Are you a seasoned investor looking to diversify your portfolio and explore new investment opportunities?
The music industry, with its potential for high returns and unique assets, could be your next opportunity for your investment. In this article, we will show you how to diversify your portfolio even within the music industry as an asset class.
However, navigating this dynamic and rapidly changing industry can be daunting for those who are not familiar with it. So we’ll provide an overview of the music industry, the different types of music investments available, and the potential benefits and risks associated with investing in music. Whether you’re a music lover or just looking to expand your investment portfolio, this guide will give you the insights and tools you need to rock your investment strategy.
Table of contents
- Benefits and risks with investing in music
- Understanding the music business
- Investment Options in the Music Industry
- Investing in Individual Artists:
- Investing in Music Catalogs:
- Investing in Music Festivals:
- Investing in Music Technology:
- Investing in Music Royalties:
- Investing in Music-Related Real Estate:
- Investing in Music-Related Stocks:
- Investing in Music Funds:
- How to conduct due diligence on potential investments in the music industry.
- Key Factors to Consider When Investing in Music
- Case Studies of Successful Music Investments
- How to invest in music funds?
- Investment Opportunities with Rexius
Benefits and risks with investing in music
Benefits of Investing in Music:
- Diversification of investment portfolio: Investing in the music industry can provide diversification to an investment portfolio, as it is a unique asset class that is not directly tied to traditional equity or bond markets.
- Potential for high returns: While there are risks associated with investing in music, there is also the potential for high returns. If an artist or a company is successful, the returns on investment can be significant.
- Mix of tangible and intangible assets: Investing in music can offer a mix of tangible and intangible assets, such as music catalogs, copyrights, and memorabilia, which can hold value over time.
- Positive social impact: Investing in music can have a positive social impact by supporting artists and contributing to the creation of art and culture.
- Personal passion and enjoyment: For those who are passionate about music, investing in the industry can be a way to support the artists and music they love while potentially earning a return on investment.
- Potential for long-term investment: Music royalties and intellectual property rights can generate income for a long time, which makes investing in music a potentially attractive long-term investment.
- Opportunity to support independent artists: Investing in independent artists can help support and promote creative talent and innovation in the music industry.
- Opportunity to invest in new music technology: The rise of new music technology such as streaming services, virtual concerts, and AI-generated music presents opportunities for investors to get involved in innovative new business models.
- Potential for royalties from successful music catalogs: Investing in successful music catalogs can provide a steady stream of income from royalty payments for many years to come.
- The increasing popularity of live music events and festivals: The popularity of live music events and festivals continues to grow, providing opportunities for investors to get involved in the production, promotion, and ticketing of these events.
Risks of investing in music:
- Fluctuating revenue streams: The music industry is known for its unpredictable revenue streams. Factors such as changes in consumer preferences, technological advancements, and economic downturns can significantly impact the industry’s revenue.
- Legal and regulatory issues: The music industry is subject to a range of legal and regulatory issues, such as copyright infringement lawsuits, licensing disputes, and changing copyright laws, which can impact the value of an investment.
- Artist risk: Investing in an artist or a particular album can be risky as there is no guarantee that the artist will be successful or that their album will sell. Additionally, an artist may face personal or legal issues that impact their career and investment.
- Industry consolidation: The music industry is dominated by a few major companies, which can limit the growth opportunities for smaller companies or independent artists.
- Technological advancements: Rapid technological advancements in music production and distribution have disrupted traditional business models and revenue streams, making it difficult to predict the future of the industry.
- High initial investment costs: Some music investments, such as starting a music label or festival, can require significant initial investment costs.
- Limited liquidity in some music investments: Some music investments, such as music royalties or intellectual property rights, can have limited liquidity and may not be easy to sell.
- High risk of failure for new artists and music businesses: The music industry is highly competitive, and the majority of new artists and music businesses fail to achieve success.
- Inability to predict consumer trends or preferences: The music industry is subject to changes in consumer trends and preferences, which can be difficult to predict and can impact the success of an investment.
