You’ve surely heard that Sony song is buying the Queen song catalog for a whopping £1 billion.
In recent years, investment funds have spent hundreds of millions of dollars acquiring the music rights of popular musicians such as Justin Bieber, Bruce Springsteen, Katy Perry, and many others.
According to Cambridge Associates, from 2013 to 2017, the music royalties sector alone generated over $1 billion. Surprisingly, in the first half of 2023, an additional $2 billion was raised particularly for music catalog acquisitions.
Owning music rights permits you to future income from those tracks. For example, you can earn approximately $4 for every 1,000 Spotify streams. Royalties are also earned when music is broadcast on the radio, used in a Netflix series, or used in video games. Given these consistent income streams, investment funds, family offices, and affluent individuals are increasingly viewing music as a profitable asset class with high returns that are unaffected by macroeconomic volatility.
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However, the music industry has reached a watershed moment in its history as a result of the incorporation of AI. This rapid digital transition is changing the industry landscape. AI is creating new revenue sources and reinventing music, signaling a major shift in the industry’s paradigm.
How AI Is Transforming Music Rights Acquisition
Over the last few years, there has been a lot of talk in the music industry about how artificial intelligence is going to disrupt everything. AI-generated music enables anyone to make high-quality tunes in any genre with a simple input, including emulating the voices of celebrities such as Drake and Taylor Swift. While some are excited about the democratization of music production, others regard it as a threat, believing that it could diminish music rights holders’ royalty streams.
This worry has resulted in legal action, with the Recording Industry Association of America (RIAA) suing AI businesses including Udio and Suno for utilizing copyrighted material to train their models. Despite these concerns, the business is expected to adapt, as it did with the emergence of music streaming, which was initially considered as a danger but ultimately raised profits and reduced piracy.
However, AI’s impact on the music industry is not limited to the creation of new tunes; it is also changing how investors evaluate music collections. Traditionally, catalog valuation has relied on antiquated approaches based on historical earnings and basic valuation multiples, resulting in unfavorable arrangements for artists. These systems lack transparency and fail to account for the changing nature of music consumption and market movements, placing artists at a disadvantage during negotiations.
AI and machine learning enable a more precise and data-driven approach to appraisal. AI can better anticipate the future sales potential of a catalog by analyzing massive volumes of data, such as historical revenues, trends, and social media influence. This enhanced research delivers clearer insights, allowing for fairer appraisals and helping artists to negotiate better arrangements. This transition to AI-powered tools is establishing new norms in the music industry, resulting in more strategic investments and more equitable outcomes for artists.
AI and the Financialisation of Music
The advancement of AI has dramatically increased the amount of deals in the music industry, making music a more accessible asset class, with an increasing number of investors eager to acquire catalogs.
According to Andy Bottomley, a highly respected music industry finance veteran with nearly 30 years of involvement in all elements of music funding, catalog sales are currently the most visible and well-documented manifestation of music financialization. Famous musicians and writers now regularly sell the rights to their music.
“Music is emerging as a viable asset class for institutional investors.” The financialization of music brings more new cash into the industry, promoting creativity and operational development. Andy remarks, “Something you might argue is long overdue.”
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Over the previous five years, the quantity of catalog discounts has steadily increased. A Goldman Sachs research predicts that the music industry will be worth $142 billion by 2030. This indicates that investing in a song portfolio now will most likely result in much larger returns when the entire value of music assets increases.
Industry titans are seizing the opportunity early. Sony Music, for example, is evolving from a music label to a firm that acquires music recordings, rather than being a big label.
TikTok, the social media powerhouse, is likewise shifting its business strategy from content distribution to ownership and management by establishing a Music Content Investment Team.
AI empowers investors and artists alike.
More importantly, the digitalization of music industry assets empowers both investors and artists. This ensures that not only celebrities like Justin Bieber, but also smaller independent musicians, can sell their music rights and attain financial independence or invest in self-promotion and new compositions. They may create a more real relationship with their fans by allowing them to co-invest in the music they enjoy.
By combining it with AI, the music industry can assure fair deals and transparent royalty valuations, which benefit artists and emerging talent.
There is great potential in new markets as well. One example is JKBX, a platform that allows fans to purchase “royalty shares,” which are fractionalized parts of royalties and other income linked with a specific song. Other significant platforms include Sonomo, which provides retail investors with new access to digital streaming royalties, and Ripe Capital, which allows investors to invest in a tokenized portfolio of top-performing music tracks.
Unlocking Investment Opportunities
With the development of AI and digitalization, investors of all sizes may now use a powerful tool to evaluate music tracks and portfolios. This simplifies dealmaking and enables data-driven investment strategies. The influx of money into the industry and the increase in the number of deals assist not just major performers, but also little artists and their followers, allowing them to invest in the music they care about.
These new technological trends make now an opportune moment to invest in music collections. Furthermore, catalog valuations in mid-2024 have plummeted, making now the ideal time to purchase music catalogs with the help of artificial intelligence. Music, as an uncorrelated asset that is unaffected by market fluctuations in stocks and cryptocurrencies, is an excellent financial possibility to investigate.
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