Phil Collins and Genesis no longer have publishing rights to their recordings. They weren’t robbed, or anything… they’re just the latest musicians to sell them for a hefty sum.
Driving the news: The market for music rights took off during the pandemic as investors found, amidst a streaming boom, that songs provide steady yields (comparable to bonds).
- In 2020, the value of music publishing deals hit US$1.9 billion (up from $368 in 2019) before skyrocketing to US$5.8 billion last year.
The market has attracted some of the biggest names in private equity, including KKR, Apollo, and Blackstone (which owns Hipgnosis, the fund that pioneered the trend).
How it works: Firms will amass a bunch of songs into a fund, aggregate the royalties (from streams, radio, or TikTok vids) into a stream of cash flows, and then pay out dividends.
- Investment groups are paying upwards of 30 times the annual royalty rate that songs produce since they can wait for the money to build up while artists do not.
- Sure, it’s possible that Justin Timberlake could earn $100 million from royalties, but by then, he’d likely be very old, so there’s an incentive to bring SexyBack to the bank.
In Canada: The entire music catalogues of Neil Young and Leonard Cohen have been sold, while Drake, The Weeknd, and Justin Bieber have all sold the rights to certain hit songs.
Yes, but: The technique of building up song funds began during a time of low interest rates. Rate hikes have caused deals to stall and have taken a bite out of the cash flow of deals.
Why it matters: From dental clinics to carbon credits, private equity is increasingly hungry for new asset classes that offer the elusive combo of low risks and high yields.
As the hunt continues, don’t be surprised if your favourite (quite literally) sells out.