Niche-Focused Funds Are the Next ‘Natural Step’ in Music Investment
Written by djfrosty on June 14, 2023
Would you rather own the rights to Bruce Springsteen’s song catalog or the musical scores to hit Nickelodeon TV shows such as iCarly, Victorious and Henry Danger?
While those tween comedies may not be household names, fans stream them worldwide, and unlike Springsteen’s masters and publishing rights — which Sony bought for $500 million in 2021 — the rights to their scores sold for tens of millions, presenting, for some, an appealing and approachable investment.
The Nickelodeon shows’ music is an example of the kinds of deals being done by a new crop of music investment funds that are focused on acquiring the one type of music they know best, often for a much lower price than the deals making headlines.
Funds like Armada Music’s BEAT (focused on dance), Jamar Chess’ Wahoo Music Fund One (Latin), Singapore’s blackx (the Asian music market) and Multimedia Music (film and TV music) have all launched in roughly the last 18 months with similar aims: to exploit their specialized genre knowledge and industry connections to buy rights to songs in one category and earn a return.
The principals of these funds, which have raised between $100 million (BEAT, blackx) and $200 million (Multimedia) from banks and investment firms, say the primary difference between them and funds like Primary Wave and Hipgnosis, which have institutional and private equity backing, is that their success hinges on a lower cost of entry and therefore present less risk.
“It’s a niche within a niche,” says Phil Hope, founder/CEO of Multimedia Music, which recently bought the music income and copyrights to scores from the Nickelodeon shows. “People see that there’s a well-priced opportunity in what we’re doing. Is it as obvious or as sexy as buying a big artist’s catalog? It needs a bit of explaining.”
Each fund faces its own challenges, but in an investment class, where the slowing of streaming growth and high interest rates are prompting greater investor scrutiny, these funds present the next natural step, says Bob Valentine, president of Concord. “We are now at the evolution stage of the investment thesis,” says Valentine, who will become Concord’s CEO in July. “There is still supersize growth in some of these genres — like Latin, dance, EDM. Investment managers are thinking, ‘The cost of capital is going up. Let’s find the genres that are going to outpace that index trend. Then, if the cost of capital goes up, we still outpace it.’ ”
Founded in late 2021 by Hope and James Gibb, Multimedia Music has acquired the rights to dozens of film and TV scores, including James Newton Howard’s catalog (Pretty Woman, Fantastic Beasts and the Hunger Games films), the STX music library catalog (Bad Moms, The Foreigner) and in-demand composers like Tyler Bates (the Guardians of the Galaxy and John Wick franchises, Deadpool 2).
Multimedia has raised $200 million in debt and investment from Metropolitan Partners, Pinnacle Financial Partners and others to buy the rights to film and TV music that is reliably played — whether streamed, broadcast or licensed by filmmakers.
“Initially, investors were excited but didn’t understand it. They kept saying, ‘I don’t know who’s going to be streaming film and TV music on Spotify,’ ” Gibb says. “What we’re looking at are the TV shows and films that have longevity so that every time they get played anywhere in the world, we get streaming royalties paid back to us.”
Chess, whose Latin music-focused Wahoo Music Fund One launched in 2022, says he also spends time educating prospective investors. “You’re buying into cultural artifacts and less into a net publisher’s share of now. That’s why it’s a good deal,” says Chess, whose grandfather, Leonard Chess, co-founded Chicago’s legendary Chess Records.
Last year, Wahoo acquired a 50% stake in the publishing and recording catalog of Oro Solido, a classic merengue group, for an undisclosed amount. Chess says he is in talks to acquire two more catalogs that are also considered classics in the Latin genre — a status that makes them marketable for new recordings and sampling by current Latin artists.
But despite the surging popularity of Latin American music — recorded-music revenue grew by nearly 26% in Latin America last year, according to IFPI — Chess says investor interest is still lagging.
“We are not competing against a Sony buying [Bad Bunny’s label] Rimas,” says Chess, who is also president of Spirit Music Latino. “There is a wealth of opportunity across the [Latin American] territories, and sometimes lining up investors can be a challenge.”
BEAT Music Fund was launched in April by independent dance music label Armada Music. Its first acquisitions were rights belonging to artists it has ties to, like Detroit techno forefather Kevin Saunderson’s KMS Records and Russian DJ ARTY. BEAT enters the investment space at a time when the global dance music industry grew by 34% to $11.3 billion in revenue in 2022. Its fan base is also growing 10 times faster than hip-hop on TikTok, according to a new report from MIDiA Research.
“Our plan is to invest $100 million in its first two years and increase the investment to at least $500 million in coming years,” says Nadine van Bodegraven, COO for the fund. “Our goal is to announce at least one new deal every month this year.”