Sharing the Wealth: Opening the Music-Rights Investment Game to the Masses

EXTRA From housing to securities to precious metals, many asset markets around the world are reeling in the face of persistent inflation, rising interest rates and fears of recession. While capital has continued to flow into the market for for rights-based assets, including music publishing catalogs, those waters, too, have shown some choppiness of late as well.

Hipgnosis Songs Fund, the leader of the pack in music catalog M&A, recently was forced to raise a new credit facility to refinance its existing debt, under pressure from rising interest rates. It also recently embarked on a program of repurchasing its own shares, which had dropped by 30% in a six week period from September to October in response to growing investor concern that Hipgnosis was overpaying for song catalogs and worries over their long-term earnings prospects.

Hipgnosis founders Merck Mercuriadis (l) and Nile Rodgers

Two weeks ago, long-time Geffen Records president Neil Jacobsen sought shareholder approval to unwind the blank-check company he formed last year, The Music Acquisition Corp., after failing to pull off a merger with any of its music business targets. In a filing with the SEC, TMAC said it had “not entered into an agreement to effect a business combination with any of these potential targets for a variety of reasons,” and was “very unlikely” to complete such a combination by the closing date of the SPAC in February 2023. Among the reasons it cited for its failure were the inability to reach agreement on valuations and “alternative options” available to potential targets.

Yet, while investors might be fretting about prices at the high end of the market, a new crop of startups and entrepreneurs are working to develop new investment products and strategies that, if successful, could open the market for music-rights based assets to fans and non-institutional investors and give independent artists, labels and distributors access to new sources of capital.

In just the past few weeks:

  • Former Warner Music Group executive Scott Cohen announced the pending launch of a new, as-yet unnamed fintech venture that will offer small investors fractionalized ownership shares in big-ticket song catalogs;
  • Music funding platform beatBread announced the launch of an “exclusive investor network,” that will add funds from pre-approved investors, including music companies and professionals, distributors and high-net worth individuals to its existing pool of institutional money. Artists invited to post offers on the platform can list tour dates, marketing partners, album release plans and details of their label contracts, allowing investors to then bid to provide advances against all or parts of the revenue streams from those activities;
  • Music-focused investment platform ANote Music announced a new partnership with music data management and analytics firm Revelator under which Revelator clients and rights holders will be able to offer fractionalized shares in their music catalogs on the ANote platform;
  • In October, music fintech platform Exceed announced it had closed an $8 million seed round led by Israel-based investment fund BRM Group, and named former Royalty Exchange CEO Anthony Martini as its new chief executive. The platform allows artists to offer investors interests in their royalty-based revenue streams, as well as other revenue streams such as live performances, physical sales, sponsorships and merchandise;
  • Also in October, label-services company Explorer1 Music acquired a 51% stake in music investment platform Music Benefactors, and plans to use its global marketing capabilities to promote listings on Music Benefactor’s platform. Like Exceed, Music Benefactors allows artists to list full or partial interests in a range of their projects and revenue streams, including royalty-related streams.

Despite fears in some quarters that prices for rights-based assets, particularly music publishing catalogs, are edging into Dutch tulip bulb territory, total earnings from music copyrights continue to grow worldwide. According to Will Page, former Spotify chief economist and author of Tarzan Economics the total global value of music copyrights in 2021 grew by a robust 18% over 2020, to $39.6 billion paced by a 21% jump in label revenue (primarily from streaming) and a modest recovery in publisher and CMO revenue, primarily from public performance royalties, albeit not quite to pre-pandemic levels.

Source: IFPI Global Music Report, CISAC Global Collections Report, Music & Copyright, MIDIA and Will Page

Based on the major labels’ latest earnings reports, the market has maintained a robust pace through the first three quarters of 2022.

Given that earnings from many other asset classes are falling (looking at you, Bitcoin) it’s perhaps no surprise that capital would continue to flow into a growing category like music rights. And, if the innovative approaches to investing in rights now being rolled out are successful, the could increase that flow of capital by opening the market to investors who are currently foreclosed by the high price of entry.

It could also introduce a new economic dynamic for artists and songwriters. By selling fractionalized interests in their portfolio of rights without giving up majority control of the underlying copyright asset, or by disaggregating rights-related revenue streams into separate investment products, artists could use their existing body of works as leverage to obtain the upfront capital needed to produce more works — much as a company might take on new investors to obtain the capital needed to expand its business.

Perhaps not coincidentally, the recent spate of innovation is happening just as NFTs, recently heralded as the key to financial innovation in music rights and royalties, have lost some of their luster, as both prices and trading volumes on the major exchanges have plummeted.

Certainly a trend to keep an eye one.

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