The New Music Business: The Convergence of Music and Institutional Finance
Summit Communication Group
Luxury Campaigns & Brand Management | Offmarket Investments | Cultural Strategy
Music has always been more than mere entertainment. It's an embodiment of culture, a reflection of societal moods, and increasingly, a lucrative investment opportunity. The latest edition of Offmarket Investments by Summit Communication Group looks into this fascinating intersection of music and finance, exploring why investing in music is now striking a chord with investors.
This article is a must-read for accredited and institutional investors looking to diversify and enrich their entertainment investment portfolios in 2024, offering a unique perspective on the dynamic interplay between culture, technology, and finance in the music industry.
"Our future is a whole universe of opportunity." Robert Kyncl, CEO, Warner Music Group
Music and Money: A Historical Debut
Jay-Z's acquisition and subsequent sale of Tidal exemplifies the convergence of music and finance. Tidal, a streaming service, was not just a business venture but a statement on artist ownership in the digital age.
"To succeed, music’s future must be artist-centric... in a robust, growing and sustainable music ecosystem." Sir Lucian Grainge
A while before Jay-Z, Beethoven, a pivotal figure in classical music, navigated the transition from patronage to a more market-oriented music economy, selling his compositions to publishers and organising concerts for his benefit.
Historically, music has been intertwined with commerce. From the patronage of classical composers by the aristocracy to the modern-day royalties system, music has always had a commercial aspect. However, the last two decades have seen this relationship evolve dramatically, with new platforms and markets emerging, offering fresh investment opportunities.
"We help extraordinary talent cut through the background noise in our short-span attention economy, enabling them to truly connect with fans and so unlock a universe of opportunities." Max Lousada, CEO, Recorded Music, Warner Music Group
Streaming: The Digital Revolution in Music
The advent of streaming services like Spotify, SoundCloud, and Apple Music has revolutionized the music industry. Initially plagued by piracy, the industry has now embraced streaming, providing a steady income stream for artists and a new avenue for investors.
"An artist they discover could change the world." Will Tanous, EVP & Chief Administrative Officer, Universal Music Group
With artists earning approximately $0.003 to $0.005 per stream, established names can generate significant revenue, presenting an attractive proposition for investors.
Taylor Swift's public battles for artist rights in the streaming era highlight the financial implications of streaming services. Her stance against Spotify over fair compensation changed the conversation around artist royalties.
Music and the Market: Enter the Cultural Landscape
A fascinating aspect of music's influence is its potential to presage market conditions. Research comparing the beat variance of Billboard Top 100 songs to the standard deviation of returns of the S&P 500 shows a significant negative correlation.
"We continue to push hard to achieve the success our artists deserve whilst giving them the space and resources they need to make great music!" Konrad von Löhneysen, Managing Director, Embassy of Music
Spotify's impact on the music industry demonstrates the correlation between music preferences and market trends. Its data-driven approach to music suggests that music preferences might reflect broader economic sentiments, offering predictive insights into market volatility.
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Investing in Music: Opportunities
For institutional investors, the music industry presents a diverse portfolio of opportunities. From streaming platforms to music rights and live event sponsorships, each segment offers unique prospects. The key is to understand the industry's dynamics – the trends, the risks, and the potential returns.
Streaming and Rights Management
Streaming platforms are reshaping music consumption, making it a lucrative investment area. Additionally, investing in music rights offers a more traditional, yet increasingly profitable, avenue. As digital platforms grow, so does the value of music catalogs.
"We are always looking for ways to support our artists and to help them be at their creative best." Selina Webb, EVP, Universal Music
Universal Music Group's IPO in 2021, valuing the company at over $50 billion, underscores the financial potential of music rights management in the streaming era.
Live Events and Brand Partnerships
Live music events and festivals offer another investment opportunity, with the potential for high returns. Moreover, brand partnerships in the music industry can create unique marketing opportunities, aligning luxury brands with popular artists to enhance brand value and reach. The Coachella Music Festival, known for its lucrative sponsorships and brand partnerships, illustrates the financial potential of live music events in attracting affluent audiences and global brands.
"Music has always been incredibly important to cultures around the world – literally since the dawn of civilization." Adam Granite, Universal Music Group’s CEO, Africa, Middle East and Asia
Web3, Technology and Innovation
K-pop group BTS's virtual concert, 'Bang Bang Con', showcases how technology is creating new revenue streams in music. Their innovative use of technology attracted millions of viewers, generating significant revenue. Investments in music technology, such as AI and VR, are redefining how music is created and experienced. These technologies offer exciting new platforms for engagement, opening up innovative investment possibilities.
"Domestic music increasingly driving engagement in the streaming economy." Dennis Kooker, President, Global Digital Business, Sony Music Entertainment
Investments into Music (and back again)
The music industry, with its blend of cultural significance and commercial viability, presents a compelling investment landscape. For those attuned to its rhythms, it offers a diverse range of opportunities to generate returns while contributing to the cultural fabric. In this ever-evolving market, the savvy investor listens not just to the music, but to the underlying economic symphony it plays.
If you're an accredited or institutional investor and you'd to take a first look at the latest Offmarket Investments from the Music, Film and Entertainment industry, please contact Gregory Gray at gregory.gray@summitcommunication.com.au
Written by Gregory Gray , CEO & Founder of Summit Communication Group
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