Selling music royalties is nothing new. Selling them to private investors, however, is.
So it’s perhaps not surprising that the artists we work with often express wonder at why investors not otherwise associated with the music business would be interested in acquiring their royalties.
That may soon change, given the big moves the financial world has started making into the music royalty space. The most recent, and perhaps most notable, such move was private equity group Blackstone Core Equity Partners’ acquisition of U.S. music rights organization SESAC this month.
At a rumored $1 billion price tag, the sale illustrates the demand for investment-grade intellectual property. It caps a long list of similar acquisitions and investments drawing the financial world closer to the music world, illustrating the interest investors and private equity have in music royalties in particular.
- Google Ventures invested $60 million into UK-based Kobalt Music in early 2015
- Investment powerhouse BlackRock formed Alignment Artists Capital to make “structured investments” in artists two years ago
- Private equity fund manager Pegasus Capital Advisors bought publisher Spirit Music Group in 2009
- Dutch state pension fund ABP formed Imagem Music Group in 2008 to acquire publishing catalogs worldwide.
With such institutional investment groups showing this level of interest in music royalties, why shouldn’t individual investors do the same? At the end of the day, they’re all after the same thing… a return on investment not tied to the volatility of the stock market.
"The holy grail is looking for investments where returns do not correspond to the stock market," Howard Lipson, co-founder of Alignment Artist Capital, told Forbes.
And while the immediate cash flow these investors put into the pockets of artists and songwriters is certainly significant, it’s also worth examining the broader impact of these deals.
For starters, investors buying music royalties are incentivized to maximize the amount of royalties collected in any way possible. This means increasing collection efficiency through technological innovation.
It also means acquisitions. With the access to the capital that Blackstone provides, SESAC might start acquiring related services in a rollup that could make the collection and distribution of royalties to rightsholders far more efficient.
SESAC already has several significant acquisitions under its belt. It bought mechanical rights organization Harry Fox Agency to expand past public performance royalties into mechanical royalties collection. It also acquired synch licensing company Rumblefish.
Mechanical and Performance Royalties: What's the Difference?
We see the same thing up north with Canadian PRO SOCAN. The organization in the last year picked up YouTube payment facilitator Audiam and digital music aggregator MediaNet.
These moves expand both organizations’ ability to collect multiple types of royalties collection under one roof, as well as drive increased usage of such rights.
With the number of startups now entering the market focused on solving more granular royalty related chokepoints, there are plenty of other targets available.
These same deep pockets can be applied to the various legal and legislative battles ahead. Legislatively, you have challenges to the U.S. safe harbor provisions, a likely resurgence in the “Air Play, Fair Pay” bill, and the ongoing fight over the Consent Decree and compulsory royalty rates.
Legally, there are lawsuits galore, including Global Music Rights vs the Radio Music Licensing Commission over direct licensing, The Turtles vs. SiriusXM over pre-1972 recordings, and what should be a crescendo in the fight around rights reversion claims.
Add to all this the fact that music industry revenues have started to rebound after over a decade of decline and you can see why investors might view music royalties as an attractive prospect.
Sometimes it takes an outsiders eye to see the value and potential in what you have.
Photo credit: kenteegardin via Visual Hunt / CC BY-SA
