You’ve probably heard that Sony Music is acquiring the Queen music catalog for a staggering £1 billion. In recent times, we’ve seen investment funds pour a whole lot of tens of millions of dollars into acquiring the music rights of top artists like Justin Bieber, Bruce Springsteen, Katy Perry, and lots of more. In response to Cambridge Associates, from 2013 to 2017, the music royalties sector alone raised roughly $1 billion. Remarkably, in the primary half of 2023, an extra $2 billion was raised specifically for music catalog acquisitions.
Owning music rights entitles you to future royalties generated by those tracks. As an illustration, you’ll be able to earn around $4 for each 1,000 streams on Spotify. Royalties are also earned when music is played on the radio, utilized in a Netflix series, or featured in video games. Given these regular income streams, investment funds, family offices, and wealthy individuals increasingly view music as a lucrative asset class that gives strong returns and is unaffected by macroeconomic fluctuations.
Nevertheless, the music industry is now at a pivotal moment in its history because of the mixing of AI. This rapid digital transformation is reshaping the industry’s landscape. AI is opening up latest revenue streams and redefining music, marking a major shift within the industry’s paradigm.
How AI is Transforming Music Rights Acquisition
The music industry has been abuzz with discussions over the past couple of years about how AI is poised to vary it without end. AI-generated music allows anyone to create high-quality tracks in any genre with just a straightforward prompt, even mimicking the voices of superstars like Drake or Taylor Swift. While this democratization of music production is exciting for some, many see it as a threat, fearing it could erode the royalty streams of music rights holders.
This concern has led to legal actions, with the Recording Industry Association of America (RIAA) suing AI startups like Udio and Suno for using copyrighted material to coach their models. Despite these challenges, the industry is prone to adapt, very similar to it did with the rise of music streaming, which was initially viewed as a threat but ultimately increased revenues and reduced piracy.
Nevertheless, AI’s impact on the music industry extends beyond creating latest tracks; it is usually transforming how music catalogs are evaluated by investors. Traditionally, catalog valuation has relied on outdated methods focused on historical earnings and simplistic valuation multiples, often resulting in unfair deals for artists. These processes lack transparency and fail to think about the dynamic nature of music consumption and market trends, putting artists at a drawback during negotiations.
AI and machine learning offer a more accurate and data-driven approach to valuation. By analyzing vast amounts of knowledge — including historical earnings, trends, and social media influence — AI can higher predict a catalog’s future revenue potential. This advanced evaluation provides clearer insights, enabling fairer valuations and empowering artists to barter higher deals. This shift towards AI-driven tools is setting latest standards within the music industry, ensuring more strategic investments and fairer outcomes for artists.
AI and Financialization of Music
The event of AI has significantly increased the variety of deals within the music segment, making music a more accessible asset class with an increasing number of investors willing to accumulate catalogs.
Andy Bottomley, a widely well regarded music industry finance veteran with almost 30 years experience in all elements of music funding, states that the financialization of music is currently most evident and well-documented in catalog sales. Today, it has grow to be commonplace for famous artists and writers to sell the rights to their music.
“Music is becoming a viable asset class for institutional investors. The financialization of music injects more latest capital into the industry and helps drive more innovation and operational improvement. Something you may argue is long overdue”, says Andy.
Within the last five years, the variety of catalog deals has been steadily increasing. A Goldman Sachs report projects the music industry to succeed in a valuation of $142 billion by 2030. This implies investing in a portfolio of songs today will likely yield significantly higher returns as the general value of music assets continues to rise.
Industry titans are making the most of this early. For instance, Sony Music is transitioning from a music label to an organization that acquires music tracks relatively than being just a serious label.
Social media giant TikTok can also be transitioning its model from content distribution to a more ownership- and management-focused platform by introducing a Music Content Investment Team.
AI Empowering Investors and Artists Alike
What’s more essential is that not only investors, but additionally artists, are empowered with the digitalization of music industry investments. This ensures that not only superstars like Justin Bieber, but additionally smaller independent artists, can sell their music rights, and thus achieve financial freedom or spend on self-promotion and their latest tracks. They will forge a more tangible reference to their fans by offering them the possibility to co-invest within the music they love.
Combining it with AI, the music industry can ensure fair deals and transparent royalty valuations that boost artists and aspiring talent.
There is important potential in latest marketplaces as well: One example is JKBX, a platform allowing fans to purchase “royalty shares,” or fractionalized portions of royalties and other income related to a specific song. Other notable platforms include Sonomo, which provides retail investors brand-new access to digital streaming royalties, and Ripe Capital, where investors can spend money on a tokenized portfolio of high-performing music tracks.
Unlocking Investment Opportunities
With the appearance of AI and digitalization, investors of all sizes now can have access to a strong tool for evaluating music tracks and catalogs. This streamlines deal-making and empowers data-driven investment strategies. The influx of cash into the industry and the rise within the variety of deals profit not only major players but additionally give small artists and their fans a likelihood to speculate within the music they’re keen about.
These latest trends created by technology make it a really perfect time to speculate in music catalogs. Furthermore, catalog valuations in mid-2024 have dropped, and with the assistance of AI, now could be the proper time to purchase music catalogs. Music being an uncorrelated asset unaffected by market upheavals in stocks and cryptocurrencies, is an incredible investment opportunity to think about.
