Music Publishing as an Asset Class – Update
Back in February, MIDiA released a report detailing the financial innovation taking place in the recorded music industry and how this was effectively securitising the concept of music publishing rights.
This wave of investment has continued throughout the year and is yielding some surprising developments:
Hypnosis Song Fund:
- Released its first annual report, revealing it has generated revenues of £7.2 million for the year.
- 64% of its revenue came from the US, 15% from the UK and 4% from Australia.
- The fund also increased its catalogue to 5,000 songs with another $1 billion worth of further deals earmarked.
- Launched itsFast Forward programme, which fronts artists’ music against anticipated streaming revenues. Using machine learning, the process utilises the music consumption data generated through Amuse's distribution service to automatically analyse over 27 billion data points.
- The company allegedly had a $1 million offer for Lil Nas X, turned down by the ‘Old Town Road’ artist before he signed to Columbia.
- Completed a Series B funding round of $12 million.
- The platform is now home to over 400,000 artists, having experienced year-on-year (YoY) growth of over 400%.
- It also completed the acquisition of creative music licensing agency Big Sync Music.
What is fascinating is that this could be just the beginning. Technologies enabling the tokenisation of assets means previously illiquid assets such as copyright (and therefore music), in light of the transition to incremental streaming revenues, become an intriguing investment proposition. While the market has felt somewhat bubbly over the past few months, there is a logic to the enthusiasm given that emerging technologies are making the administration of rights far cheaper than before, as well as previously more costly endeavours such as marketing. The marginal costs of administering a rights portfolio do not scale linearly with the growth of the portfolio itself. Rather, these costs can now be auctioned off to smaller, more agile marketing agencies who with this financial innovation can strike an agreement with the rightsholder to promote the asset across a social channel and share profit once the publisher and the artist have recouped their agreed share. The economics of this favour the rightsholder, because there is an increasing volume of these next-gen marketing agencies and yet only a limited number of rightsholders, putting them in the most leverageable position of any negotiation. Couple this with an increased number of participants in the space, and a prisoner’s dilemma scenario emerges for rightsholders that fear exiting the market place out of concern that core valuation fundamentals being abandoned would benefit their rivals for market share and thus not be in the interest of the company or its shareholders.
Money in the space will not change this. The surprising nature of what works in the music industry could simply mean a more diverse and interesting pop landscape going forward.