The music industry has always been as much about being a lucrative business venture as it has about making art and entertainment. Record labels, investors, and musicians themselves have always looked for ways to turn music into profit, and now more than ever, the music industry has proved to be explosively profitable.ย
This article is going to analyze one of the major reasons for this, music royalties. Such questions as what exactly music royalties are, why these royalties are such an asset, and how investors can make wise decisions about valuations and investments.
What Are Music Royalties
Royalties in the music industry simply refer to legal rights to ownership of music through copyright law. There are many different facets and specifics of copyright law in music, but the basics define the parties that have the right to control how any music recordings are used. Record companies are usually the custodians of the copyright to tracks, and performers have rights to their performances on said tracks.
Royalties are the compensation paid to the rights holders of music recordings -artists, songwriters, producers, record labels- by any person or entity that uses the music, such as radio stations, TV channels, and so on.
Why Are Royalties A Worthwhile Investment?
- Music Streaming Has Invigorated The Industry
In recent years, the meteoric rise in popularity of streaming services has increased the value of music revenue that had been dwindling due to rampant piracy and the gradual decline in the popularity of physical albums. Streaming has also directly opened up vast channels of income in royalties, with many of the songs topping charts accumulating billions of streams.
- Inherent Stability Of Incoming Revenue
Royalties from music are a stable, recurring source of revenue with a high yield. Industry experts estimate that music royalties can gain as much as 12% annually. Music royalties are not affected by global economic fluctuations, the music industry was one of the few not to lose value greatly in the current pandemic, and that is another benefit streaming brought.
How Do Potential Investors Buy Into The Music Royalty Portfolio?
- Acquisition of Music IP Assets
There are marketplace platforms online where investors can purchase direct ownership of music IP. Shares are also relatively inexpensive, so the opportunity is open to novice investors. The work is in valuing a catalog to determine its viability as an asset.
- Through Labels And Publishers
Record labels are going public in recent years, after decades in private ownership or under larger conglomerates. The opportunity to buy into an IPO is beginning a reality as a result.
- Royalty Funds
Although many music royalty funds are private, some of them are public. Unlike direct acquisition, however, the value of these assets is limited to high net worth investors because of their high prices.
As with any potential investments, there are risks associated with music royalties. Inflation, counterparties, valuation risks, and regulation changes are all things to consider before making a purchase in music royalties.ย
