Like Hipgnosis Songs Fund Limited. and Round Hill Music Royalty Fund, Royalty Exchange assets provide investors with constant cash flow, not just earnings when catalogs are sold for profit. A change in interest rates could make these royalties slightly less attractive to investors seeking sources of income. That said, Young anticipates “a minor effect on valuations.”
The popularity of song royalties has exploded since Hipgnosis Songs Fund Limited went public on the London Stock Exchange in 2018. Hipgnosis has raised over 1.1 billion euros ($ 1.3 billion) and has gone public. launched into a shopping spree that drew Neil Young, The Chainsmokers and RZA, among others. copyright and royalty streams from leading songwriters, artists and producers. The result has been a 40.7% return since the initial public offering, according to financial statements released on June 6. Likewise, Round Hill Music Royalty Fund followed with an IPO on the London Stock Exchange in November 2020, raising $ 280 million for an offshore royalty fund. which relies on proven songs that deliver consistent returns, not haphazard development from songwriters.
Another school of thought says music has proven to be a viable enough investment to resist the Fed’s move and hold investor interest. “Record-breaking interest rates put people in a big search for yield,” Young says. Investors have found the music to be interesting countercyclical assets that have a long shelf life and are unrelated to the broader stock and bond markets. “I don’t think the trend of investing in music catalogs is going to go away because of rising interest rates,” Young adds. Interest rates got investors through the door; now the music can support the fine tuning of the Fed.
In the late 10s, low interest rates steered investors towards alternative asset classes such as music publishing and recorded music rights. (When the Fed sets rates close to zero, safe U.S. Treasuries offer limited returns. Many investors are willing to take more risk in search of better returns.) Traditional buyers such as publishers for the royalty shares of publishers and songwriters.
Subscription services like Spotify and Apple Music have led to double-digit streaming growth in the US and around the world and provide a compelling narrative for an industry emerging from a two-decade slump. The recorded music sector grew by around 7% in 2020: IFPI estimates its revenues at $ 21.6 billion, compared to $ 15.7 billion in 2016; MIDiA Research, which includes revenue streams such as production music that is not tracked by IFPI, estimates 2020 revenue at $ 23.1 billion.
Given the continued popularity of music subscription services, music should be an attractive investment for the remainder of the decade. A much-cited forecast from Goldman Sachs places global paid subscriptions at 1.28 billion in 2030, paving the way for cumulative annual growth of 11% and a combined $ 57 billion in recorded music and publishing revenue. These expectations have permeated the market. PSTH, explaining the rationale for its UMG transaction, noted a “massive and growing total addressable market” and the adoption of streaming services that “will generate many years of strong growth.”
Philippe Sauré, co-founder of Tailwind Entertainment, a consulting firm focused on music investments, doesn’t expect an immediate capital impact to flow into publishing assets. If streaming services can raise prices “by at least the rate of inflation,” Saure says, “that will, in my opinion, make the investment case even stronger.” Spotify raised prices in 42 markets without significantly impacting demand, according to company executives. Saure also expects the Copyright Royalty Board and other pricing bodies to take inflation into account when setting future royalty rates.
On Sunday, Vivendi – with a view to a direct listing of 60% of its shares in Universal Music Group on the Euronext Amsterdam stock exchange – finalized an agreement to sell 10% of its shares to Pershing Square Tontine Holdings, a SPAC founded by a fund speculative. Capital of Pershing Square. That a top-notch investor like Pershing Square – and its top-tier CEO, Bill ackman – invest in Universal Music Group should strengthen the reputation of music with investors. Vivendi has already sold 20% of UMG to a consortium led by Tencent Corp. following an agreement reached in December 2019. Meanwhile, Warner Music Group successfully completed an IPO on the Nasdaq in June 2020. Independent music publishing company Reservoir Holdings Inc. soon considering merging with a SPAC, Roth CH Acquisition Co. II, and publicly trading on the Nasdaq.
It may not be a coincidence that the three companies have recently made key acquisitions. “People Buy To Boost The Look Of Their Catalog” Regardless Of Interest Rate Movements, Says Music Lawyer Michel sukin. Vivendi was preparing to part ways with UMG when it acquired Bob Dylan’s publishing catalog in December 2020 for between $ 375 million and $ 400 million, according to Billboard estimates. Music rights valuations “somewhere between crazy and really, really crazy”, CEO of Warner Stephen cooper said on an August 6, 2020 earnings call. Nonetheless, this month Warner purchased the catalog of EDM standards from producer David Guetta such as “When Loves Takes Over” and “Sexy Bitch”. Also this month, Reservoir Holdings purchased Tommy Boy Records’ catalog of over 6,000 records before its SPAC merger.
Interest rates are irrelevant to companies looking to expand their catalogs in this way. “The music publishing market is not like a stock exchange [where] things can go up by 4% and that can be significant, “Sukin says.” They are long-term investors. “