Music is a hot new Wall Street asset
Phones and streaming platforms have turned music rights into something like a digital annuity that more investors have become interested in buying.
Why it matters: Investors want income independent from politics or the rest of the market and they see music as that potential source of cash flow.
What’s happening: Streaming music now accounts for more than 60% of global recorded music sales, and investors don’t see the trend slowing down.
- “Music is now viewed as a highly resilient uncorrelated asset class,” Larry Miller, director of music business at NYU Steinhardt, tells Axios.
- “From the investor standpoint, the life of a copyright is long [and the] volatility is low — especially when investing in a large music catalog — and the tide is rising, driven by streaming.”
- "The multiples of revenue that are being paid for music publishing catalogs today and last year are literally twice as high as they were well under 10 years ago," Miller says. (See below.)
- "It's an asset class where you can generate yield," says Anthony Tittanegro, Executive Director at Domain Capital Group. "It's not exactly an annuity per se, but it should provide periodic cash flow."
For artists, selling their music catalogs may offset declining income from live performances and tours, which can make up a huge portion of their business.
- “From the seller side, [many] whose greatest period of hit-making production was in the 70’s or 80’s or 90’s are now approaching older years and are doing estate planning,” Steinhardt said.
Driving the news: Two of the largest rights acquirers, Primary Wave and Hipgnosis Songs Fund, have backings from leading financial institutions.
- Morgan Stanley and JPMorgan Chase Bank have been part of deals to fuel Hipgnosis Songs Fund, which has rights to some of Shakira and Neil Young's music catalogs.
- BlackRock led a $300 million investment into Primary Wave, which owns copyrights of songs from artists including John Lennon and Kurt Cobain and, as of last December, Stevie Nicks.
- Private equity firm KKR led an investment round in royalty-free music platform Artlist, bought a majority stake in a publishing catalog from Ryan Tedder and One Republic worth, reportedly, $200 million, and is joining with record label and management company BMG to become more competitive in acquiring rights.
The big picture: The value in owning the publishing rights to the songs is expected to grow.
- “A bank today looks at a mortgage and says ‘I can get 3.5%.’ With music it [can be] 5%,” says Ross Gerber, an investment manager and investor in two music companies.
Yes, but: Streaming may be the future of music, but many artists are frustrated by the lack of payouts that go to the artists directly.
- Musicians last month protested outside of Spotify offices around the world, accusing the streaming platform of mistreating artists, especially as they have come to rely more on streaming income as the pandemic shut down live performances.
- Apple and Spotify have cheapened music and turned it into a commodity because Apple’s incentive is to sell phones and Spotify’s incentives are aligned with the music labels because they are part owners, says Gerber.
- Axios has reached out to Apple and Spotify for comment. The Wall Street Journal recently reported that Apple pays double what Spotify pays per stream. Streaming services pay artists indirectly through rights holders who strike agreements with artists.
What to watch: Some songs are iconic and may not matter if it’s Neil Young — they are still familiar tunes, Axios’ Dan Primack observes. “Maybe you only need one or two songs in a catalog and it pays for the rest.”