What drives Wall Street to wade into the Music Industry?
Frequent readers of music industry newsletters will likely be aware that catalogue acquisition in the music industry has reached dizzy heights and sees no sign of coming back down, with the main wind beneath its wings coming from stock markets and investment firms. Neil Young, Shakira, Lindsey Buckingham – they’ve all struck deals with the London Stock Exchange listed Hipgnosis Songs Fund, whom no doubt predict that the revenue generated from licensing and royalty streams is only set to soar higher and higher.
Hipgnosis’ success established music copyright as an investor asset class and paved the way for more to join its space, with investment giants teaming up with existing music ventures to up their spending power. BMG (powered by investment firm KKR) and CTM (powered by investment firm Outlander Fund) recently announced each will have over $1 billion available to put on the negotiation table. News of more investment alliances and copyright acquisitions seem to break at an accelerating pace. Prices paid for catalogues are sometimes nearing twenty times annual earnings or higher, with a trend in these multiples increasing as the acquisition space becomes more crowded. Furthermore, as the status quo of streaming revenue splits between master and publishing (currently largely in the disfavour of the latter) seems to come under pressure by initiatives such as the UK government’s Economics Of Music Streaming committee, it are most notably publishing catalogues that are eyed up by investors for their potential increase in future returns.
Where are the usual suspects?
This rise in investor firms’ activity proves a double-edged sword for the majors in the music industry. Music being established as an investor asset class certainly did no harm to their own valuations and will certainly benefit Universal Music Group in its IPO later in 2021. But it requires them to reach deep into pockets to join the ongoing acquisition frenzy. Universal bought Bob Dylan’s back catalogue for the gargantuan sum of $400 million last year, and raised $3.5 billion earlier this year which is no doubt largely aimed to be used in the copyright acquisition space. Warner raised $250 million in debt in 2020, launching a $650 million fund in collaboration with investment firm Providence Equity Partners earlier in 2019, solely meant for copyright acquisition. Sony also entered the space, acquiring Paul Simon’s publishing catalogue in 2021 for an undisclosed amount.
Whilst the live aspect of music has been put to a halt by the pandemic, copyright acquisitions are a bull market. There is one clear catalyst to this trend, and that is the rise of music streaming. Its revenues caused a 6th consecutive year of growth in the recorded music industry, with streaming now accounting for over 62% of total revenues in the year 2020 according to IFPI. Furthermore, the streaming model turned timeless catalogues into a long-lasting, steady and predictable source of revenue. It is not the songs but these steady returns, that is music to the ears of many investors.