Music Investors Don't Stop Believin' in Streaming
November 01 2020 - 2:29PM
Dow Jones News
By Mischa Frankl-Duval
Investors backing musical heavy hitters such as Bon Jovi and
Journey are profiting this year as homebound listeners tune in to
music-streaming services, boosting the value of song catalogs and
the royalty payments they generate.
Streaming figures have bounced back after a pandemic-induced
blip earlier in the year. Third-quarter results from
music-streaming market bellwether Spotify Technology SA showed the
company added more users than expected and users spent more time
listening. Shares of Spotify are up 60% this year, and have more
than doubled since the start of 2019. New York-listed shares of
Chinese streaming company Tencent Music Entertainment Group have
risen more than 26% this year.
The resilience of recorded-music revenue has benefited rights
holders who earn money when songs are streamed, bought or
performed. Now one New-York based publisher is pursuing an initial
public offering in a bid to cash in on the market's strength.
Round Hill Music, a New York-based publishing company, said in
October that it would list shares of a music-royalties fund on the
London Stock Exchange. The company says it is looking to raise $375
million to invest in the rights to more than 120,000 songs,
including tracks by Elvis Presley and the Rolling Stones.
The Round Hill Music Royalty Fund's float follows the 2018 debut
of the Hipgnosis Songs Fund Ltd., which holds rights to more than
24,000 songs, including Bon Jovi's "Livin' on a Prayer," and "Don't
Stop Believin' " by Journey.
Shares of that fund have risen 6.4% this year, according to
FactSet. Its peers in the FTSE 250 index have fallen roughly 21% in
that time.
Round Hill's fund will look to invest in well-known hits with a
proven record of earning income. Songs of that type have been a
relative bright spot this year as streamers turned to the comfort
of older, more familiar tracks.
Music royalties have grown more popular with investors as the
growth of streaming services has helped reinvigorate the market for
recorded music.
Streaming revenue rose to $11.4 billion last year from $9.2
billion in 2018, according to the International Federation of the
Phonographic Industry, accounting for more than half of global
recorded-music revenue for the first time. Recorded-music revenue
topped $20 billion in 2019 for the first time since 2004. Goldman
Sachs estimates the market could hit $45 billion by 2030.
"There's a clear structural growth trend underway," said Solomon
Nevins, portfolio manager for alternatives at CCLA Investment
Management, which holds a position in the Hipgnosis Songs Fund
worth about GBP51 million, equivalent to roughly $66 million.
Spotify said it added about six million premium subscribers in
the three months to September, bringing its total to 144 million,
and expects to end the year with as many as 154 million.
News Corp's Dow Jones & Co., publisher of The Wall Street
Journal, has a content partnership with Spotify's Gimlet Media
unit.
Music royalties are particularly appealing with bonds offering
such low yields, Mr. Nevins said. A need for diversification and
income motivated the investment in Hipgnosis.
"One of the big advantages Round Hill will find is Hipgnosis has
already done a lot of the education work with investors," Mr.
Nevins said.
Investors tend to be attracted to music royalties because they
offer relatively stable income uncorrelated to other asset classes.
Royalties have proven resilient in part because those investors
often have long investment horizons and are less likely to be
deterred by short-term fluctuations, said Nari Matsuura, a partner
at Massarsky Consulting, a financial consultancy specializing in
the music and movie industries.
"When you're talking about the pandemic, you're talking about
essentially a two-year hit in a perpetuity model," she said. "You
are talking about an asset with a very, very long life."
The collapse of live-music revenue has pushed some songwriters
to sell the rights to their catalogs, but investor demand has kept
pace with a surge in supply, said Ms. Matsuura. Her firm performs
catalog valuations for music publishers and record labels, and acts
as outside valuation consultant for Round Hill Music and Hipgnosis.
That demand has meant net publisher's share multiples -- a measure
of how much investors pay relative to a song's trailing annual
earnings -- have stayed high, she said.
Write to Mischa Frankl-Duval at Mischa.Frankl-Duval@wsj.com
(END) Dow Jones Newswires
November 01, 2020 14:14 ET (19:14 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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