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November 9, 2021

Music investment is seeing massive growth in the wake of the pandemic – with no signs of slowing

By Katharine Swindells

During the pandemic, music streaming services began seeing record numbers of subscriptions – and as a result, music investment has become a booming industry, writes Katharine Swindells

The past year has had a devastating impact on the music industry, with festivals being cancelled and concert venues shuttering during various COVID-19 lockdowns. But not all of the music industry has suffered: companies at the heart of streaming have, somewhat unsurprisingly, seen huge growth as a result of the pandemic. For instance, Spotify’s paid-subscriber base increased by 20 percent to 150 million people in 2020, and its share price more than doubled.

As a result, the industry of music investment has grown as well. Publishing companies, IP investors, private banks and wealth management firms, all of whom have spent the past few years buying up the rights of well-known songs and albums, are now reaping the rewards of those investments.

Companies such as Hipgnosis, One Media IP, and Primary Wave, as well as private banks, all have slightly different, but ultimately related, strategies in their music investment: buying the composition, performance or master rights to songs, either whole or in part, and then recouping the investment through streaming and usage rights.

Hipgnosis is one of the biggest companies in this space, founded by Merck Mercuriadis, the music industry executive and former manager whose roster includes household names such as Beyoncé, Elton John and Guns N’ Roses.  The company began investing in songs and catalogues in 2018 and, since April 2020, has seen their share price grow by 20 percent, while the FTSE100 has yet to recover to its pre-pandemic level.

In particular, a lot of these companies are placing their faith in older songs, which are often popular in advertisements or films, or find new life in social media trends.

Of Hipgnosis’ portfolio, 60 percent of the collective value is invested in classic songs that are over a decade old, by artists such as Neil Young, Fleetwood Mac and Blondie.

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Michael Infante, CEO & Founder of One Media IP, tells Spear's that older songs tend to be a more valuable and reliable investment, which is why he has invested in artists such as Bing Crosby and Barry White.

'If you've got a catalogue that's been earning money for 20 or 30 years, and it's a household name, the chances are that's going to do well in the next 20 or 30 years', Infante says. 'If you invest in a record that’s just come out, you’ll initially experience a peak, and then after two years, it falls in the charts and it drops down'.

How does it grow?

Data from Hipgnosis shows the breakdown of income streams once partial or total rights to a song are owned. Synchronisation, performance and master royalties all make up key proportions of the revenue, but streaming is the biggest earner, accounting for a third of Hipgnosis’ earnings.

And if the past year has proved anything, it’s that streaming is only growing.

In the United States, streaming revenue (including streaming ad revenue and paid subscriptions) has grown almost 40-fold since 2010. Figures from the RIAA show that streaming was worth $8.4 billion in the US, and makes up 69% of the country’s music revenue.

But Infante of One Media says this only represents a fraction of streaming’s potential earnings. Streaming’s 2020 earnings are still less than two-thirds (62.9%) of what CDs were making at their peak in 2000, even though people are listening to more music than ever.

One Media IP has placed their faith in TCAT, a new policing software that can monitor digital music releases for unauthorised use. Music piracy is estimated to cost the economy £9 billion a year in the UK alone, so One Media IP believe TCAT will drastically increase the revenue of the tracks and albums they own, increasing the companies profits, and the amount due to the artist’s share too.

'We bring added value to our clients, so we buy at lower multiples, but we work and sweat the asset for future growth', Infante says.

Other companies are relying on new marketing strategies, particularly on social media, to raise the profile of new and old songs in the catalogue and increase their streaming revenue. A recent collaboration between Miley Cyrus and Blondie went viral on TikTok, boosting not only Cyrus’ streams, but also the original Blondie track, which Hipgnosis owns.

But even without these proactive efforts, Infante is anticipating huge growth of the streaming industry: from expansion in Eastern Europe and Asia, from subscription prices rises, but most importantly, because streaming doesn’t have the same drop off that previous formats did.

'Think about the way you bought music as a kid, 25 years ago – you’d begin buying CDs as a 13-year old, but as you got older, other expenses came in and music was the loser', Infante explains. 'Now, with music streaming, you just carry on, and we are seeing uplifted legacy music among older people, boosting the income of the music industry on a general basis'.

As Mercuriadis says, 'music has gone from being a discretionary or luxury purchase to very much being a utility'. And with two billion paid music subscribers predicted by the end of the decade, it appears streaming still has a lot of growth left in it.

Image: Koshiro K/Shutterstock

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