Following regulator approvals in the UK on Monday the 21st of August 2023 and effective approval in the US, Broadcom confirmed that it plans to officially acquire VMware for $61bn on October 30th, 2023.
The changes in music consumption patterns and the rise of the streaming economy have recently sparked investors’ interest in acquiring popular musicians’ music rights as alternative assets.
The biggest capital players on Wall Street—such as investment holding companies JP Morgan, BlackRock, KKR Ventures, Oaktree Capital Management—are putting millions into buying either whole music catalogues, or individual hits. Amateurs interested in fractional alternative investment are also getting involved in acquiring stakes in music IP.
And what is notable is that the list of artists willing to sell their music IP is steadily getting replenished with new names. Not only the already established music legends like Sting, Whitney Houston, Fleetwood Mac, David Bowie but also Shakira, Justin Timberlake, Calvin Harris, and most recently Justin Bieber.
But why does this phenomenon represent a win-win deal for both sides nowadays?
Music rights in the era of globalisation and digitalisation confidently grow in value, thus representing a highly appealing type of alternative investment for those seeking diversification of their portfolios. Although the trend started only around 2019, in 2022 music catalogue dealmaking jumped to $5bn. As the population’s need for entertainment is never decreasing and arguably only increasing during times of crisis, the ownership of copyrighted music allows receiving consistent yield flows over a long period of time.
So, if a song or a whole catalogue (a collection of songs registered under the name of one artist) is copyrighted, its owner possesses and benefits from it during the whole lifetime of the artist, plus 70 years after his or her death. The owner earns money whenever a song is played—on streaming services, in public or private venues. The earnings from playing each song are miserable, however, when added up every cent turns into millions…
Yet, that’s not always the case. For instance, the popularisation of regular and non-DSP (short-length pieces) streaming through platforms like Amazon Music, Apple Music, Spotify, TikTok and Twitch has made music consumption grow at record rates, thus generating more revenue for music rights holders. According to this scheme, in 2023 Blackstone effortlessly can make money from Justin Timberlake’s ‘Sexy Back’ by playing everywhere: from shopping malls to beauty salons and TV shows. TikTok trends for 2000s nostalgia only boosted the promotion of this song, making this acquisition highly profitable for the Wall Street giant. The most recent case of Justin Bieber selling off the catalogue of his songs (including the timeless teenage hit ‘Baby’ and TikTok-popular hit ‘Stay’) to a British trust Hipgnosis (founded by Merck Mercuriadis, former manager of Guns N’Roses and Iron Maiden) for $200m, therefore, may show similar dynamics.
We can also see that the purchasing of music IP is becoming common not only among big equity funds, but also among small investors: Fractional Music Investing.
That case rather represents the purchasing of stakes in songs—not of the whole catalogue. The involvement in what is known as fractional music investing represents the possibility of buying fractions of songs’ copyrights from intermediaries at relatively affordable prices, with the intent to receive monthly copyright royalties and profit from increasing the copyright price. These intermediaries mainly represent copyright trading platforms—which initially buy music rights from songs’ original creators and then sell fractional ownership of them to users. Moreover, these platforms offer the trading of copyright fractions between users.
The trend for this type of investing started in South Korea in 2016 with the launch of the world’s first Copyright Royalty Investment Platform Musicow and continues to spread across the US and Europe. According to The Korea Economic Daily, Musicow has recently expanded their arts copyright trading business to the US where they ‘set up a joint venture with Korean conglomerate Hanwha Group.’ Musicow trades fractions of music rights to more than 10.000 K-Pop songs. The platform allows users to buy or sell their favourite pieces’ IPR fractions either through a public auction or online marketplace. There are two ways in which Musicow members can generate profit on the platform. The mere purchasing and owning of stakes in copyrights generate long-term profit from copyright royalties, whereas user-to-user transactions at the ‘market’ generate short-term sales profit. Musicow demonstrates great accessibility and utility; the initial price of a fraction is usually around a few hundred dollars and the earnings can be cashed out 24/7. No wonder the platform has caught on quickly among amateur Korean investors!
South Koreans nowadays seem to demonstrate a lot of enthusiasm for fractional alternative investment even from a young age. The reasons for that are not only financial but also cultural by nature. The state’s flaccid jobs market currently makes it hard for them to provide for a family or buy property—which makes the idea of getting stable and solid returns from small stakes held in musical assets very attractive. And the practice of predicting the next chart-topper and getting closer to K-Pop idols by sharing the ownership of their music IP seems highly appealing to those living in a country with one of the world’s most prominent fandom cultures. Although the model introduced by the Korean ArtTech for the US is slightly different as platform users should be able to trade both Western music content and K- Pop, it is expected to enjoy the same (if not bigger) success as in Korea in a few years. In times when the creative sector thrives and economic recession and low-interest rates are in their heyday, more and more Americans may be willing to shift from engaging with instalment savings to exploring alternative investments via online platforms.
While the acquisition of music IP doubtlessly puts aces up the investors’ sleeves, do the sellers get proportionate advantages?
Most probably—although it mainly applies to popular artists that have already made some breakthroughs in the industry. American artists selling ownership of their music receive a huge amount of cash upfront, therefore getting an opportunity to secure their finances for the rest of their life. This move additionally offers them tax benefits as the current capital-gains tax (including music royalty tax since 2006) under Biden’s administration continues to increase for those earning more than $1m a year. On top of that the selling of catalogues may help musicians avoid the unprecedented challenges caused by global issues—such as the pandemic. Noting that performing at major festivals like Coachella and going on world tours constitute a huge part of pop artists’ income (the already mentioned Justin Bieber makes approximately $1m per one night on tour, the Weeknd requests $8m for headlining one Coachella weekend), the risks of getting deprived of these moneymaking opportunities outweigh the loss of music rights.
The investors’ active meddling in the creative sector therefore can significantly change the future of the music industry, possibly pushing more artists towards strategising and commercialising their talent. However, the timeless dilemma of whether art should be made for art’s sake or profit remains in place.
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