music catalogs
President Trump’s global tariffs, which were paused for 90 days shortly after going into effect on Wednesday (April 9), have set global markets on a rollercoaster downhill and put on hold many of the year’s most-anticipated IPOs. Although markets rebounded strongly after the U.S. Treasury Department lowered most tariffs to a flat 10% — China is a notable exception — some anticipate the market volatility could present an opportunity for music catalogs and debt in the coming months, as investors look for more stable ground.
Both sectors — investing in music intellectual property and buying asset backed securities (ABS) collateralized by music rights — could see more demand from institutional investors looking to stockpile cash and safeguard against equities, several royalty investors, music valuation experts and entertainment bankers tell Billboard. For over a decade, music catalog returns have held relatively steady even during economic downturns, which may appeal to investors looking for assets they can easily cash out of in a pinch, those sources said.
Trending on Billboard
“The royalties space has been relatively calm over the last week given the volatility seen elsewhere, with many investors expecting their portfolios to remain resilient as they have been through other macroeconomic and geopolitical events, although it’s still early days,” says Stephen Otter, managing director at the Swiss-based private equity firm Partners Group. An investor in Harbourview Equity Partners, Round Hill Music and Lyric Capital Group, Partners launched its own royalty investment strategy in February to acquire music, healthcare, renewable energy and other royalties, with the aim of accumulating $30 billion in assets under management by 2033.
“As investors reassess their portfolio allocations in today’s environment, we expect many may consider casting their net wider to incorporate other asset classes, such as royalties,” Otter adds.
The rise of paid music streaming, which accounted for 51% of global recorded music revenues in 2024, according to the IFPI, has helped stabilize music royalties and make their returns more predictable into the future. While rights holders have some exposure to recessionary changes such as advertising spending and consumer discretionary spending, “Music streaming tends to perform well and has historically offset other declines,” says Brad Sharp, senior managing partner at Virtu Global Advisors.
Shot Tower Group, a Baltimore-based boutique investment bank, said that investor interest in music assets remains high despite industry reports of slowing streaming growth, although that outlook could change if macro-economic uncertainty persists, or a trade war were to take hold.
Brian Richards, managing partner at the music-focused investment bank Artisan, tells Billboard, “We haven’t seen any evidence of pullback in the music market during this past week of turbulence.”
Two sources said they expect more activity in the near-term in the credit markets for music. In the past 18 months, a growing number of music companies, like Concord, HarbourView and Recognition, formerly Hipgnosis, have raised money in the debt markets by selling asset backed securities backed by the songs they own in their portfolios.
These sources anticipate more esoteric debt like this to become available to investors because corporate bonds have been rallying since the beginning of the year, driving a narrowing in the difference between the yields of Treasury bonds and corporate bonds. A narrow, or tight, spread between those bonds typically signals optimism.
Shot Tower says it expects at least one music company to issue an asset-backed security in April, which could provide a gauge of investor sentiment. If the chaotic market mood and global uncertainty stick around, however, it could mean fewer music catalogs come up for sale and financing becomes more selective, Shot Tower says.
At least one industry group expressed fears over the possibility of retaliatory tariffs on digital services companies, such as Apple Music, Amazon, Meta and YouTube, and maybe even issues collecting royalties.
“Since creative industries are among the few American industries that have a positive balance of trade with other nations, we will be watching closely to see if other countries target American music in any retaliation, which could include tariffs or other actions like withholding royalty payments,” A2IM president/CEO Richard Burgess wrote in an email to members this week.
The withholding of royalties is unlikely, says Sharp, or may be limited to countries such as China that have higher tensions with the U.S.; on Wednesday, the Treasury raised the tariff on goods from China to 125% following the country’s imposition of retaliatory tariffs on U.S.-made goods.
“A rise in global economic tensions may result in an increase in consumption of more localized content on a by-country or by-region basis,” says Sharp. Economic policy could also result in higher inflation, he adds, “which will potentially impact interest rates and have a knock-on effect on valuations.”
Additional reporting by Ed Christman.
While some industry observers looking back on 2024 may see a half-empty cup due to slowing music industry revenue growth, a lackluster stock performance from the publicly traded major music companies and slightly declining valuation multiples in private catalog deals, Shot Tower Capital says it sees the “half-full” side of things.
That’s because Shot Tower, the boutique investment banking firm specializing in music asset transactions, says the sector still enjoys plenty of investor interest, adding that the industry is recession-resistant, as proven over time. As a result, it foresees stable valuation multiples.
