Streaming services have changed the way we listen to music and have caused the music industry to change in amazing ways over the last ten years.
Music streaming has become an important part of our daily lives, and we can access millions of songs right now. But have you ever thought about who benefits from this huge change in how people listen to music?
The answer lies in music royalties – payments made to the owners of music intellectual property (IP) rights every time their music is used or performed.
As investors seek new opportunities for growth and diversification, music royalties have emerged as a hot investment opportunity. With the global music industry projected to reach $145 billion by 2025, it's no wonder investors are taking notice.
But what makes music royalties an attractive asset class? Is it the potential for stable and growing revenue, the promise of recurring income streams, or the benefits of diversifying a portfolio with an uncorrelated asset class?
Stability and Growth of the Music Industry
Over the past few decades, the music industry has experienced a rollercoaster ride of financial ups and downs. The rise of digital music in the 1990s and early 2000s led to a decline in physical album sales, causing a significant downturn in industry revenue.
However, with the advent of streaming services, the industry has undergone a remarkable transformation.
According to a report by IFPI, global music sales grew for the ninth consecutive year in 2023, with recorded music revenues reaching $28.6 billion. This growth is largely attributed to the rise of streaming services, which have revolutionized the way we consume music.
So, what's driving this growth? The answer lies in the role of streaming in stabilizing revenue.
With millions of songs at our fingertips, streaming services have made music more accessible than ever before. As a result, streaming revenues have increased significantly, accounting for 67% of worldwide recorded music sales.
But what about the future? Predictions suggest that the music industry will continue to grow, with Goldman Sachs forecasting a 7.6% increase in sales for 2024.
Additionally, forecasts suggest a compound annual growth rate (CAGR) of 10.29% from 2022 to 2027. These projections highlight a robust outlook for the music industry, emphasizing the potential for stability and continued expansion.
What does this mean for investors?
With predictable cash flows and a growing industry, investor confidence is on the rise.
The music industry's ability to adapt to changing consumer habits and technological advancements has demonstrated its resilience and potential for long-term growth.
Examples of industry growth and stability can be seen in the success of streaming services, which have not only transformed the way we consume music but also created new revenue streams for artists and labels.
Furthermore, the rise of independent artists and labels has democratized the music industry, providing more opportunities for new talent to emerge.
As the music industry continues to evolve, one thing is clear: its potential for growth and stability makes it an attractive investment opportunity.
Recurring Income Streams
One thing that investors like best about music royalties is that they can count on steady cash flows.
Music royalties are usually paid out on a regular basis, like every month, three months, or six months. This is different from other investments, where payments may be irregular or uncertain. Because of this, investors can plan and budget their money well because they know when to expect their royalty checks.
In fact, music royalty income is often compared to real estate investments in terms of how stable it is.
In the same way that rent payments from a rental property provide a steady stream of monthly income, music royalties do the same for investors.
But don't just take our word for it.
In 2018, Merck Mercuriadis, the founder of Hipgnosis Songs Fund, raised over $260 million to acquire music catalogs and royalty streams. The fund has since acquired the rights to songs by artists such as Beyoncé, Justin Timberlake, and The Chainsmokers, generating steady returns for its investors.
In 2020, Round Hill Music Royalty Fund, which owns the rights to songs by The Beatles, Louis Armstrong, and Elvis Presley, among others, raised $282 million in its IPO on the London Stock Exchange. The fund aims to provide investors with a regular and growing income stream from its diverse portfolio of music royalties.
These examples showcase the growing interest and success of music royalty investments, driven by the allure of predictable and recurring income streams.
Uncorrelated Asset Class Benefits
For investors, diversification is key. But why does it matter?
One crucial aspect is investing in uncorrelated assets – investments that don't move in lockstep with the broader market. When the stock market zigs, these assets zag, providing a buffer against volatility and potential losses.
So, where do music royalties fit into this picture?
Surprisingly, they're a prime example of an uncorrelated asset class. When you invest in music royalties, you're essentially buying a share of the income generated every time a song is streamed, downloaded, or played.
This income stream is largely independent of the ups and downs of the stock market, making music royalties a valuable addition to a well-rounded investment portfolio.
But what about during economic downturns? Surely, people spend less on entertainment when times are tough, right? Interestingly, history tells a different story.
During the Great Recession of 2008-2009, while the S&P 500 plummeted by over 50%, music publishing revenues actually grew by 4%. Similarly, during the COVID-19 pandemic, as live performances halted and the global economy slowed, streaming revenues continued to climb.
