With the transition of music moving to streaming, music royalties continue to grow.

With the transition of music moving to a subscription revenue model, versus retail sales of physical albums, singles and downloads, music royalties continue to go up.

Here’s a snippet of Steve Gelsi story via Market Watch

“The music-royalty business appears to be living up to its reputation as a provider of steady returns in good times and bad, as fortunes in song streaming continue to grow despite economic headwinds.

While huge royalty deals in the vein of Bob Dylan’s $400 million songwriting-catalog sale to Universal Music Group in 2020 or Bruce Springsteen’s $550 million master-recording and publishing-rights sale to Sony in 2021 are uncommon, music-industry players continue to see strong interest.

Two music-industry lawyers told MarketWatch that despite inflation and uncertainty in the financial world, they’re seeing more music-royalty transactions on the horizon as the music-streaming business continues to grow.”

In a year when many institutional investors have cut back on their investments in private-equity funds, money raised by standalone private-equity music-royalty funds has increased.

In 2022, six music-related funds drew in $1.52 billion in capital commitments, up from four funds that raised $545 million in 2021, according to data provider Preqin.

Meanwhile, U.S. recorded-music revenue in the first half of 2022 rose 9% to $7.7 billion in estimated retail value, according to the Recording Industry Association of America. Paid subscriptions increased to a record high of 90 million, with revenue rising by 10%, to $5 billion.

In the past decade or so, the music business has become less about retail sales of recorded music either through CDs or online offerings and more about revenue streams in the vein of entertainment services from Netflix, Disney, Amazon, Paramount Global, Apple Inc.’s, iTunes and Warner Bros. Discovery. 

Prediction: Music royalties are way more reliable today than in the days of CDs and digital downloads. This makes a perfect investment to individuals who don’t fully understand how the music business works from the inside.

With labels ability to market catalog songs in any season. Casting a wide net in a range of music assets, you’re bound to have spikes in earnings with moments created after a song or album is released.

One focus for investors should be to invest in new master recordings. Your cut may be bigger, and if you have team to produce the assets you can potentially grow a catalog that could be exploited, in most cases, under your total discretion. Or you can leave it up to the label or team you’ve invested in. Of course, this isn’t investment advice, but this is going to be the focus point for many investors and this is risker than buying an existing catalog, but returns could higher. Let me explain. If you have a yearly publishing earnings of $5M for example (on a very mature catalog), and you sell for 16x multiple, which is $80M. But, if you own a catalog that you start on your own, or invest in, you’ll have more potential revenue streams (including ‘NAME AND LIKENESS’ deals, merchandising, brand deals and more) than simply publishing and master royalties. Again, more risk, but offset by the new “attention” economy with streaming.

Either way, this asset class is here to stay.

We recently talked with founder and chairman, Vince Valholla about his company, Valholla Records, the music business and his current motivations for selling a piece of the company he’s built for over 18 years. Read it HERE. He believes in the asset class as much as we do. -BB

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