Justin Bieber’s $200M Catalogue Sale Shines Spotlight on Music Royalties as an Investment Opportunity
In a blockbuster deal shaking up the music and investment worlds, pop sensation Justin Bieber has sold his 290-song publishing and recording catalogue shares to the Blackstone-backed Hygnosis Songs Capital for a staggering $200 million!
At just 28 years old, Bieber joins a growing list of artists cashing out on their song catalogues. From contemporary stars like Justin Timberlake and Shakira to legends such as Bob Dylan and Bruce Springsteen — whose catalogue sold to Sony for a reported $550 million — selling music rights has become a lucrative trend.
But while these stars are cashing out, savvy investors have the chance to cash in.
Why Music Royalties Are a Tempting Investment
Companies like Warner Music Group, Universal Music Group, Hipgnosis Songs Fund, Round Hill Royalty Fund, Reservoir Media, and Music Royalties Inc. provide investors direct exposure to music revenue streams. They acquire song royalties — a rapidly growing income source fueled by the explosion of global streaming platforms — and aim to grow shareholder value by building diversified portfolios of cash-flowing royalties.
In today’s low-yield, low-interest environment, music royalties stand out as an attractive asset class thanks to:
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Low correlation with economic cycles
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High-income potential
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A growing global streaming market
The Streaming Effect: Stability in a Changing Industry
After 15 years of decline caused by piracy and falling album sales, digital streaming has reignited global recorded music revenues.
At the individual song level, royalties typically peak between 3 to 12 months post-release, then gradually decline over 5-10 years. Beyond that, income often stabilizes into a reliable “tail” that continues generating revenue.
Higher Yields in a Low-Interest World
Investors searching for income-generating assets with less risk than stocks may find music royalties appealing. As of September 2020:
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Royalty Exchange reports average annualized returns over 12% for catalog sales
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Hipgnosis Songs Fund offers a 4.3% dividend yield
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Mills Music Trust yields around 9.6%
Remember: royalty income fluctuates and isn’t guaranteed — last year’s returns don’t promise next year’s.
Low Correlation to Economic Activity
Music spending historically shows minimal ties to the broader economy. Even during the COVID-19 pandemic, music revenue held steady compared to many other sectors. This resilience adds diversification benefits to a portfolio.
Risks to Consider Before Investing
While promising, music royalties come with unique challenges:
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Complexity: Understanding different royalty types, ownership durations, cash flow structures, and contractual buy-back clauses is essential.
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Pricing & Valuation: With growing investor interest, catalogs may be overpriced, reducing potential returns.
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Interest Rates: Rising interest rates can make bonds and safer income assets more attractive, potentially lowering demand for music royalties.
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Counterparty Risk: Verifying ownership rights and legal claims is critical—issues like liens, bankruptcies, or estates can complicate deals.
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Technological Change: Innovations—from streaming to future disruptors—can impact royalty income positively or negatively.
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Regulatory Environment: Royalty rates are often regulated and subject to change, which can affect cash flows.
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Inflation: Royalty rates typically don’t adjust immediately with inflation, so rising costs may erode real returns over time.
My Personal Take
Always on the hunt for fresh investment ideas, my three sons and I recently joined the Elevate Music SPV 2 fund. It holds a diverse catalog spanning pop, Latin, hip-hop, and country, featuring artists like Britney Spears, Kenny Chesney, Celine Dion, and many more. Our levered returns are estimated at 15.5% based on last twelve months’ revenues — a return we’re happy to back!
Should You Invest in Music Royalties?
Music royalties present a fascinating and unique way to generate income while investing in something you love. That said, they’re not for everyone.
To succeed, you must dive deep into the details and understand how royalties work. This emerging asset class requires time, attention, and expertise — but for those willing to learn, it offers a compelling alternative to traditional investments.