How Music Can Support Family Offices

December 18, 2023

Music as an investment is getting more and more noticed. This is evident from interest in purchasing royalties and other music rights from the ultra-wealthy and family offices, private firms dedicated to investment and wealth management for high-net-worth individuals and families.

Music has a big impact on society. A lot of income is also earned from the streaming and purchase of music records. This is one reason family offices are increasingly including music to support their financial portfolios.

Let’s explore how music can support family offices and how to go about it.

Why is music important for family offices?

Family offices are ever looking for ways to broaden their financial portfolios. Music is an alternative investment that doesn’t have much correlation to traditional investments. It is widely listened to and can generate good income from views, album sales, and royalties.

Music is an intellectual property that has become a lucrative alternative investment. The stock market goes up and down, but the interest in music never changes. Music will earn your family office a consistent flow of cash for years on end. The rise in digital streaming makes investment in music all the more lucrative.

People are streaming from different applications such as Apple, Spotify, YouTube, and Pandora. Global music streaming revenue reached a high of $18.5 billion in 2021, a 24.7% increase from the previous years. According to Goldman Sachs, these figures are expected to rise to $34 billion by 2030. Music can therefore be part of the portfolio in your family office.

What are some of the benefits of music for family offices?

Billionaires and family offices who have had no previous activities in the music business are of late giving serious consideration to getting into the music business . Music catalogs produce consistent revenues with potential for appreciation. Music is different from the usual stocks and bonds investments, but the returns are very promising.

Music royalties have increasingly become an attractive asset class that has a low correlation to macroeconomic output. After years of decline in music revenues due to piracy, streaming has brought a return to stability as well as royalty cash flows. More and more investors are now confidently investing in music as intellectual property.

Music royalties have a high potential for recurring revenue collected by different distributors and then paid to the rights holders. The payments are mostly periodic making them more predictable, just like real estate.

How can you incorporate music into your family office?

To incorporate music into your family office portfolio, you need to carefully research for great content. You can invest in music by buying music royalties, ownership in a listed music label, or royalty catalogs from specialist websites.

To purchase royalties, you can start by buying royalties from exchange sites. Royalty exchanges are transparent and open marketplaces that connect investors with creators. Your family office can also work with music publishers and producers. Spend some time identifying talented songwriters and artists and help them develop and promote new music IP.

You can also look for good licensing opportunities on music IPs that exist. Royalty funds, labels or publishers with licensing rights can explore opportunities in advertising, video games, film, and TV. Investing in such organizations makes it a sure way of earning consistent income.

What are some of the challenges of music for family offices?

Music is a new investment asset different from the usual bonds, stocks, and real estate. As such, there are a few uncertainties that affect this investment opportunity. Let's take a look at some of them.

Valuation

There is a potential risk of buying an overvalued music IP. Typically, music royalties decline within the first few years of release. The declining trend can last up to 10 years before leveling off. Therefore if you buy an overpriced catalog, your family office may end up waiting awhile before seeing returns.

Counterparty Risk

Ensure that your family office diligently verifies the identity of the owner to confirm the vendor’s identity. Be careful of transactions with issues of bankruptcies, liens on seller’s assets, divorces, and other complications.

Metadata

Each song in your library has music metadata, which categorizes information about the song's title, genre, when it was released, and more. To earn from music, you need to have the correct metadata. Wrongly tagged music not signed to the correct royalty collection agency can bring losses. Buyers can hire a music rights administrator or royalty administrator like Songtrust or TuneCore to assure music is promptly and properly tagged. You must ensure that metadata is properly worked out [HM4] to assure all revenue streams are accounted for.

Regulatory Risk

All music royalty rates are regulated, therefore, future changes can affect IP cash flows. So far, decisions on royalty rates have been advantageous for holders of music IP royalty rights.

How Can You Overcome These Challenges?

The music business is laden with copious owners of rights. This includes creators, singers and musicians, publishers, managers, and others. You must be extremely careful with the contract you're signing into when purchasing music rights.

Sometimes investors choose to scout for great talent through producers and publishers who sign artists and purchase rights to their music. However, some artists may fail to reach expected revenue targets.

Ensure that your family office has done thorough research, and tested the market before deciding to promote an artist. You must also have a good understanding of the music business to be able to thrive in it. To enhance your investment experience, hire an expert manager in the music industry to advise and manage your investments. Don’t go in blindly.

To Wrap it Up

Music is good business and as such is a good alternative investment class from the usual. Find the right avenues for investing, such as listed music labels or work directly with them. To start, you can customize your music through our website. It's a great chance to start your music IP ownership.

Mylène Besançon works with Grammy award-winning musicians and is CEO of BringMySongToLife.com, where you can hire a professional songwriter to produce a song as memorable gifts or team celebrations. Besançon was listed among US Insider's Top 10 Women Entrepreneurs for her entrepreneurial journey, which includes being featured in Billboard and Style Magazine. She grew up in the South of France by the sea between Toulon and St. Tropez, and after completing her bachelor's degree and MBA, she was selected from global applicants as one of the first 100 start-up VISA Canadian recipients. She currently lives in Canada with her husband and pets. Read more at mylenebesancon.com.

 

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