Nowadays, it seems the norm for labels, song right funds and anyone in between to be splashing millions or even hundreds of millions of dollars to buy music catalogues. Every week there is at least one major artist that will sell their catalogue for millions of dollars to what is now known as the usual suspects:
Hipgnosis, RoundHill, BMG, Primary Wave and many more have gathered and invested billions in the past years to get the rights from artists like America to John Legend under one roof. This of course has gathered the interest of financial juggernauts like Blackstone, Blackrock and the latest one to enter the game Pimco that are co-investing with the funds and are looking for a stable return from an alternative asset class. Yet, with valuations sky-rocketing one does wonder how will these investments make the expected returns?
This is for sure not an easy question, music rights legally have many dimensions from publishing to neighbouring, master. likeness and much more; going into detail into it is a legal nightmare for most. However, we have to make one strong indication is that when BMG acquires the rights of an artist for example, we have to look into which exactly rights did they acquire because this will then determine the monetization strategy.
We will try to touch upon the general strategies and not dig into the specifics of each acquisition. First of all, we have a monetization strategy that is pioneered by Steve Void with the Strange Fruits brand. This is creating covers of popular tracks and in addition to original songs create different themed playlists. The importance of this strategy is to create a strong brand around the playlist network, market it to an array of listeners and create a strong sense of community around it. If implemented successfully, it can turn a playlist network into a cash machine for the right owners, while also solidifying their place in the music industry.
Furthermore, the song funds are claiming to have advanced technologies that allow them to discover different channels that the tracks were being used but not monetized. This unlocks a huge value for the right owners as in combination with the discovery tools they claim to have advanced strategies in place for the faster collection of the royalties from the music being used.
Another important revenue source is for sure sync, meaning when a song is used in a movie, series or by a YouTube creator for example. The funds through their connections with major media producing companies can be directly pitching their huge catalogues to them and find the right track for every scene. A company like Netflix working with a song fund can streamline their sync operations and get privileged access to thousands of songs through one partner and no intermediaries.
Until here all the mentioned strategies have been discussed by the funds themselves and are part of the investment thesis. Going to more original ideas, NFTs will surely play a large role in the monetization of the rights. From the creation of artist based NFTs and their launch to the public to even potential exit strategies by NFTing the song rights to the public, blockchain technology has opened a huge potential source of income for the funds.
What is more, the rise of online experiences in combination with touring the funds can be considered a boom in revenue from these channels as thanks to online events (check out more about them in our previous articles) an artist can address the whole world through one event, maximizing reach and revenue.
Taking everything into consideration, the data clearly shows that catalogue music (music that was released more than 18 months ago) is growing in consumption and we can expect that with heavy monetization strategies from song funds this trend will continue. The true question is if they income generated by these rights will justify the large valuations they have paid for them?