Investing in Music
As mentioned in a previous post I am very interested in music as an investment opportunity and I think I’ve found a way of approaching it.
Since selling my business in 2006 I have invested in numerous ventures from startups to traditional banking products as well as equity positions in various more or less well established companies – some with more luck than others. In fact, looking back, the common theme seems to be exactly that – luck – sometimes good, sometimes bad.
Despite the widespread “end of the music industry” prediction, I am confident that music will not go away, not now – not ever. In fact, I think the music industry is strikingly similar to the newspaper and publishing business – it simply needs to transform itself to benefit from the development of digital distribution and, in the case of music, the ability to track and collect royalties more efficiently.
Think of royalties as dividends
How about this for an investment idea: Acquire parts of the performance or mechanical royalty rights of your favorite songwriter and/or artist and secure for yourself a steady income as the music is repeatedly played.
When I first started exploring these opportunities, I found it particularly exciting, as I am convinced that royalty income can only increase in the years to come – partly due to the rapidly growing (and music-consuming) world population and partly as intellectually property rights become increasingly protected by governments. Plus, as stated before, tracking usage and collecting royalties will only become easier, more accurate, and efficient over time, thanks to ever-evolving technologies.
Another appealing aspect of royalties is the fact that they can be collected globally and in multiple currencies. So, although you are likely to be paid in U.S. dollars from a U.S.-based service like Broadcast Music, Inc. (BMI), for example, I consider royalties an inflation protection as well as a currency hedge, as the US$ equivalent will fluctuate based on the various currencies royalties are paid in.
Will the internet kill the radio star?
No, the royalty collection companies are evolving, and they are making use of the new distribution channels and turning them to their advantage. To further underline the advantageous prospects, BMI, as an example, tracked 1.6 billion performances on BMI-licensed websites in the second quarter of 2011. In fact, BMI is paying more songwriters, composers, and music publishers than ever before in its 71-year history as of 2011.
Does this mean music royalties or other intellectual property rights are a 100% safe and a guaranteed investment? In my experience, when it comes to investments of any sort, one thing is for sure – there is nothing certain.
Revenue depends on the popularity of the songs and the artists you invest in, and although I prefer to look for older, popular, widely recognizable and, therefore, “proven” songs with years of royalty track record – unforeseen things can, of course, always happen. However, unlike equity and bonds, for example, a good song will always have some value, emotional as well as monetary, and the rights to collect royalties are yours for 70 years after the passing of the writer or artist – so if the song’s equity drops, you can always try to help the artist promote the song or album you have invested in.
As a potential bonus – one or more of “your songs” could appear as a title song in a new blockbuster movie or TV series, be part of a best-of album or something similar, and you would likely get a significant boost in revenue for a period of time.
Investing becomes a matter of taste
Musical taste is not easy to discuss or agree on, but it really isn’t necessary, as there is plenty of choice out there for everyone. “Jimmy Lee” is an example of a song I really like and have recently invested in – it was written by Preston Glass and performed by the amazing Aretha Franklin in 1986 and you can listen to it below – enjoy!
If you are interested, you can listen to the rest of my current catalogue or feel free to drop me your thoughts.
Update: As of January 2012 evershift has acquired an equity stake in The Royalty Exchange.