The Rise of Music Streaming:

Why hedge funds are investing in music

The revenue of the recorded music industry peaked in the late 1990’s driven by massive CD sales. However, that peak was met with a rapid decline as revenues shrank from 2000 to 2014 as people ditched physical CD’s and migrated to digital platforms (and rampant piracy).

However, since that 2014 low, the recorded music industry has seen tremendous year over year growth, powered almost entirely by streaming services like Spotify, Apple Music, and Deezer.

As of 2021, Spotify had paid out over $30bn in total royalties, with more than $7bn of that paid out in 2021 alone (representing more than double the amount paid out in 2017).

Goldman Sachs recently updated their projections for the music industry, estimating that by 2030 global music revenues will double powered by massive gains in streaming.

Sound Economics Drive Institutional Investment

As streaming has propelled music industry growth and shown no signs of slowing, institutional investors have taken notice and have invested billions of dollars buying rights to music. Respected, storied funds like KKR, Blackstone, and Shamrock have targeted music because they see growing, recurring revenue streams or said otherwise because they have attractive yields.

In September of 2020, the US 10-year treasury yield was 0.7%, S&P 500 dividend yield was 1.8%, and the Vanguard High-yield Corporate Bond (VWEHX) yield was 3.9%. Compare that to Royalty Exchange reporting an average annualized return on investment for catalogs sold on its platform greater than 12%, Hipgnosis Songs Fund’s (SONG) dividend yield at 4.3%, and Mills Music Trust’s (MMTRS) dividend yield at 9.6%. And music’s attractiveness becomes especially clear.

Be an “Angel investor” in music

Through a macroeconomic lens, it’s clear that music revenues will continue to grow. While retail investors can access this growth through buying shares of these companies on public exchanges, there’s also an interesting opportunity to make more personal partnerships.

Fringe is a platform for people to invest in breaking music acts on the verge of explosive growth. On Fringe you have the opportunity to enter into a revenue share agreement with artists on percentages of their songs/albums/catalogs. Investors on Fringe fund these partnerships and then work with the artists to drive success of their joint project. That means working together to get more listens, to promote tours, etc. with a shared economic reward.