Music catalogs strike a chord with private capital—but investors want more than just royalties
Beyonce-GettyImages-1503483679.jpg Recognition Music Group’s entire catalog of works spanning artists such as Beyoncé are now owned by a joint venture between Sony and Singapore’s GIC Kevin Mazur/Getty Images Blackstone‘s exit from a 45,000-song catalog this month, selling Recognition Music Group to a joint venture run by Sony and Singapore’s GIC for around $4 billion, is…
Recognition Music Group’s entire catalog of works spanning artists such as Beyoncé are now owned by a joint venture between Sony and Singapore’s GIC
Kevin Mazur/Getty Images
Blackstone‘s exit from a 45,000-song catalog this month, selling Recognition Music Group to a joint venture run by Sony and Singapore’s GIC for around $4 billion, is the latest sign that institutional capital is finding its footing in the music rights industry.
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The deal—which comprises Recognition’s entire catalog of works spanning artists such as Beyoncé, Leonard Cohen, Lady Gaga and Mariah Carey—follows the tie-up between Sony and GIC in January to buy high-quality, marquee catalog assets across a range of genres.
It is not the only notable transaction to close recently.
In March, Francisco Partners agreed to sell Kobalt Music Group to independent publisher Primary Wave in a deal that could value the company at more than $1.5 billion, roughly double what the PE firm paid in 2022. The deal, pending approval, would create a combined entity with more than $7 billion in assets.
In April, Bill Ackman’s hedge fund Pershing Square made a $64 billion offer for Universal Music Group—one of the largest bids ever made for a music company.
You can sit there and wait and that is a really stable and sound revenue stream. [But this is] a new revenue stream that adds to it. So it is not only streaming, it is also digital performance, maybe also movies and merchandise.
Johan Lagerlöf, Pophouse
Significant pools of capital are also being raised to target the sector. Last year, Swedish music investment firm PopHouseheld a final close of its inaugural fund at €1 billion (around $1.2 billion), reaching its hard cap and making it one of the largest first-time fundraises in Europe in the past decade.
“Historically, [music rights] haven’t been available for investors to invest in, because it’s been really complicated and almost exclusive for strategic investors. But now, revenues are transparent as they come from streaming services, it opened up the market for investors,” said Johan Lagerlöf, fund managing partner and head of investments at Pophouse.
In the past, investments in music involved complex risks in physical production, including determining the right number of records to print and securing warehouses and trucks to store and sell them.
Today, digitization and streaming platforms have changed music into a global investment thesis and an opportunity to grow at scale.
More than a royalty stream
While investments in music have traditionally focused on royalties, investors are increasingly looking to develop the asset class beyond passive returns.
Pophouse acquired a majority stake in Tina Turner’s music interests in March, aiming to create live experiences based on her catalog to maintain and create a new fanbase for the late “Queen of Rock’n’Roll”.
Co-founded by ABBA band member Björn Ulvaeus, Pophouse’s investment thesis is to acquire music rights from artists and turn them into new experiences to create value.
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One example is combining live music with digital avatars to create a VR concert experience as part of its ABBA Voyage investment. It also runs an immersive theatrical dining experience in London and Stockholm based on the rights from “Mamma Mia!”
“You can sit there and wait, and that is a really stable and sound revenue stream,” Lagerlöf said. “[But this is] a new revenue stream that adds to it. So it is not only streaming, it is also digital performance, maybe also movies and merchandise.”
Media music’s moment
Streaming has also changed the way people enjoy entertainment, bringing headline box offices and TV titles into living rooms.
While commercial music remains a dominant sector of music investments, Cutting Edge Group, a London-based music investor, focuses on media music, which appears in films and TV.
The firm formed a joint venture with Warner Bros. Discovery last year, valued at more than $1 billion, which owns and manages almost 100 years of film and television music, including the theme from Friends and the soundtracks to the Harry Potter movies.
“[Video streaming] is an incredibly cheap form of entertainment when it comes to the cost per hour of consumption. In a recession, you are more likely to stop going to the cinema or to cancel your gym membership, which are higher-cost items. [Subscriptions to streaming platforms] are increasingly seen as a utility and are very sticky,” said Tim Hegarty, head of M&A at Cutting Edge.
However, having entertainment on demand 24/7 also changes the way people consume content.
When content was distributed through physical retail and cable television, low-quality recordings could also generate royalties simply by filling shelf space or broadcast schedules. On-demand platforms mean consumers are navigating directly to the best content.
“We are seeing a big bifurcation in terms of the quality of copyrights. Streaming video on demand is a more meritocratic model where the consumer chooses what to watch rather than the broadcaster. Growth is coming from premium and super-premium titles, as digital becomes the dominant form of consumption worldwide,” Hegarty said.
This article originally appeared on PitchBook News
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