How to invest money in music

The music industry is entering a new golden age with technology disrupting the way listeners consume music, from virtual reality concerts to unfettered access to listen to any song. at any time. Accordingly, 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 tunes. But with the emergence of the internet and greater access to bandwidth, brands like Apple, Spotify and YouTube have redefined the music experience. And all for good reason. Goldman Sachs estimates music revenue could reach $131 billion by 2030supported by a spike in music streaming across the world.

In this beginner’s guide, we explore the potential for investing, as well as some popular trends in this rapidly changing industry.

Continuous music

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, nearly matching the estimated global 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 distribution massive.

But none of this would have been possible without technology. The music industry is firing on all cylinders, 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. .

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The streaming model is simple. Listeners can access an on-demand music library for free if they agree to listen to commercials between songs. Streaming companies then collect bounties on the airing of these ads. Streaming service providers require monthly subscriptions for those who prefer uninterrupted listening. These subscriptions may come with additional benefits such as curated playlists or family plans.

For musical artists, streaming platforms hold a wealth of information while companies dissect listener habits. Besides collecting royalties, musicians can use streaming data to decide on a tour location, pitch new songs to publishers, gather demographics about their audience, and even raise money for new projects. Spotify alone is home to over 380 million listeners in 184 markets.

According to the Recording Industry Association of America (RIAA), revenue from streaming services in the United States was around $10 billion in 2020. This figure represents 83% of the total revenue of the music industry. Additionally, the RIAA says paid subscriptions to on-demand streaming companies grew 25% to 75.5 million subscribers in 2020, from 60.4 million in 2019 – the biggest increase ever in a single month. 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).

Music royalties

Beyond streaming services, many companies, like exercise equipment maker Peloton (PTON), are integrating music playlists into their products. These efforts create additional revenue streams in the form of royalties for music owners such as Warner Music (WMG).

Additionally, the adoption of smart home devices such as Sonos (SONO) speakers, Amazon Alexa, and Google Nest, among others, is deepening listeners’ interaction with music in the home. High-tech devices like wireless headphones have also become the norm among listeners. From home to work and beyond, listeners are consuming content at a record clip.

Similarly, analysts predict that wider internet adoption and greater accessibility to the technology could attract millions more listeners to the music ecosystem, especially in emerging markets. This trend translates into more music streaming and, therefore, higher royalties.

For artists, royalties can be a lifeline. Consider British singer and songwriter David Bowie, who in 1997 raised $55 million backed by future royalty streams to buy the rights to his music from his former manager. Known as “Bowie Bondsthe asset class has become one of the earliest examples of artists using intellectual property as underlying collateral.

For investors, one of the benefits of investing in royalties is diversification. Investors aim to diversify their portfolios across various asset classes such as stocks, real estate, art and perhaps royalties. Of course, different asset classes carry varying levels of risk, so it’s prudent to carefully consider each option.

Artists are also starting to turn to non-fungible tokens (NFTs) as a more direct way to release their music while reaping more 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 band to release an album with an NFT release – allowing token owners to unlock special perks.

How to invest in the music industry - royalties
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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. Investors receive in exchange quarterly or semi-annual payments, similar to stock dividends.

Other players like Royalty exchange offer similar options, connecting emerging artists seeking funding for their work with potential investors in exchange for royalties. The company claims to have raised over $100 million for content creators through over 1,200 deals.

Crowdfunding platforms offer many types of fees, investment terms, and license agreements, so retail investors should do their due diligence before committing capital.

You might also find it useful to read this guide comparing the differences between investing and trading.

Live music and concerts

As with most entertainment businesses, the global pandemic has dealt a heavy blow to the live music industry, with many public companies losing more than half of their market value. However, as lockdown restrictions ease and venues continue to reopen, live events could make a comeback.

How to invest in the music industry - live concerts
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Live Nation Entertainment (LYV), owner of Ticketmaster, expects concert attendance in 2022 to be higher than in 2019 as pent-up demand for in-person events drives increased ticket sales. Additionally, management believes this trend will continue as artists resume touring music over the next few 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. .

However, like any other thematic investment, there are also potential risks. So before you invest, consider looking at all the available information to determine if music sounds like a smash hit (or a miss) for your wallet.

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Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. Further, investors are advised that past performance of investment products does not guarantee future price appreciation.