Complete guide to Music royalty investing


Ever since the phonograph was first introduced in 1877, people have had a strong desire to listen to and share recorded music. With the digital age, the music industry has continued to grow, and according to Goldman Sachs, it's projected to increase at an annual rate of 12%, reaching $53.2 billion by 2030. In 2022, artists like Taylor Swift and K-Pop sensation BTS played a significant role in boosting global music revenues to a new record of $26.6 billion, marking the eighth consecutive year of growth. The growth is largely driven by streaming, which now makes up 67% of the industry's earnings.

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Today, the predominant model in the music industry is on-demand subscription streaming, but as technology continues to advance and more industries become digital, music will become even more widespread, creating more opportunities for growth and making money in the future. Music video streaming platforms like YouTube and TikTok have also had a transformative impact on the industry, providing creators with additional avenues to connect with audiences through digital music content. YouTube Music, for instance, has amassed over 80 million paid subscribers globally and contributed $6 billion in revenue to the music industry in 2022, with 30% coming from user-generated content. Despite regulatory concerns, TikTok remains a key platform for labels to promote new releases and older tracks. According to Musicanalytics company MRC Data, 67% of TikTok users are more likely to seek out songs on music-streaming services after discovering them on the platform.

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Music royalties are payments made to artists and songwriters for the use of their music. These payments can come from various sources, such as physical music sales, digital downloads, and streaming on platforms like Spotify, Apple Music, and YouTube.

## **Types of Royalty Streams**

There are different types of royalty streams, depending on the copyright associated with the music:

**Sales/Streaming:** These royalties are paid whenever a song is sold or streamed. For sound recordings, these are called "reproduction" royalties, while for compositions, they are known as "mechanical" royalties.

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**Public Performances:** Royalties are owed when music is played in public, which includes radio broadcasts, commercial establishments like shops or bars, and live concerts.

**Licensing:** Music is often licensed for use in various media, such as TV shows, movies, ads, video games, and in-app playlists. This results in synchronization royalties, involving a one-time payment agreed upon by the copyright owner and the licensing company.

## **The Music Royalty Market**

In 1997, David Bowie made headlines by using his music royalties to secure $55 million in funding through "Bowie Bonds." These bonds attracted investors with the promise of income from Bowie's music. This marked the beginning of music royalties as an investment opportunity.

The concept gained traction, and more people recognized it as a viable investment. Major private equity firms like BlackRock, Blackstone, and KKR partnered to invest in music royalties. Renowned musicians like Bob Dylan and Neil Young started selling their music catalogs for estate planning purposes.

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In 2021, substantial capital was invested in music rights acquisitions, with an estimated $5 billion spent. Spotify, a leading streaming platform, reported paying out $7 billion in royalties to rights holders during the same year, emphasizing the growing significance of the music royalty market.

Despite challenges posed by the COVID-19 pandemic, digital streaming services have driven growth in global recorded music revenues.

## **Advantages of Investing in Music Royalties**

Investing in music royalties offers several advantages compared to traditional asset classes:

**Long-term Residual Income:** Music royalties provide a steady cash flow that can last for years, even after a song's initial release, through radio play, streaming, and licensing.

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**Long-term Growth:** Music streaming revenue has grown significantly since 2014 and is projected to continue rising, driven by the prevalence of smartphones, smart speakers, and connected vehicles.

**Diversification:** Investing in music royalties diversifies your portfolio, reducing risk associated with a single asset class or market.

**Low Correlation:** Music royalties historically show little correlation with broader economic trends, making them a stable investment.

**Low Risk:** Music royalties are generally considered low-risk investments due to the steady demand for music.

**Inflation Hedge:** Song royalties are not tied to the stock market or the economy, making them a good hedge against inflation.

## **Risks and Challenges of Investing in Music Royalties**

Investing in music royalties comes with its share of risks and challenges:

**Uncertainty of Future Revenue:** Changes in technology and consumer behavior can affect the future revenue streams associated with music royalties.

**Complex Legal Landscape:** The music industry is governed by complex and evolving copyright and licensing laws, which can impact the value and revenue streams of music royalties.

**Difficulty in Valuation:** Valuing music rights can be subjective and challenging, as it depends on factors like the popularity and longevity of a song or artist.

**Limited Liquidity:** Music royalties are often long-term commitments, making it challenging to sell or monetize assets in the short term.

## **Ways to Invest in Music Royalties**

There are several ways to invest in music royalties:

**Direct Investment:** This involves buying a stake in an individual song or catalog of songs. It can be done through private transactions or public offerings. Marketplaces like Royalty Exchange and Songvest allow fractionalized shares of music copyrights.

**Royalty Funds or Trusts:** These are investment vehicles that enable investors to pool their money and invest in a diversified portfolio of music royalties.

**Music-Focused ETFs:** Exchange-Traded Funds (ETFs) that invest in companies involved in the music industry, including streaming platforms and record labels.

**Music NFTs:** Musicians, labels, and publishers issue NFTs for songs and music catalogs, automatically allocating royalty earnings to token holders.

**Music Streaming Platforms:** Investing in music streaming platforms like Spotify or Apple Music provides exposure to the music industry, although their revenue sources extend beyond music royalties.

## **Comparing Music Royalties to Contemporary Art**

Music royalties and contemporary art are both alternative investment options that offer potential capital appreciation and passion investments.

**Market Dynamics:** Contemporary Art's market is driven by individual artists, galleries, and auction houses' perceived value and prestige. Music royalties depend on the popularity and longevity of songs and artists.

**Valuation and Monetization:** Contemporary Art's value is often subjective and hard to determine, based on factors like artist reputation and market demand. Music royalties can be more easily valued and monetized, based on specific revenue streams.

**Income vs Capital Appreciation:** Investing in a hit song generates consistent income, while Contemporary Art typically provides long-term capital appreciation without regular cash flow.


The music industry's projected annual growth to $53.2 billion by 2030, driven by streaming platforms like YouTube and TikTok, presents an attractive investment opportunity in music royalties. These payments, originating from sales, streaming, public performances, and licensing, offer advantages such as long-term residual income, growth potential, portfolio diversification, and low correlation with economic trends. Challenges include uncertain future revenue, a complex legal landscape, and limited liquidity. Investment options range from direct investments in songs to royalty funds and music-focused ETFs. Comparisons with contemporary art highlight differences in market dynamics and income versus capital appreciation. Overall, investing in music 

Complete guide to Music royalty investing

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