- Dependence on the popularity of individual artists or genres: Music investments are often tied to the popularity of specific artists or genres, which can be unpredictable and subject to changing trends
Understanding the music business
Overview of the different segments of the music industry
By knowing the different segments of the music industry, you’ll have a better understanding of the market and how it operates, allowing you to make more informed investment decisions. This knowledge might help you to identify potential investment opportunities, better value potential investments, and manage risk.
- Recorded Music: This segment includes the production and distribution of recorded music, such as physical and digital music albums, singles, and streaming services. This segment is primarily dominated by major record labels such as Sony, Universal, and Warner Music.
- Music Publishing: This segment deals with the copyrights of songs and music compositions. Music publishers license the use of these compositions to other businesses, such as record labels, film studios, and advertising agencies, in exchange for a royalty payment. Major music publishers include Sony/ATV, Universal Music Publishing, and Warner Chappell Music.
- Live Music Events: This segment involves the production and promotion of live music events such as concerts, festivals, and tours. This segment is dominated by companies such as Live Nation and AEG Presents, which are responsible for booking venues, promoting events, and managing the logistics of live performances.
The three segments of the music industry – recording, publishing, and live events – often intersect. For instance, a record label might collaborate with a music publisher to secure rights to a hit song, using it to produce and promote a live event. Grasping these distinct industry segments is crucial for investors, as diversification within the industry can mitigate risks and potentially boost returns.
A music catalog might hold significant value in the music publishing segment but less so in recorded music. By spreading investments across various industry segments, you can lessen exposure to specific risks like shifts in consumer tastes or legal issues.
How is revenue generated in the music business?
The music industry produces revenue through multiple channels. Comprehending these diverse revenue streams and the entities generating income from them is valuable when assessing potential music investments
- Music Sales: Music sales include the physical and digital sale of albums, singles, and other recorded music. Revenue is generated when consumers purchase music through various channels such as online stores, and physical stores.
- Streaming: Music streaming services such as Spotify, Apple Music, and Tidal generate revenue through paid subscriptions and advertisements. These services pay a per-stream royalty to artists and labels, which is typically a fraction of a cent per play.
- Licensing: Licensing involves the use of music in various media such as movies, TV shows, commercials, and video games. Music publishers or record labels grant licenses for the use of their music in exchange for a fee or royalty payment.
- Ticket Sales: Live music events generate revenue through ticket sales. This revenue is split between the performers, event promoters, and venue owners.
- Merchandise: Artists generate revenue through the sale of merchandise such as t-shirts, hats, and other branded items.
- Sponsorship: Companies may sponsor music events or artists in exchange for advertising and marketing opportunities.
- Music Publishing: Music publishers generate revenue by collecting royalties on behalf of songwriters and composers for the use of their music in various media.
- Performance Rights Organizations (PROs): PROs such as ASCAP, BMI, and SESAC collect royalties on behalf of songwriters and publishers for the public performance of their music. This includes performances on radio, television, and live music events.
- Sync Licensing: Sync licensing involves the use of music in movies, TV shows, and commercials. This revenue is split between the music publisher and the owner of the sound recording.
- Fan Funding: Artists may use crowdfunding platforms such as Patreon, Kickstarter, or GoFundMe to generate revenue from fans who want to support their work.
The major players in the music industry
Understanding major industry players is crucial in evaluating potential investments. Investing in smaller record labels or music publishers could yield growth and potentially higher returns if they effectively compete with industry giants. Conversely, investing in companies directly competing with major players may be riskier, as gaining market traction might prove challenging.
Record Labels handle the production, distribution, and promotion of recorded music, with major players like Sony Music, Warner Music, and Universal Music.
Music publishers manage song and composition copyrights, licensing them to businesses such as record labels, film studios, and ad agencies for royalties. Key music publishers include Sony/ATV, Universal Music Publishing, and Warner Chappell Music.
Live event promoters oversee the production and promotion of live music events, including concerts, festivals, and tours. Major promoters are Live Nation and AEG Presents.
These companies often wield considerable resources and market power, potentially limiting growth opportunities for smaller entities like record labels, artists, music publishers, or independent songwriters.
Investment Options in the Music Industry
The types of investments available in the music industry
Here’s a list of different types of investments available in the music business:
Investing in Individual Artists:
Investors may choose to invest in individual artists by providing funding for recording, promotion or touring expenses in exchange for a share of future revenue.