Beyond their standalone benefits, music royalties can also play a crucial role in diversifying an investment portfolio. By adding an uncorrelated asset class like music royalties, investors can potentially reduce overall portfolio risk while maintaining or even enhancing returns.
Real-world investors are already leveraging this benefit. For example, the Church Commissioners for England, which manages the Church of England's £8.7 billion investment fund, recently allocated £150 million to music royalties. Their goal? To diversify their portfolio and generate stable, long-term income to support the Church's mission.
Similarly, the Alaska Permanent Fund, a sovereign wealth fund managed by the state of Alaska, has invested over $200 million in music royalties since 2017. By adding this uncorrelated asset class to its portfolio, the fund aims to generate income and protect against market volatility, ensuring a stable source of revenue for Alaska's citizens.
As more institutional and individual investors recognize the diversification benefits of music royalties, the demand for this asset class is only set to grow.
With their low correlation to traditional markets, proven economic resilience, and potential for stable, long-term returns, music royalties offer a compelling opportunity for investors seeking to build a truly diversified portfolio.
Attractive Cash Flow Yields
With low interest rates and volatile stock markets, investors are always on the hunt for attractive returns. And one of the most compelling opportunities may be hiding in plain sight – in the very songs we listen to every day. That's right, we're talking about music royalties.
But just how competitive are the returns from music royalties compared to traditional financial instruments? Let's take a closer look.
According to a recent analysis by Royalty Exchange, the leading platform for buying and selling music royalties, the average return on music royalty investments was an impressive 12.6% over the past three years.
Compare that to the average yield on a 10-year Treasury note, which currently hovers around 1.6%, or the dividend yield of the S&P 500, which stands at about 1.4%, and the appeal of music royalties becomes clear.
Of course, averages can only tell us so much. To truly understand the potential of music royalty investments, it's helpful to look at some real-world examples.
Platforms like Royalty Exchange have democratized the music royalty market, allowing individual investors to buy and sell fractional interests in songs and catalogs.
And the songs available on the platform are from some of the biggest artists of all time. Most of the top nominees for this year's VMA's have some of their biggest hits available for fans to invest in on the platform. Once you sign up in just a few minutes, you can start making offers and earn money each month or quarter when royalty payments are sent from distributors. Each listing that you check out on the platform shows all of the past 5 years financial information about earnings so you can see which catalogs are continuing to grow and which are consistent earners. Imagine Post Malone or Ariana Grande performing their biggest hits during the VMA's this year and you making money during the show! Now you can.
We’ve prepared this guide on Royalty Investing Made Easy to help you out if you are new to music royalty investing and want to see why they are some of the best alternative investment available to add to your portfolio. Looking for a real example of a catalog sale on the platform? Look no further. Take this Mary J. Blige asset listing for instance. The buyer paid $17.5k back in August, 2021 to acquire the lifetime rights of future earnings from the songwriter's cut of royalties from Mary J. Blige and Foxy Brown songs. While they held the catalog they collected $5.4k in earnings. They then resold it to another investor who was eager to get the catalog in their hands on the secondary market in June of 2024 for $24,500. So after holding the songs including the likes of "Touch Me Tease Me", for under 3 years they came out with a return on investment of 55.5%!
At Royalty Exchange, you can choose from thousands of the most popular songs to invest in. We offer hundreds of catalogs that are up for auction today, so sign up as an investor to get started.
Conclusion
As we look to the future, the potential for music royalties only seems to be growing. With the continued rise of streaming platforms and the global reach of digital music distribution, the opportunities for investors to tap into this market are expanding rapidly.
And as more and more institutional and individual investors alike begin to recognize the benefits of music royalty investing, we can expect to see even greater demand and innovation in this space.
So, if you're an investor looking for a way to diversify your portfolio, generate steady income, and potentially earn attractive returns, music royalties are definitely worth considering.
Whether you're a seasoned investor or just starting to explore your options, this asset class offers a compelling opportunity to align your investments with your passion for music.
If you're interested in learning more about music royalty investing, there are a number of great resources available to help you get started. One platform that's definitely worth checking out is Royalty Exchange.
This leading marketplace for buying and selling music royalties offers a wealth of information and tools for investors, including detailed listings of available royalty streams, transparent pricing, and valuation data, and a user-friendly interface for tracking your investments.
