4 Reasons Why Music Royalties Are An Attractive Asset Class
by Arnab Dey Advertising 11 May 2022
Have you been looking for something new to invest in? Have you been exploring all types of investment opportunities and still looking for the one that will work for you? If so, you might want to consider investing in music royalties. Let’s see first what are music royalties and why it is important for musicians?
What Are Music Royalties?
Are you a musician? Then this is a unique opportunity for you, but the returns can be incredibly rewarding if you get to know what you are doing. In fact, in the current market, where yields are generally low, and interest is high, music royalties are actually an increasingly attractive asset class.
With a high financial potential due to various factors, more and more investors are looking to invest in music royalties. So, with this in mind, we thought we would take a look at a few reasons why you should look into them.
4 Reasons For Treating Music Royalties As An Asset Class:
Now you know what royalties in music are? But what is so important for the musicians? To know in detail, you have to know first how music royalties work?
Here are the flour advantages of having music royalties.
1. It Has Recurring Revenue Potential
Because of their nature, music royalties are a great source of ordinary income. Think about it; most music is played several times a year, and if you are investing in something, in particular, you will see revenue coming in regularly.
Music royalty income is a collection from several different distributors. This income is then paid occasionally to the music IP rights holder’s accounts.
So, if you are looking for a predictable source of income, these recurring payments will be highly desirable to you. They can be compared to the same regular income that is usually found in real estate investment.
Related Resource: Getting to Hear Your Favourite Music
2. High Yield In A World With Low Interest Rates And Dividends
In today’s day and age, investors are looking to invest in something with low risk and a high return. And in this market, that is really difficult to find, apart from music royalty assets. These have, over the years, shown their propensity to provide a good ROI at a consistent rate.
In fact, the music royalties business represents a $40 billion+ market that is anticipated to grow 9% annually through 2030. This high level of growth is not frequently seen in other markets and industries.
Historically, the numbers have also spoken for themselves. In September 2020 alone:
- US 10-year treasury yield was 0.7%.
- S&P 500 dividend yield was 1.8%.
- VWEHX (Vanguard High-yield Corporate Bond) yield was 3.9%. Since music streaming was introduced in 2015, these types of figures have remained somewhat constant with regard to growth, making it a highly desirable investment.
It is important to know, though, that music royalty income does fluctuate and is not fixed.
Music royalty cash flows for a song often decline over time, depending on what it is. As a result, your royalty income over the last 12 months does not guarantee that your income over the next 12 months will be equal or greater.
3. Any Other Economic Activity Has A Low Impact
Unlike most other businesses, music royalties streams are essentially independent of the general market volatility. This is largely due to the fact that they have zero to no correlation with any other financial markets.
If you consider it, most markets are somewhat tied into each other and impacted by each other. So, a drop in the oil price will have an impact on almost all other commodities, for example. But this is not the case with music royalty assets.
A great example is here; you can see what the music spending and associated royalties are, in comparison to other markets, actually held up really well throughout the pandemic. This just showed that these are a great way of hedging the cyclical risk inherent in most other business sectors.
This has also been shown throughout history, with most music royalty assets holding their own while other economies faltered in uncertain markets. This can be seen throughout wartime, in economic crunches, as with 2009 and, as we mentioned, the COVID-19 pandemic.
4. There Is an Increase in Investment in Music Royalty Assets
Over the last few years, more and more attention has been paid to the music industry. Whether as a result of artists’ calls for greater recognition and compensation or as a result of a flood of technology and increased social attention to the music industry in general.
Interestingly, there is a mass of expected regulatory changes sweeping across the US and Europe with better controls in place to protect music. These aim to benefit songwriters and rights holders for their contributions and will, in turn, increase the increasing rates of the songwriters’ share of streaming revenues.
The knock-on effect to rights holders simply means an increase in compensation for music royalties being streamed. Many musicians keep asking about how to do music royalties work. The more you start to invest in the music royalties, the more you will start to increase the amounts of the assets.
In conclusion, several factors play a role in music royalties being a beautiful asset for investors. This includes the stability of the asset, recurring income with attractive relative yields, and having less impact from market risk.