Name: Why Wall Street is Spending Billions on Your Favorite Artists's Music Catalogs
Uploaded: 2024-03-11T09:30:00Z
Duration: 3 min 39 s
Description: Artists like Tina Turner and Justin Timberlake are part of a multi-billion-dollar market for music royalties that asset managers predict could double or triple in size soon. WSJ’s Dion Rabouin explains Wall Street’s newest fad: music-backed securities. Photo illustration: Noah Friedman/Gary Gershoff/Getty Images

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Artists like Tina Turner and Justin Timberlake are part of a multi-billion-dollar market for music royalties that asset managers predict could double or triple in size soon. WSJ’s Dion Rabouin explains Wall Street’s newest fad: music-backed securities. Photo illustration: Noah Friedman/Gary Gershoff/Getty Images

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Why Wall Street is Spending Billions on Your Favorite Artists's Music Catalogs

Dion: You may have heard about the $100 million plus licensing deals artists like Justin Timberlake, Bruce Springsteen, and Stevie Nicks have signed for their music catalogs. Well, industry analysts say that we'll probably be hearing about a lot more deals this year, and that's because of what's happening in markets. I'm going to explain why insiders are expecting a major increase in music licensing deals, what music licensing deals are. And how they're turning your favorite artist catalogs into bonds that are sold to investors. Let's get into it. Ratings from S and P Global recently published a report they titled "Music Royalty Securitizations are Getting the Band Back Together." Well, S and P isn't actually projecting that any of your favorite bands will get back out on the road. Analysts called out what they say is a renaissance in securitized bonds backed by music catalogs. They're expecting that renaissance to pick up steam in the coming years. The market for securities backed by music royalties has grown from the first deal, valued at around $55 million in 1997, to an estimated $5 billion market today. Bret Leas, the co-head of Asset-backed Finance at Apollo Global Management, says he thinks the market could easily double or triple in size in the next two years, or even sooner. That's likely to mean asset managers looking for lots of new music and musical artists to buy licensing rights from. Apollo is a major investor in assets backed by music catalogs, having recently backed a $1.8 billion transaction from music investment company Concord. That deal included the music royalties for artists like Daft Punk, Miles Davis, Imagine Dragons, and Pink Floyd. Okay, so what exactly is music royalty securitization? Financial firms create what they call asset-backed securities. Those are literally just securities, like bonds, that are backed by assets. If for some reason, the issuer of the security can't pay back the money they've borrowed, the party that owns the security can take control of the asset. And the asset's underlying value dictates the value of the security. That's a bit technical, so let's take a step back. Asset-backed securities can be backed by things like student loans, auto loans, or aircraft leases. The most, well-known ABS example is mortgage-backed securities. Those hold a pool of mortgages, which is sold as a package to investors. They're attractive, because rather than betting on whether an individual will continue to pay their mortgage or whether one mortgage will rise in value, mortgage-backed securities value are determined by hundreds or even thousands of mortgages. There's a similar process for creating music-backed securities. Music investment firms like Concord, record labels, and even artists put together pools of music licensing rights. Music has become a popular asset because of the growth of streaming, which analysts say creates a dependable revenue stream to back the securities. Artists like the queen of rock and roll, Tina Turner, have a long history of music that is still streamed today. And investors can feel confident that those streaming royalties are going to continue to flow in. So they'll pay a lot for these assets, with some catalogs fetching 30 times their annual average royalties. Unlike with a traditional sale though, the rights to the music aren't sold in perpetuity. Investors own the rights for a set amount of time, usually a few years. After that time, the rights revert back to the copyright holder, usually the record label or the artist. That allows the companies to buy more music rights, record labels to raise money, and artists to create more music. As more of these deals have been announced, investors have gotten more comfortable with the asset class and expect it to keep expanding. So don't be too surprised if your favorite artist is next to issue some music-backed securities. And if the market keeps growing, you could even buy some.