Music as an asset class. Y’all might’ve heard about Justin Bieber selling the rights to his music catalog to hypnosis media for $200 million, or Dr. Dre sold the rights to his catalog to Universal music group for $200 million as well. There’s been a trend of new companies like Sonomo and others that are now selling the licensing rights to Music and Music royalties as securities. Effectively, stocks. An ownership stake. Equity.
Some of these companies are selling the rights and some are just selling the rights to the royalties. The difference, if you sell the rights and your music gets placed in a movie, that money goes to whoever owns the rights. If you sell the royalties, like an ownership stake in your streaming royalties, that revenue goes to you. The investor is only entitled to the revenue generated by streams.
We can thank companies like Robinhood, the emergency of crypto, NFTs, and the whole Wall Street Bets GameStop fiasco for introducing a whole new generation to investing. Young, teenage investors. With this group acquiring assets and trading assets is no longer a foreign concept. You have teenagers making thousands of dollars trading NFTs and cryptocurrencies and stocks on Robinhood. That has introduced them to the concept of it where opening the door to doing it with Music is just a natural progression.
What is Music’s appeal as an asset class? For that, let’s take a trip down the lane of private equity. You look at a startup like Clubhouse, where they didn’t really have a pathway towards monetization. What investors were investing in was growth, not revenue. They weren’t really looking for Clubhouse to make money. What they were looking at was downloads, active users, effectively popularity metrics. The more popular Clubhouse became, the greater the valuation, which is what the company is worth. So they invest money in order to pump the valuation so the company becomes worth more money. The off-ramp for the investors is when the company either gets acquired by a larger company at its valuation, or goes Public.That’s when the investors make their money back and get their return on their investment.
When you or I go to Robinhood and purchase stock in a company that does not entitle us to revenue from that company. You go and buy stock in a company at $15 a share, you’re basically waiting for it to go up to $20 a share or $25 a share so you can flip it for profit. Either that or you’re waiting for it to get acquired and taken private like what happened with Elon Musk and Twitter. You’re talking about maybe a 10 year wait for that company to get acquired or go Public. That money is just locked up for 10 years. With the stock market, you’re talking about money being locked up and just sitting there waiting for the stock price to magically increase based on conditions you can’t control.
Music royalties generate money so overtime it pays for itself. Additionally there is also the fact that the asset can be flipped in the same way as stock.
If you pay attention to the markets, when the federal government decides to raise the interest rates, it has an impact on share prices. The share price of Apple stock and Amazon stock may go down. Things like Pandemics have an impact on the value of the share prices of these different companies. Those things do not impact streams and the consumption of music. When times get hard people tend to dive deeper into music and entertainment so it’s one of the safest investments you can make.
So, what’s in it for the artist? How does this benefit the artist? A lot of these platforms are allowing artists and Rights Holders the ability to just sell a percentage of their ownership stake or their royalties. For me personally, I like royalties more than an ownership stake.
An artist can sell 10% of their royalties which would allow them to maintain ownership of the music and also revenue from all other sources. They can get a song placed in a movie and still collect 100% of that revenue. They can sell music on their website and still collect 100% of that revenue, all while leveraging their streams for upfront cash.
What this creates is a situation where they have a group of investors who now have an interest in their success and the success of their music. Somebody who’s a Music Supervisor could buy an equity stake in your royalties and put your music in film to increase the value of their equity. Somebody who is a radio programmer could put your music in rotation to increase the value of their equity stake. It creates a whole other level of incentive for fans and anybody that purchases an equity stake. They’re all incentivized to work to help you and do things to assist in your growth and development as an artist. So far, no company has figured out how to take it mainstream. I think it’s just a matter of time.