- Potential for high returns if an artist becomes successful.
- Opportunity to support and nurture emerging talent.
- Potential for creative involvement in the music-making process.
- High risk of failure as success in the music industry can be unpredictable.
- Limited diversification as investments is tied to the success of one individual artist.
- Potential for legal issues, such as breach of contract or copyright infringement.
Investing in Music Catalogs:
Investors may purchase the rights to a collection of songs, also known as a music catalog, and collect future royalty payments generated from the use of the songs.
- Potential for stable and long-term income through royalty payments.
- Ability to diversify investments across a large number of songs and artists.
- Opportunity to purchase catalogs with proven track records of generating significant revenue.
- Uncertainty around future royalty payments as they depend on the continued use of the songs in various media.
- Legal risks such as copyright infringement or licensing disputes.
- Difficulty in valuing music catalogs, which can make it challenging to determine a fair price for the investment.
Investing in Music Festivals:
Investors may provide funding for music festivals in exchange for a share of future profits.
- Potential for high returns if the festival is successful.
- Opportunity to support and promote emerging and established artists.
- Potential for creative involvement in the production of the festival.
- High risk of failure as success in the music festival industry can be unpredictable.
- Significant upfront costs associated with organizing and promoting the festival.
- Dependence on external factors such as weather, ticket sales, and artist availability.
Investing in Music Technology:
Investors may invest in music technology companies that are developing new platforms or software to improve the production, distribution, or promotion of music.
- Potential for high returns if the technology is successful.
- Opportunity to support and shape the future of the music industry.
- Ability to diversify investments across different technologies and companies.
- High level of competition and fast-moving market.
- Dependence on external factors such as consumer adoption and market trends.
- Risk of obsolescence as new technologies emerge.
Investing in Music Royalties:
Investors may purchase the rights to future royalty payments generated from music sales, streaming, or licensing.
- Potential for stable and predictable income through royalty payments.
- Ability to diversify investments across different songs and artists.
- Potential for long-term income from established and popular songs.
- Uncertainty around future royalty payments as they depend on the continued use of the songs in various media.
- Legal risks such as copyright infringement or licensing disputes.
- Difficulty in valuing royalty streams, which can make it challenging to determine a fair price for the investment.
Investing in Music-Related Real Estate:
Investors may invest in music-related real estate, such as music venues, recording studios, or rehearsal spaces, in order to generate rental income.
- Potential for stable and predictable income through rental payments.
- Opportunity to support and promote the music industry by providing essential infrastructure.
- Potential for long-term capital appreciation of the property.
- Dependence on the success of the music industry and the demand for music-related real estate.
- Potential for damage or depreciation of the property from heavy use or poor maintenance.
- Limited diversification as investments are tied to one property or location.
Investing in Music-Related Stocks:
Investors may invest in publicly-traded music-related companies such as record labels, music publishers, or live event promoters.
- Potential for long-term growth and capital appreciation of the stock.
- Opportunity to invest in established and well-known music-related companies.
- Diversification across different companies and segments of the music industry.
- Dependence on the performance of the stock market and the specific company.
- Exposure to market risks such as volatility and changes in consumer preferences.
- Limited control over the management and direction of the company.
Investing in Music Funds:
Investors may invest in music-focused funds, which may provide exposure to a diversified portfolio of music-related assets, such as music catalogs or music technology companies.
- Diversification across a portfolio of music-related assets.
- Professional management and expertise in the music industry.
- Potential for stable and long-term returns.
- Dependence on the performance of the portfolio and the underlying assets.
- Fees associated with the management of the fund.
- Potential lack of transparency or control over specific investments within the portfolio.
How to conduct due diligence on potential investments in the music industry.
Research the market:
Investigate the music industry’s different segments, major players, and market trends. This understanding aids investors in grasping the competitive landscape and identifying potential growth opportunities.
Scrutinize the financial statements of the considered company or individual. This analysis allows investors to comprehend the investment’s financial health and pinpoint potential red flags or concerns.
Assess the management team:
The investment’s management team significantly influences its success or failure. Examine the team’s experience and track record, ensuring they have a clear and effective execution plan.
