Bob Valentine, President and Incoming CEO, Concord.
Over the last twenty-five years, the music industry has experienced its fair share of highs and lows. At the height of the CD sales peak in 1999, artists, record labels and music publishers were firmly entrenched as anchor tenants in the global entertainment ecosystem, with industry revenue estimated to be $39 billion. However, the advent of digitalization that began with the CD became music’s undoing, as fans could now extract content and distribute copies of those recordings effortlessly to anyone with an Internet connection via file sharing, placing the entire industry in mortal peril. Between 2001 and 2010, physical music sales dropped by over 60%, leading to lawsuits, layoffs, divestment, corporate consolidation and a malaise that led many market participants to retrench to safer, more predictable businesses.
After fifteen years of revenue decline, the music business has seen a resurgence in the form of eight consecutive years of industry revenue growth, with major cash infusions from financial giants and industry-shifting tech disruptions. As a result, we are in a new golden age of the music business, with hundreds of millions of songs readily available to anyone with a mobile device almost anywhere in the world and an extraordinarily well-capitalized and well-resourced collection of companies across entertainment, tech and finance leading the way. These companies, having finally reshaped the industry and escaped the doldrums of the first fourteen years of the century, are now interacting to create the most conducive atmosphere for musical artists to promote and monetize their work in the history of the medium.
Music As An Investment Asset Class
In my twenty-plus years in the industry, I have never seen so much attention and appreciation of music as an asset class from conventional financial giants. Last year, Goldman Sachs released bullish projections for the industry—predicting a doubling of total revenue to $131 billion by 2030. This is all driven by growth across the spectrum of the ever-expanding ways to consume music: subscription and advertising-based streaming services, diversified and constantly emerging content platforms and even increasing vinyl sales.
The financial industry has taken notice of that growth. A who’s who of sources of private capital and global commercial banks like Blackstone, KKR, Apollo, Blackrock, JPMorgan and others have invested billions in music catalogs in recent years. The reasons for this are clear.
Royalty payments from copyrights offer a predictable, recurring and diversified source of income for investors. For catalogs, music streaming platforms are often credited for the boom in song and recording valuations, but that’s just one slice of the pie. The licensing of music for film, television and advertising is also a steady and growing component of revenue due to increased investment in original content on streaming services. As entertainment and media diversify, I believe the demand for music in various mediums will expand, resulting in increased potential for music royalty income.
Music royalty cash flow is fairly uncorrelated to the performance of other investment assets. Many of the investors in the music sector have sought returns that don’t have the same underlying economic sensitivities as other parts of their portfolios (e.g., public equities, private credit or commercial real estate).
Tech Diversifying Monetization
It’s not just Wall Street and music executives that are reaping the benefits of this industry boom. Over the past ten years, the tech industry has disrupted the conventional economic model for recording artists and songwriters, creating new ways for musicians to monetize their work. Social media is currently at the center of this tech infusion. According to the International Federation of the Phonographic Industry (IFPI), social media platforms like YouTube, Instagram and TikTok are catching up to streaming, representing 32% of total music consumption in 2022. Of course, with all new mediums come new opportunities for artists to gain a following and build a career. This is true both for legacy artists that experience a sudden rebirth in their older works, as Fleetwood Mac can attest, and current artists who have found ways to take advantage of these viral moments, like Ghost.
At the same time, I’ve noticed conversations around the rise of AI in music are just beginning. How do we enforce copyright laws on behalf of the community that we represent when it comes to imitative and derivative works created by AI generators? The value of human creativity is once again colliding with technological advancements.
The Future Outlook Of The Industry
What I am seeing is a new music dynamism—an industry that is at the center of investment, innovation and evolution from several business sectors. I find that the challenge that we face collectively is that the industrial revolution hasn’t led to a revenue revolution for all artists equally. Superstars like Taylor Swift or Drake and the rest of the very upper echelon of the global entertainment stratosphere have been able to transition to the streaming model due to the billions of streams of their work. Older acts have also seen their catalog revenues permanently spike thanks to the ubiquity of access to music and the inherent nostalgia of music fandom.
Investing in artist development comes with inherently more risk and longer timelines for investors to see returns. New music requires more work and more professional staff to monetize, so new artists and bands are a gamble. Investors seeking near and medium-term returns will often seek out the relative safety of financing legacy catalogs or known superstars. But without proper investment in artist development, the longer-term prospects for the music industry diminish.
Moving forward, it is more important than ever for the executives, investors and entrepreneurs reaping the benefits of this golden age to ensure that investment in new bands, artists, songs and technology doesn’t fade relative to the investment in existing music and superstar acts. New music is the catalog of the future, and it’s up to us as an industry to make sure that enough of the financial windfall that is currently occurring for the industry is invested in the creative forces that will drive continued growth.
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