Music Royalties: The Latest Way to Diversify Portfolios
Investors seem to be reaching deeper into the alternative asset universe to diversify their portfolios. The latest asset class that seems to be gaining steam is music royalty income rights.
The asset class bears a resemblance to other forms of intellectual property. Just like technology patents, secret recipes and pharmaceutical formulations, music tends to earn a consistent stream of income once produced. The singer or songwriter can generate revenue by publishing the music on streaming platforms such as Spotify, video platforms such as YouTube or traditional platforms such as radio. A particularly popular track could earn millions over many years.
Roy Orbison & Bill Dees’ Oh Pretty Woman from 1964 and Sting’s Every Breath You Take from 1983 has earned $19.75 million and $20 million respectively.
Now, sophisticated investors have access to these streams of recurring income through platforms such as Royalty Exchange and SongVest. Denver-based Royalty exchange has helped private syndicates and accredited investors invest over $50 million in music rights since it launched in 2011.
Meanwhile, the asset class has been professionalizing with more hedge funds getting involved. In 2018, music industry veterans Merck Mercuriadis and Nile Rodgers launched Hipgnosis Songs Fund, British Guernsey-based venture that invests in music IP. The company generated £65.661 (US$82.3) million in revenue and £32.668 (US$41) million in operating income over the past year and is listed on the London Stock Exchange under the ticker “SONG”.
With volatility increasing and fixed-income interest rates dipping, astute investors may look to alternative assets that could generate steady returns and buttress the portfolio.