Music Royalties: Investing in the ‘Cultural Annuity’ for Uncorrelated 10% Yields
Music Royalties: Investing in the ‘Cultural Annuity’ for Uncorrelated 10% Yields
COACHING POINTS
- The Thesis: Goldman Sachs predicts the global music market will double to $131 billion by 2030. Owning the copyrights to songs is owning a slice of this revenue stream. It is a bet on the smartphone-driven consumption of culture.
- The Non-Correlation: When interest rates rise, bond prices fall. But Spotify subscription prices usually rise. Music royalties have historically shown little to no correlation with the S&P 500 or Treasury yields.
- The Longevity: A hit song is an “Evergreen Asset.” Under US Copyright Law, protection lasts for the life of the author plus 70 years. This offers a cash flow duration that rivals 100-year bonds.
In 2022, while the 60/40 portfolio collapsed, the music royalty market boomed. Why? Because people don’t cancel their Spotify subscription when the Fed hikes rates. Music Royalties are the ultimate “Alternative Asset.” They provide yield (like a bond), growth (like a tech stock), and inflation protection (like real estate), all wrapped in an intangible asset class.
The durability of copyright assets is backed by federal law.
- Statute: “Copyright in a work created on or after January 1, 1978, subsists from its creation and endures for a term consisting of the life of the author and 70 years after the author’s death.” Authority: US Copyright Act (17 USC § 302)
- Implication: If you buy the rights to a song by a 30-year-old artist, you are potentially buying 100+ years of cash flow.
- Valuation: Typically sold at 10x-18x the “Last 12 Months” (LTM) earnings. A 10x multiple implies a 10% initial yield.
What-If Scenario: Portfolio Diversification (2022 Bear Market)
Comparison: S&P 500 vs. Music Royalty Fund (Hypothetical Index).
| Asset | 2022 Return | Income Source |
|---|---|---|
| S&P 500 | -19.4% | Corporate Earnings (Cyclical) |
| Music Royalties | +12.0% (Est) | Streaming Subscriptions (Sticky) |
Visualizing the Streaming Boom
*Figure 1: Revenue Growth. The Green line (Music Industry) has decoupled from the broader economy due to the adoption of paid streaming.*
Execution Protocol
You can buy individual song rights on platforms like Royalty Exchange or SongVest. It works like an eBay auction. You bid a multiple (e.g., 8x) on the historical earnings.
New songs (“Pop hits”) have a steep decay curve—revenue drops 80% after year 3. Buy catalogs older than 10 years (“Classics”). Their revenue is stable and predictable (Lindy Effect).
For instant diversification, consider funds like Hipgnosis Songs Fund (LSE: SONG) or private funds from firms like Concord or Round Hill. They own thousands of songs, reducing the risk of any single track fading.
COACHING DIRECTIVE
- Do This: If you are a music lover with a long time horizon who wants to diversify away from the Fed’s interest rate cycle.
- Avoid This: Betting on brand new “Chart Toppers.” Their income is volatile and likely to crash. Stick to the “Gold Oldies” or diversified baskets.
Frequently Asked Questions
Why are Music Royalties considered an asset class?
Music royalties generate recurring cash flow every time a song is streamed, played on the radio, or used in a movie. Thanks to the ‘Streaming Era,’ these payments have become predictable and growing, behaving like a bond with equity-like upside.
How long do these assets last?
Under US Law, copyright protection lasts for the life of the author plus 70 years. This provides a legally protected monopoly on the income stream for over a century. Authority: US Copyright Office
What is the yield?
Investors typically target a ‘Net Yield’ of 8-12%. Catalogs are often valued at a multiple of their ‘Net Publisher’s Share’ (NPS), usually trading between 10x to 18x annual earnings.