Want to own a piece of "Let it Be" or claim a stake in "WAP?" With Song Trusts quickly becoming a mainstream investment to add to your portfolio, now you can.
Breaking Records Left and Right
My dad was a stockbroker for forty years. I loved going to the office with him when I was little not because I thought finance was exciting and dreamed of filling his shoes, but because he had a massive Xerox that didn’t hurt your eyes when you scanned your face. Which is to say that his office was boring because, well, the stock exchange wasn’t the coolest of places. Even as a reformed Hippie he couldn’t do much to groove up the place. Alas, he was just a couple of decades too early.
Amongst the slew of startups that have gone IPO in the past few years are companies legitimizing a brand new asset class: Music Royalty Trusts — a band of companies that have quite literally brought Rock and Roll to the fore of The Floor. These companies are exactly as they sound: funds that own rights to thousands of songs, many by the biggest, most lucrative artists in the Music Industry. And they're making — and breaking — records as they go.
The Industry is notorious for royalty mismanagement and in some very famous cases outright avoidance, but for a system that is complex as it is flawed it’s worth a whopping $36B. Maybe more impressively, according to a Billboard report by Will Page (formerly lead revenue officer for Spotify) the copyright business has grown 9.3% year-on-year since 2017.
So who are the major players in this arena, how are they so lucrative, and why are they unquestionably here to stay? Let’s work backwards to answer those questions, and first start with how the royalty pipeline operates to begin with.
How it Works
Any time a song gets played, whether it’s performed live, streamed, broadcasted, or purchased outright, it’s registered with a rights management organization like ASCAP or BMI and its copyright holders get compensated. The money they earn is sometimes fractions of cents, and the ethicality of that is a longstanding and oft-decried industry sore spot, but that’s a different article entirely. The point is, after a while those decimal points add up. And as new monitoring tools like Audoo are implemented, blockchain registry becomes common practice, and fair compensation laws catch up to technology that accumulation will only accelerate.
Why it Works
As with all other asset classes copyright portfolios, most easily thought of as publishing catalogues, come with a certain risk and opportunity profile. But when you have an asset that theoretically only increases in value (when is “Single Ladies” or “Rocket Man” ever going to stop being played?) the logic behind investing in that asset is sound. Yes, their momentum has slowed thanks to Covid; CISAC (the International Confederation of Societies of Authors and Composers) which has members in 120 countries, anticipates a fall of $2B–$3.5B in royalty collections in 2020. But during the pandemic time spent streaming and by extension the royalties received therefrom have exploded. And compared to the broader economy, music’s relative value as an asset class remains strong. So pandemic aside, the relative stability of these funds reflects the evolving way industry executives, asset managers, and institutional investors consider pieces of music and cements these companies’ staying power.
Who They Are & What They Bring In
There are several smaller firms emerging in the space and established artists have even started selling proportionate song copyrights as NFTs, but the two biggest players at the moment are both UK-traded funds: Hipgnosis and Round Hill Music Fund.
Hipgnosis Songs Fund was founded by Merck Mercuriadis, the current manager of CHIC’s Nile Rodgers and formerly with powerhouses like Elton John and Beyoncé. His first acquisition for the fund was the catalogue of The Dream, an award-winning producer and songwriter who’s written or co-written hits for Bieber, Beyoncé, Rihanna, and Jay-Z, to name a few. No doubt this initial acquisition was key to the fund’s continued success: since its debut it’s raised an additional £845M ($1.2B), famously garnering £187M ($250M) of that in just three days. It's a diversified trust, too, having also acquired the catalogues of Neil Young and Red Hot Chili Peppers. In total Hipgnosis has close to 60,000 songs in its portfolio and has yielded investors 4.7%. Moreover, it’s been one of the FTSE 250 since March of this year.
Not to be outdone by Hipgnosis, Round Hill raised $282M from its own IPO. Though traded on the London Stock Exchange the company is managed by its eponymous parent company which is based in New York City. Unlike Hipgnosis, Round Hill is a publisher and copyright administrator in its own right. This could be why the fund includes rights to songs by The Beatles and Ol’ Blue Eyes himself. The fund is also a good bit older than Hipgnosis, having launched in 2010. Since then it’s raised a total of $472M with a third round of $250M currently under way, which has equated to a portfolio of more than 130,000 songs yielding dividends of 4.5% annually against a targeted 9-11% return.
The Closing Bell
To establish investment portfolios comprised of copyrights was a wise if not natural extension of the “art as investment” philosophy. Bringing them public is even more apt when you consider the growth potential thanks to the personal emotion attached to many of the songs owned by these companies: who wouldn’t pay to own a piece of a song they love? To continue to be successful, however, these funds will have to continue to acquire proactively. Packing their pipelines with high-earning hits that receive hours of airplay, millions of streams, or expensive licensing and sync deals is easy to aim for, but of the hundreds of thousands of songs in the catalogues these funds own only a few dozen yield massive returns, and as more and more people view music as a commodity new acquisitions will fetch a heavy fee. But by acquiring aggressively and widely, these funds increase the likelihood of a solid, steady return for investors. Certainly their library will only continue to grow.