The next time you put on some music on your favorite streaming platform, consider this: every song you stream contributes to a complex ecosystem of revenue that supports artists, producers, and a growing number of music rights investors who see music as more than art and expression – rather, a valuable asset class.

We’ve barely scratched the surface of uncovering the full potential of music rights as an exclusive, lucrative asset class within the investment landscape. With billions flowing through the music industry annually, the economic power of music rights is undeniable. Here’s why investors are paying attention.

How much is the industry worth?

In 2023, the global music market saw its ninth consecutive year of growth, growing 10.2% to a remarkable USD 28.6 billion. This upward trajectory is expected to continue for a while, with Goldman Sachs forecasting that by 2030, the industry could double to around USD 131 billion, driven primarily by streaming.

Streaming has played a pivotal role in revitalizing the music industry, saving it from a 15-year decline largely attributed to piracy issues. As of 2023, streaming accounts for 67.3% of the total revenue, translating to about USD 19.3 billion.

Streaming platforms like Spotify have experienced a 2800% jump in subscriptions over the last ten years with 2023 being the year that the global number of users with paid subscription accounts surpassed 667 million, marking the first time this figure crossed the half-billion mark.

Music revenues also grew in every region across the globe last year – which other industry can match this level of global influence and success?

But streaming has done more than rejuvenate the music industry; it has completely reshaped the way people listen to music and the way money flows in the industry.

How does the money flow?

A song has many different types of rights associated with it – therefore, a single song can generate different types of royalties when consumed via different channels, which are then processed through different stakeholders and different flows before eventually reaching the artists, songwriters, producers, and any other relevant rightsholders.

Types of royalties:

• Recording royalties are generated when a song is sold (physically or digitally) or streamed and are paid to rightsholders of the master recording, i.e., the actual recording itself.
• Mechanical royalties are generated when a song is 'reproduced’. It made more sense in the pre-streaming era when CDs and vinyl were printed, but its definition has since been adjusted to also represent when someone chooses to stream a song, therefore ‘reproducing’ it.
• Performance royalties are generated when a song is ‘performed’ publicly, and in the streaming era, streaming a song in public places like shops and restaurants also represents a ‘performance’, on top of the typical live performances.
• Synchronization royalties are generated when a song is used in film, TV, video games, etc., and typically manifest in a one-time license fee, and sometimes involve residual royalties.
• Digital performance royalties are generated when a song is broadcast over digital (internet, satellite) radio services. This specific type of royalties is most applicable in the U.S.
• Neighboring rights royalties are generated when a song is broadcast or performed publicly, and they are paid to the performers (e.g., musicians, vocalists) and the owners of the master recording, recognizing their contribution to the creation and dissemination of the recording. This type of royalties applies to most countries except the U.S.

Different stakeholders involved apart from the artists, songwriters, and other rightsholders:

• Digital Service Providers (DSPs) are online platforms that allow consumers to stream, download, or otherwise access music content, like Spotify, Apple Music, YouTube, Deezer, etc.
• Distributors help artists and labels get their music onto DSPs or to physical retailers. Examples include The Orchard, Amuse, Believe Digital, CD Baby, Caroline International, and DistroKid.
• Performance Rights Organizations (PROs) collect and distribute performance royalties to songwriters and publishers. Examples include ASCAP, BMI, and SESAC.
• Mechanical Rights Organizations (MROs) collect and distribute mechanical royalties to songwriters and publishers. Examples include Harry Fox Agency (USA), AMCOS (Australia), and MCPS (UK).
• Collective Management Organizations (CMOs) collect and distribute both performance and mechanical royalties to their relevant rightsholders. Examples include GEMA (Germany), SACEM (France), and SUISA (Switzerland).
• Record labels discover, develop, promote, and distribute recorded music. Major labels (often referred to as the Majors) include Universal, Sony, and Warner.
• Publishers license the use of songs, collect royalties, and pay a share to the writers. Major publishers include Sony Music Publishing, Universal Music Publishing Group, and Warner Chappell Music.