Even though fewer music asset transactions closed in 2024 than in any year since 2018, some of the transactions for music assets carried valuations larger than $1 billion resulted in the “highest dollar value year for music M&A transactions in the post-streaming era,” according to Shot Tower’s annual Year in Review and Music Industry Outlook report. In 2024, transactions with an aggregate dollar value in excess of $8 billion have closed, according to the Baltimore-based firm.
Trending on Billboard
Moreover, Shot Tower notes that while some institutional investors like KKR, Vine Alternative Investments and Elliot Management have exited the music asset space, other private equity groups have entered it or increased their investments in the sector, including Hellman & Friedman, which bought a majority stake in Global Music Rights; New Mountain Capital, which acquired BMI; and Flexpoint Ford, which launched
in the music space with an investment in Nettwerk Music Group in March 2023 and has since invested in Create Music Group, Goldstate Music and Duetti.
Finally, while interest rates now offer competitive returns on music assets, thus negating somewhat the attractiveness of some music assets while making potential deals more expensive to finance, that has been offset by the breakout of asset-backed securitization, which allows buyers to finance deals at rates more favorable than rates offered by bank lenders.
During the last 18 months, Shot Tower has been either the financial advisor or sell-side advisor in transactions that included the sale of 50% of Michael Jackson music assets to Sony Music Group; the sale of a majority interest in Mavin Records to Universal Music Group; and the sale of the Hipgnosis Songs Fund to Blackstone. And those are just the publicly disclosed deals; the company declines to say how many deals it participated in last year.
Shot Tower compiled data on some 25 publicly known and privately sold music asset transactions during 2024, including deals it advised on and other deals it was aware of, even if it wasn’t a participant. From that, it reports that typical music publishing multiples averaged 16.1 times net publisher share (NPS) in 2024 versus 16.7 times in 2023.
However, if iconic transactions — assets with valuations over $200 million — are included, then average multiples are larger but nevertheless also declined from 2023’s 18.4 times NPS to 17.5 times NPS in 2024.
(How are multiples figured? If a song catalog collects $25 million in revenue and, after paying out royalties of $15 million, leaves $10 million in net publisher share, or NPS; and if that catalog is then sold for $200 million, that means the transaction carried a 20 times NPS multiple.)
Recorded music multiples also declined last year. Net label share (NLS) fell to a 13 times multiple for music asset transactions — excluding deals of iconic assets — from the prior year’s 13.8 times NLS multiple. If iconic transactions are included, then the average multiple in 2024 was 14.2 times NLS versus 15.2 times NLS in 2023.
Looking at multiples over time, Shot Tower says that the peak year for average music publishing multiples was 2021, when 19.4 times, including iconic transactions, was the average multiple; while the peak year for recorded music transitions was 2022, when the average multiple for deals including iconic catalogs was 16.3 times. NLS generally trails NPS, but overall, the window between the two multiples is narrowing slightly.
In most years between 2014 and 2022, the multiple spread between music publishing and recorded music catalogs was bigger by a factor of 4 in favor of NPS. For example, in 2014, NPS averaged a 12.5 times multiple while NLS averaged an 8.5 times multiple. But in the last two years, that window has narrowed to a factor of three, with last year’s NPS coming in at 16.1 versus NLS at 13.0; while in 2023, NPS averaged a 16.7 times multiple while NLS averaged a 13.8 times multiple.
Shot Tower attributes the valuation gap between recorded music and music publishing to a number of factors. For one, marketing costs to exploit recorded music are much higher. Music publishing also has more diversified income streams than recorded music. Additionally, music publishing growth slightly exceeds recorded music growth, according to Shot Tower’s analysis.
Looking forward, Shot Tower says it expects music publishing valuation multiples to decline slightly to about a 15.1 times multiple in 2028 from 2024’s 16.1 times average multiple, while it expects recorded music average multiples for valuations will decline to an average of a 12 times multiple from 2024’s average of a 13 times multiple.
One of the reasons Shot Tower thinks institutional investors will remain interested in investing in music assets is because of the increasingly popular use of asset-backed securitization (ABS) to finance deals due to “stable royalty income streams.” According to Shot Tower’s analysis, a buyer using asset-backed securitization can pay about 10% higher than a bank-financed buyer while achieving the same equity return. ABS deals also allow for a greater ratio of debt to equity (up to 65% leverage) than deals financed using bank financing (55% leverage).
Consequently, “this represents a meaningful offset to rising interest rates,” the report notes.
-
Pages