Music as an Investment – Part 1: An Overview

Until a few years ago, music publishing was considered to be a rather boring business field in which music rights are acquired and licensed for various uses. This business model has not principally changed, but music rights have become a speculative investment in recent years, when new players such as Hipgnosis, Primary Wave and Round Hill entered the market with spectacular music catalogue acquisitions in the multi-digit million range.

This blog entry traces the development of the music rights market and the most important players in recent years and is the introduction to a multi-part blog series on “Music as an Investment”.

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Music Majors in the Streaming Economy: Universal Music Group

Universal Music Group’s parent company Vivendi announced plans to spin-off the world’s largest music major company as a standalone entity on the stock market. It is no incident that the French media and telecommunication conglomerate Vivendi considers such a strategy. Spotify’s public listing early in April this year was a financial success and it seems that investors currently assess music as a good investment. The overall economic climate is positive and Universal Music Group (UMG) performed very well in the past few years – mainly because of significantly increasing revenues from music streaming. In the last annual report for the financial year 2017, UMG posted a total revenue of € 5.67bn (+ 25 percent compared to 2012) and an EBITA of € 761m (+ 45 percent compared to 2012). Music streaming is the main driver of revenue and profit growth. Thus, revenue from streaming increased by almost 33 percent from 2016 to 2017 to EUR 1.97bn contributing more than a third to UMG’s total revenue in 2017.[1]

The further analysis highlights how UMG had to reinvent itself as a comprehensive music service company with a focus on music streaming and providing a wide range of services far beyond the traditional recorded music business.

The Global Music Publishing Market – An Analysis

In a Music Business World Wide article[1], music industry analyst Will Page calculated a value of US $11.34bn for the global music publishing market in 2014. The number comprises of US $7.55bn for the collection of performance fees, US $1.32bn for mechanical collections and US $0.35bn for private copying collections by CISAC[2] members and US $0.42bn for non-CISAC mechanical collections (e.g. Harry Fox Agency collections). Further US $1.70bn of revenue have to be added for music directly licensed by the publishers (“grand rights” and synchronisation rights).

 

Figure 1: The global value of the music publishing market in 2014

Source: After Music Business World Wide, “$25 billion: The best number to happen to the global music business in a very long time”, December 10, 2015 (retrieved January 19, 2016)

 

The analysis highlights that music publishing is as relevant as the recorded music industry with a global market volume of about US$ 15bn. Therefore, this blog post analysis the global music publishing market in a long-term perspective and investigates economic relevance of music publishing for the music majors – Universal Music Group, Sony Music Entertainment and Warner Music Group – as well as the structure of the global music publishing market.