Today’s royalties payout system is not only complicated; it is a relic of how the music industry functioned in a pre-streaming world (i.e. think about mechanical royalties) and has since only been slightly modified to fit the new realities of digital streaming. Essentially, it functions as an ad-hoc system rather than one that was truly designed for digital streaming and distribution.

Adding to the complexity of the system, another characteristic of today’s music industry is that many stakeholders are often interconnected: most of the major labels own their distribution channels and publishers. E.g. Sony Music owns The Orchard (distributor) and Sony Music Publishing (publisher). And lastly, the different rules and payout systems apply in different countries and regions.

If you are an investor in a music royalties investment fund, owning a fractionalized share, this fund might hold rights to thousands of songs. As the fund collects royalties, they are aggregated and then distributed to investors like you, typically on a quarterly basis.

Why music as an asset class?

As the global music industry continues to flourish, hedge funds and private equity firms are not just watching—they're actively participating, placing significant bets to cash in on the potential upsides. Private equity giants Blackstone and KKR have invested billions of dollars in recent years to purchase song catalogs and streaming rights, thereby increasing their music asset portfolios.

Non-correlation to economic activity Music consumption remains robust regardless of economic conditions, making it largely independent of market downturns and booms. Unlike changes in real estate, which can fluctuate with economic factors, people’s musical preferences—whether they favor Beyoncé or Beethoven—tend not to shift with the economy. This non-correlation with traditional market movements positions music as a strong hedge against volatility, offering a stable buffer in investment portfolios when other assets might falter. Including music as a non-correlated asset can also significantly enhance portfolio diversification and reduce overall investment risk.

Stability The inherent stability of music stems from its ongoing demand. Regardless of the economic climate, people continue to listen to, stream, and purchase music. This consistent demand ensures a stable base for revenue generation, providing investors with a steady and predictable income stream, and making music rights a less risky investment compared to more volatile asset classes.

Recurring revenue Streaming services provide a continuous source of royalties each time a song is played, translating every stream into direct earnings for rightsholders. This predictable and scalable model supports a steady cash flow, growing in tandem with the popularity of streaming. Compared to real estate, music rights offer a more passive income stream, requiring lower maintenance while still delivering reliable revenue. Such advantages make music rights an attractive option for investors seeking to diversify their portfolios and achieve consistent returns.

Attractive yields Compared to traditional investment opportunities such as real estate, music royalties often provide higher yields, with funds focused on music rights typically generating returns between 8-12% per annum. The global reach and digital scalability of music enhance the potential for significant returns, as rights holders can capitalize on millions of plays across various platforms. This is particularly true for iconic artists or popular songs, which have historically proven profitable and resilient. For example, the Bowie Bonds issued in 1997 offered a fixed 7.9% interest rate over ten years, while acquisitions of famous catalogs like those of Bob Dylan and Bruce Springsteen have consistently yielded substantial returns.

Case study: Musicow

Built on the premise that music copyrights can be a valuable asset class, Korean music rights marketplace Musicow has rapidly gained traction as a platform for investors to buy and sell fractional stakes in the copyrights of K-pop songs, since their inception in 2017.

How it works: Musicow purchases the copyright claims from original creators or owners, then divides them into small fractions that can be traded on the platform. Investors who purchase these copyright fractions receive monthly royalty payments based on the usage and streaming of the associated songs, providing them with a steady stream of passive income. They can also resell their fractions to other investors, enhancing liquidity in the music rights market.

Musicow’s user base has exploded from just 10,000 users in 2018 to 1.1 million users in 2023. The platform hit USD 40 million in sales in 2021 alone, with total transactions reaching approximately USD 308.6 million as of 2023. This rapid expansion caught the attention of investors, with Musicow receiving a USD 168 million investment from a Korean private equity firm in 2022, valuing the company at over USD 660 million.

Musicow's success highlights the potential of music as an asset class. By providing investors with a way to directly participate in the royalty streams generated by popular K-pop songs, the platform has tapped into the growing demand for alternative investment opportunities that offer stable and predictable returns. It demonstrates how innovative platforms can unlock the value of music copyrights, providing investors with a new avenue to diversify their portfolios and potentially generate attractive returns.