make investing in music safer, it's smart to spread your money across different types of music and rights. This way, if one genre becomes less popular or the way people listen to music changes, your investments will be protected.
Here's an example of what this kind of music portfolio might include:
- 30% Pop/Rock (mix of master and publishing rights)
- 20% Hip-Hop/R&B (focus on streaming royalties)
- 15% Country (emphasis on performance rights)
- 15% Electronic Dance Music (EDM) (strong in sync licensing)
- 10% Classical (steady earner in streaming and performance rights)
- 10% Jazz (niche market with a loyal fanbase)
This mix includes popular genres as well as some smaller, specialized ones. It also covers various types of music rights, like streaming and sync licensing (for movies, TV, and ads). By diversifying in this way, you can keep earning money even if one part of the music industry has difficulties.
Case Study 2: Geographic Diversification Success Story
Music is a worldwide industry, and some investors succeed by putting money into different regions. This strategy helps them take advantage of growth in new markets while still having a strong presence in established areas.
A geographically diverse portfolio might look like this:
- 40% North American rights (USA and Canada)
- 25% European rights (UK, Germany, France)
- 15% Latin American rights (focus on streaming growth)
- 10% Asian rights (emphasis on K-pop and J-pop)
- 10% African rights (targeting growing music scenes in Nigeria and South Africa)
This strategy has worked well for some investors. They've enjoyed the rapid growth of streaming in Latin America and the worldwide popularity of K-pop, all while still making a steady income from established markets like North America and Europe.
Case Study 3: Mixing Legacy and Contemporary Assets
A common strategy among successful music royalty investors is balancing established classics with current hits. This approach aims to provide both steady income and growth potential.
Here's an example of how this mix might look:
- 40% Classic Rock Catalogs (1960s-1980s)
- 30% Current Pop Hits (last five years)
- 20% Mid-career Artists (10-20 years in the industry)
- 10% Up-and-coming Artists (first five years in the industry)
Conclusion
Diversifying your music royalty investments is a smart way to manage risk and boost potential returns in the evolving music industry. By investing in various genres, rights types, regions, and artist stages, you create a portfolio that's more resilient to market changes and better positioned for new opportunities.
If you're considering music royalties, now is a great time to start. Begin by researching the types of royalties and exploring platforms that offer these investments. Starting small can help you get a feel for the market. As you learn, you can gradually expand your portfolio.
Platforms like Royalty Exchange make it easier to access and invest in music royalties. They offer a marketplace to buy royalty rights across different artists and genres, helping you diversify your portfolio. 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 the guide on Ultimate Guide To Royalty Investing 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 with any investment, it's important to do your research and consult a financial advisor before making major decisions. With careful planning and diversification, investing in music royalties can be a rewarding part of your strategy.
