You’ve probably heard that Sony Music is acquiring the Queen music catalog for a staggering £1 billion. In recent years, we’ve seen investment funds pour hundreds of millions of dollars into acquiring the music rights of top artists like Justin Bieber, Bruce Springsteen, Katy Perry, and many more. According to Cambridge Associates, from 2013 to 2017, the music royalties sector alone raised roughly $1 billion. Remarkably, in the first half of 2023, an additional $2 billion was raised specifically for music catalog acquisitions.
Owning music rights entitles you to future royalties generated by those tracks. For instance, you can earn around $4 for every 1,000 streams on Spotify. Royalties are also earned when music is played on the radio, used in a Netflix series, or featured in video games. Given these steady income streams, investment funds, family offices, and wealthy individuals increasingly view music as a lucrative asset class that offers strong returns and is unaffected by macroeconomic fluctuations.
However, the music industry is now at a pivotal moment in its history due to the integration of AI. This rapid digital transformation is reshaping the industry’s landscape. AI is opening up new revenue streams and redefining music, marking a significant shift in 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 change it forever. AI-generated music allows anyone to create high-quality tracks in any genre with just a simple 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 train their models. Despite these challenges, the industry is likely to adapt, much like it did with the rise of music streaming, which was initially viewed as a threat but in the end increased revenues and reduced piracy.
However, AI’s impact on the music industry extends beyond creating new tracks; it is also 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 Traditionally, catalog valuation has relied on outdated methods focused on historical earnings and simplistic valuation multiples, often leading to unfair deals for artists. These processes lack transparency and fail to consider the dynamic nature of music consumption and market trends, putting artists at a disadvantage during negotiations.
AI and machine learning offer a more accurate and data-driven approach to valuation. By analyzing vast amounts of data — including historical earnings, trends, and social media influence — AI can better predict a catalog’s future revenue potential. This advanced analysis provides clearer insights, enabling fairer valuations and empowering artists to negotiate better deals. This shift towards AI-driven tools is setting new standards in the music industry, ensuring more strategic investments and fairer outcomes for artists.
AI and Financialization of Music
The development of AI has significantly increased the number of deals in the music segment, making music a more accessible asset class with more and more investors willing to acquire catalogs.
Andy Bottomley, a widely well regarded music industry finance veteran with almost 30 years experience in all aspects of music funding, states that the financialization of music is currently most evident and well-documented in catalog sales. Today, it has become 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 new capital into the industry and helps drive more innovation and operational improvement. Something you might argue is long overdue”, says Andy.
In the last five years, the number of catalog deals has been steadily increasing. A Goldman Sachs report projects the music industry to reach a valuation of $142 billion by 2030. This means investing in a portfolio of songs today will likely yield significantly higher returns as the overall value of music assets continues to rise.
Industry titans are taking advantage of this early. For example, Sony Music is transitioning from a music label to a company that acquires music tracks rather than being just a major label.
Social media giant TikTok is also 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 important is that not only investors, but also artists, are empowered with the digitalization of music industry investments. This ensures that not only superstars like Justin Bieber, but also smaller independent artists, can sell their music rights, and thus achieve financial freedom or spend on self-promotion and their new tracks. They can forge a more tangible connection with their fans by offering them the chance to co-invest in 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 significant potential in new marketplaces as well: One example is JKBX, a platform allowing fans to buy “royalty shares,” or fractionalized portions of royalties and other income associated with a particular song. Other notable platforms include Sonomo, which gives retail investors brand-new access to digital streaming royalties, and Ripe Capital, where investors can invest in a tokenized portfolio of high-performing music tracks.
Unlocking Investment Opportunities
With the advent of AI and digitalization, investors of all sizes now can have access to a powerful tool for evaluating music tracks and catalogs. This streamlines deal-making and empowers data-driven investment strategies. The influx of money into the industry and the rise in the number of deals benefit not only major players but also give small artists and their fans a chance to invest in the music they are passionate about.
These new trends created by technology make it an ideal time to invest in music catalogs. Moreover, catalog valuations in mid-2024 have dropped, and with the help of AI, now is the perfect time to buy music catalogs. Music being an uncorrelated asset unaffected by market upheavals in stocks and cryptocurrencies, is a great investment opportunity to consider.
