How to invest in the music industry
(Hypebot) – From IPOs to catalog acquisitions and educational investments in the creators ‘economy to fans’ NFT investments in their favorite artists, money is pouring into the music business at an unprecedented rate.
The team at consumer financial services company Bankrate shares some wisdom as to where and how the average fan / consumer can invest in music as well.
Through Giovanny moreano from The bank rate.
The music industry is entering a new golden age with technology disrupting the way listeners consume music, from virtual reality concerts to unhindered access to listening to any song at all. moment. As a result, analysts predict that the value of music royalties, licenses and other related assets will likely increase with increased competition. This trend presents significant opportunities for artists, labels, listeners and investors.
Only 30 years ago, music lovers relied on portable CDs and cassettes to access their favorite tracks. But with the emergence of the internet and better access to bandwidth, brands such as Apple, Spotify and YouTube have redefined the music experience. And that’s for good reason. Goldman Sachs Estimates Music Revenue Could Reach $ 131 billion by 2030, supported by a spike in music streaming across the world.
In this beginner’s guide, we explore the investment potential, as well as some popular trends in this fast-paced industry.
Despite the enormous challenges of the global pandemic, streaming services have continued to grow. Hit songs like Luis Fonsi’s “Despacito” have been viewed on YouTube over 7.6 billion times, which almost matches the world’s estimated population of 7.8 billion. Other musical artists like Katy Perry, Taylor Swift, Rihanna, Shakira, J Balvin and Ed Sheeran, to name a few, have released songs that have generated billions of views, revealing the power of the cast. massive.
But none of this would have been possible without the technology. The music industry is running at full speed, from streaming companies like Spotify to device makers like Apple, and even social media companies that use big data and analytics to paint a picture of people’s interests.
The streaming model is simple. Listeners can access an on-demand music library for free if they agree to listen to commercials between songs. The streaming companies then collect bonuses on serving these ads. Streaming service providers require monthly subscriptions for those who prefer to listen without interruption. These subscriptions may come with additional perks like curated playlists or family plans.
For musical artists, streaming platforms hold a wealth of information while companies analyze listeners’ habits. In addition to collecting royalties, musicians can use the streaming data to decide where to tour, bring new songs to publishers, collect demographics about their audience, and even raise money for new projects. Spotify alone has over 380 million listeners in 184 markets.
According to the Recording Industry Association of America (RIAA), streaming service revenues in the United States were approximately $ 10 billion in 2020. This figure represents 83 percent of the total revenue of the music industry. In addition, the RIAA says that paid subscriptions to on-demand broadcasting companies increased 25% to 75.5 million subscribers in 2020, from 60.4 million in 2019, the largest increase on record in one year. single year.
Some of the public companies offering music streaming services include Spotify (SPOT), Apple Music (AAPL), Alphabet’s YouTube (GOOG), Amazon Music Unlimited (AMZN), Sirius XM (SIRI), and iHeartMedia (IHRT).
Beyond streaming services, many companies, like exercise equipment maker Peloton (PTON), are incorporating music playlists into their products. These efforts create additional sources of income in royalty fee for music owners such as Warner Music (WMG).
In addition, the adoption of smart home devices such as Sonos (SONO) speakers, Amazon Alexa, and Google Nest, among others, are deepening listeners’ interaction with music at home. High-tech devices like wireless headphones have also become the norm among listeners. From home to work and beyond, listeners consume the content of a recording clip.
Likewise, analysts predict that wider internet adoption and greater accessibility to technology could bring millions more listeners to the music ecosystem, especially in emerging markets. This trend translates into more music streaming and, as a result, higher royalties.
For artists, royalties can be a lifeline. Take the example of British singer and songwriter David Bowie, who in 1997 raised $ 55 million supported by future royalties to buy back the rights to his music from his former manager. Known as “Bowie Bondsâ, The asset class became one of the first examples of artists using intellectual property as the underlying collateral.
For investors, one of the benefits of investing in royalties is diversification. Investors aim to diversify their portfolios across different asset classes such as equities, real estate, art and maybe royalties. Of course, different asset classes carry varying levels of risk, so it is prudent to carefully consider each option.
Artists are also beginning to look to non-fungible tokens (NFT) as a more direct way to publish their music while enjoying a greater fraction of the benefits. These NFTs use blockchains to register ownership and facilitate the collection and distribution of royalty payments. Kings of Leon in 2021 became the first major group to release an album with an NFT version – allowing token owners to unlock special perks.
Another emerging way to profit from royalties, some investors have turned to crowdfunding companies like SongVest.
Founded in 2007, the fintech company acts as an online marketplace to buy and sell music royalties at auction. Through an offer, SongVest estimates the value of a music catalog, determines the number of units available, and creates a list. In return, investors receive quarterly or semi-annual payments, similar to stock dividends.
Other players like Exchange of royalties offer similar options, pairing emerging artists seeking funding for their work with potential investors in return for royalties. The company says it has raised more than $ 100 million for content creators through more than 1,200 deals.
Crowdfunding platforms offer many types of royalties, investment terms, and license agreements, so retail investors should do their due diligence before committing capital.
You may also find it helpful to read this guide compare the differences between investing and trading.
Live music and concerts
Like most entertainment companies, the global pandemic has taken a heavy toll on the live music industry, with many state-owned companies losing more than half of their market value. However, as lockdown restrictions relax and sites continue to reopen, live events could make a comeback.
Live Nation Entertainment (LYV), owner of Ticketmaster, predicts that concert attendance will be higher in 2022 than in 2019, as pent-up demand for in-person events drives ticket sales up. Additionally, management believes this trend will continue as artists resume their musical tours over the next several years.
With new signs of life in the space, other names like Madison Square Garden Sports (MSGS) and Eventbrite (EB) could also benefit from the surge in attendance.
At the end of the line
Investing in the music industry offers long term opportunities. As the industry evolves, retail investors have access to public stocks, exchange-traded funds, and crowdfunding companies. For those more in tune with the industry, there are memorabilia and even musical instruments such as vintage guitars and pianos that become collectibles over time and can fetch tens of thousands of dollars. dollars.
However, like any other thematic investment, there are also potential risks. So, before you invest, consider reviewing all of the information available to determine if music sounds like a hit (or miss) for your wallet.
Gio Moreano is a contributing writer, covering investment topics that help you make smart money decisions. A former investment journalist and senior analyst for CNBC, he is passionate about financial education and empowering people to achieve their goals.