The Sunday Telegraph - Business & Money
Music as an asset class has reached its crescendo
B‘Even the mighty Tina Turner managed to secure a rich price for her catalogue’
‘Stuff that used to lie around at the back of charity shops turns out to have value’
lackstone, one of the world’s largest asset managers, has teamed up with Hipgnosis to invest $1bn (£730m) in music rights. KKR, the original and in some ways still the most feared private equity house, is planning a $1.1bn investment in rights to songs by bands such as The Weekend. Tina Turner has sold her rights to BMG for a reported $50m. And that is in the last week alone. With every month that passes, more and more music catalogues are getting snapped up by high-profile investors, with prices escalating all the time.
The new Adele song – her first in six years – may be dominating the playlists. But in the City it is the rights to songs that are attracting all the attention. At this rate, the Bananarama catalogue will probably be getting close to an eight figure valuation by the end of the month. And if you wanted to buy the Abba rights – well, heck, even Apple and JP Morgan combined probably couldn’t even begin to afford it. But hold on.
While there are some solid reasons why hummable tunes are a new asset class, it is also turning into a bubble. The shift to streaming revenue is a one-off that can’t be repeated, and the prices are getting ridiculous. Like every bubble it will burst eventually, and a lot of money will be burned when it does.
If anyone was in any doubt that music is the new Bitcoin the last week has probably changed their mind. A flurry of deals has demonstrated just how much money is prepared to back music catalogues. Blackstone is putting $1bn into a new fund Hipgnosis Song Capital, which will be run alongside the London-listed Hipgnosis Songs Fund that has snapped up the rights to artists such as 10cc and the Kaiser Chiefs. There has been speculation KKR, which seldom allows an investment craze to pass without cutting itself into a slice of the action, is close to leading a $1.1bn deal to buy the rights to songs from artists such as Lorde and The Weekend. Even the mighty Tina Turner managed to secure a rich price for her catalogue, because, as the lady herself would no doubt put it, what’s love got to do with it when quite so much money is at stake? More and more cash is pouring into the sector.
True, we can all understand some of the reasons why songs are more valuable than ever. And the pioneers of the sector, especially the Hipgnosis founder Merck Mercuriadis, deserve a lot of credit for devising the first genuinely new asset class the financial markets have seen in a long time. The streaming market has transformed the economics of back catalogues. The likes of Spotify and Apple Music may not pay a fortune every time you listen to a track, but they do pay something, and when you start to multiply all those fractions of a cent by a few billion it turns into a sizeable cheque. Stuff that used to lie around completely forgotten at the back of charity shops turns out to have plenty of value. And big music companies have become very skilled at breathing new life into properties that used to collect dust on the shelves of a handful of hardcore fans. They can constantly churn and re-boot old records. Whether anyone really has the willpower to listen to all 57 tracks on the super-deluxe version of The Beatles’ Let It Be, to take an example that popped up on my Spotify home screen this week, is questionable, to put it mildly. But it will get the band back on the playlists, and that is what counts.
The trouble is, there are two big problems with the boom. First, it has limited growth left. True, the shift to paid streaming from CDS has made back catalogues a lot more valuable. And yet, it is a one-off transition. Most of us are happy to spend £10 a month on a subscription to one of the streamers. But will we pay £20 next year and £30 the year after that? It doesn’t sound very likely. Neither do big hits make any difference to the amount we spend in the way it used to in the CD market. New recordings from Abba, Adele and Coldplay this autumn will be massive but none of us will be paying any more than usual to listen to them. It is worth noting that Spotify’s share price is down 18pc so far this year because most investors are worried it may not have much growth left in it.
Next, prices are soaring out of control, and rich buyers are bidding up the prices. Every deal is bigger than the last one. Neil Young’s catalogue fetched a reported $150m. Bob Dylan, as smart a manager of his own career as he is a brilliant songwriter, sold his catalogue for $300m because he may well have realised it was far more than it was really worth. After all, he is the only person in this game with a Nobel Prize. Meanwhile, the big record labels such as Universal may well decide to sit out the boom, wait for it to collapse, or for rising interest rates to make the song funds a lot less attractive, and then pick up the rights to all the songs they have collected for a fraction of the price that was paid for them.
In truth, there is plenty of value in content. The economics of music are better than at any time in the last two decades, especially for anyone with deep back catalogues. But it is fast turning into a bubble.
Just like every investment craze, there is a good idea to start with, but then too many people climb on the bandwagon, and too much money crowds into a very limited space. And while a few people will make a fortune as that inflates a lot more will lose one when it finally bursts.