Understand legal and regulatory environments:
The music industry faces a complex array of legal and regulatory requirements. Thoroughly review contracts, licenses, and agreements associated with the investment to ensure compliance with all relevant laws and regulations.
Seek expert advice:
Consult music industry professionals, such as lawyers, accountants, or consultants. These experts offer valuable insights and guidance on potential investments, helping investors avoid costly errors.
Key Factors to Consider When Investing in Music
Artist or Company’s Track Record
Investors should consider the artist or company’s track record, including their past successes and failures in the music industry.
Research the artist or company’s previous releases, streaming numbers, touring history, and other relevant metrics.
Consider current market trends and how they may impact the potential success of the investment. This can include trends in music sales, streaming, licensing, and live events.
Conduct market research to identify current trends and analyze relevant data, such as music sales and streaming numbers. Review industry reports and publications to gain insights into emerging trends and changes in consumer behavior.
Legal and Regulatory Issues
Carefully review the legal and regulatory issues associated with the investment, such as licensing agreements, copyright issues, and contractual obligations.
Review all relevant contracts and agreements associated with the investment, including licensing agreements, publishing agreements, and management contracts. Consult with legal experts to ensure compliance with all relevant laws and regulations.
Potential for Future Revenue Streams
Consider the potential for future revenue streams associated with the investment, such as music sales, streaming, licensing, and live events.
Analyze data on current revenue streams and market trends to identify potential future revenue streams. Evaluate the artist or company’s business plan and financial projections to gain a better understanding of potential future revenue streams.
Long term thinking
A long-term investment horizon is crucial in the music industry, as revenue streams may take time to develop. Unlike industries like tech or real estate with quick returns, music revenue from sales, streaming, licensing, and live events can take longer.
For instance, investing in an emerging artist might require years of waiting for them to build a fanbase, release an album, and generate revenue through touring and merchandising. Similarly, purchasing rights to a music catalog takes time for song licensing in film, television, or advertising.
A long-term horizon lets investors patiently wait for revenue streams, avoiding premature selling or hasty decisions based on short-term market fluctuations. This focus maintains long-term goals, allowing investments to grow and generate returns over time.
The music industry constantly evolves, introducing new trends, technologies, and business models. Long-term investment horizons enable flexibility and adaptation to market changes, preventing quick and potentially ill-advised decisions.
Case Studies of Successful Music Investments
Investing in Taylor Swift’s Music Catalog
In 2019, music mogul Scooter Braun acquired Big Machine Label Group, which owned Taylor Swift’s catalog of master recordings. The deal reportedly cost Braun over $300 million. Since then, the value of the catalog has increased significantly, with Swift re-recording her early albums and re-releasing them to retain ownership of her master recordings. In 2020, Shamrock Holdings acquired a majority stake in the catalog for over $300 million, providing a substantial return on investment for Braun.
Investing in Michael Jackson’s Music Catalog
In 1985, Michael Jackson purchased the rights to the Beatles’ music catalog for $47.5 million. The catalog included more than 250 songs written by John Lennon and Paul McCartney. Jackson went on to sell a 50% stake in the catalog to Sony for $95 million in 1995. Following Jackson’s death in 2009, the value of the catalog increased significantly, with Sony buying out Jackson’s remaining stake for over $750 million in 2016.
Investing in Bob Dylan’s Music Catalog
In 2020, Universal Music Group acquired Bob Dylan’s entire music catalog for a reported $300 million. The catalog included over 600 songs written by Dylan, spanning more than six decades of his career. The acquisition was seen as a major coup for Universal, which is now positioned to generate significant revenue from licensing Dylan’s songs for use in film, television, and advertising.
In 1997, musician David Bowie famously securitized his future royalty payments into what were known as “Bowie Bonds”. The bonds, which were issued by investment bank Prudential Securities, raised $55 million in exchange for the rights to Bowie’s music catalog. The bonds had a 10-year maturity and paid an annual interest rate of 7.9%.
The Bowie Bonds were seen as an innovative way to monetize future revenue streams from music royalties and paved the way for other artists to securitize their royalty streams in a similar way. While the Bowie Bonds were downgraded to “junk” status by credit rating agencies in 2004, they still provided a positive return for investors over the life of the bonds. The success of the Bowie Bonds demonstrated the potential for music assets to be securitized and traded as a form of investment.
Some of the factors that contributed to the success of these music investments:
- Strong Track Record: In most cases, successful music investments were made in artists or catalogs with a strong track record of commercial success.
- Emerging Trends: Successful music investments often align with emerging trends in the music industry. For example, investing in streaming platforms like Spotify and Live Nation’s live events promotions were well-timed investments that capitalized on the growing popularity of those business models.
- Diversification: Diversification is important in any investment portfolio, including music investments. Successful music investors often have a diversified portfolio that includes a mix of different asset types, such as music catalogs, emerging artists, and established musicians.
- Long-Term Horizon: Many successful music investments require a long-term investment horizon, as revenue streams from music sales, streaming, licensing, and live events can take time to materialize.
How to invest in music funds?
Here are a few examples of music funds in which investments can be made. While some are publicly traded and easily accessible, others might be less available to the average investor.
Royalty Exchange is an online platform that allows investors to buy and sell music royalties. The platform offers a wide range of royalty assets, including catalogs of hit songs and emerging artists.
Hipgnosis Songs Fund
The Hipgnosis Songs Fund is a UK-based investment company that invests in music catalogs. The fund has acquired catalogs from artists such as Neil Young, Timbaland, and Blondie.
Round Hill Music Royalty Fund
The Round Hill Music Royalty Fund is a publicly traded investment company that invests in music catalogs. The fund has acquired catalogs from artists such as The Beatles, Bruno Mars, and Katy Perry.
Kobalt Capital is a private equity firm that invests in music and entertainment. The firm has made investments in music catalogs and companies, including the acquisition of SONGS Music Publishing.
Investment Opportunities with Rexius
At Rexius we are amplifying songs, artists, and music companies in order to make the music business a bit better each day. Based in Sweden we have two sister companies, Rexius Records AB; focusing on amplifying songs and artists, and Rexius Innovation AB; creating tools for the future music business, amplifying music curators, record labels, and distributors.
We can help investors to diversify their portfolio into areas highly uncorrelated to other asset classes, even within the asset class of “music investment”. Please consult us regarding your needs. Here are some of the programs we run for each investment type.
Direct investments in artists
TuneUp is an investment program aimed at helping talented artists who may not have the financial resources to make it in the music industry. There are so many talented artists out there who are struggling to get their careers off the ground due to financial constraints. That’s why we’re here to provide funding and support to these artists, so they can focus on what they do best: making music.
With TuneUp, Rexius-scouted artists can apply for funding that will help them create and produce their music, as well as cover other expenses associated with launching a career in the industry. We’re looking for artists who have a unique sound, a clear vision for their career, and a drive and passion for making music. Rexius Records will always subsidize the projects as well, making it three parties that have a stake in the release.
In addition to financial support, TuneUp also provides mentorship and guidance from Rexius Records. We want to ensure that the artists we invest in have the best possible chance of success, and that means helping them navigate the often-complicated world of the music industry.
At TuneUp, our goal is to help new and upcoming artists realize their full potential. We believe that with the right support and resources, they can achieve great things and make a lasting impact in the music world.
Investing in Music catalogs
In this fund, we aim to scout upcoming artists with songs with around 1 -2 million streams and strong algorithmic streaming. After acquiring the IP rights, we will leverage these songs into our playlist network increasing the streaming further. Invest in the best-performing under-the-radar songs, providing investors with access to a collection of the most sought-after music tracks not available to general investors.
Invest in our newest selection of fresh music and reap the rewards of it as it gains popularity.
Invest in niche music production with a certain function. Such as music for sleeping, white noise, ASMR, meditation, etc.
Investing in Music Technology
Become a music mogul by investing in Rexius Records. (We are currently not accepting any new investors, but please join the waiting list if you think we are interesting)
At Rexius Innovation, our music tech lab, we have a portfolio of digital tools for music curators, record labels, and distributors. We always scratch our own itch and often we identify the need through the work we do in Rexius Records.
Please get in touch through the form and we will provide you with more details such as business plans and financials.