Changing Tune: The power of music as an alternative asset class

Changing Tune: The power of music as an alternative asset class

Watching a gifted, legendary musician like Willie Nelson or MC Hammer auction their guitars or gold records just to raise some cash is a sad sight.

These musicians spent years “in the market” at concerts, events and private gigs, selling their services to an audience and making a lot of money for their managers and their own bank account. All the while, they were building a deep portfolio of intangible assets such as brand, content, invention and relationships that made them highly valuable.

Then one day, for whatever reason, the market changed and the normal metric of a musician’s success – cash and concerts – just didn’t pay the bills anymore. Too many artists give up at this point, heading to stage left. But the smarter ones know their intangible assets are still worth something and begin searching for ways to value and package them correctly.

Willie Nelson and MC Hammer were stuck in the mindset of ordinary accounting, thinking their wealth was stored in physical things like guitars and gold records. But if they knew more about intangible assets, they would see their music, image and networks very differently.

Thinking about monetising music today requires a bit of nuance. Album sales have gone the way of the dinosaur and streaming services pay artists only fractions of a penny per play. Today, the real value of a music catalogue is in creating rights or licensing deals.

Famous musicians like Bruce Springsteen, Bob Dylan, Tina Turner and the Red Hot Chili Peppers clearly understand this new world. Over the past few years, each of these artists struck agreements reportedly in the nine figures to sell their catalogues to record labels or investment funds.

Obviously, if a record label or private equity firm shells out $100 million to buy an artist’s music, it is a safe bet that the buyer’s motivation is not entirely altruistic. Since song rights can be monetised for up to 70 years after a musician’s death, there is a long runway for these buyers to generate a huge return on investment from these intangible assets.

So, it’s no coincidence that Mötley Crüe songs are being used in car commercials. The band sold the rights to its catalogue to BMG for $90 million in 2021. Chevrolet’s ad campaigns now also feature Fleetwood Mac songs after investment fund Hipgnosis bought the rights to 115 songs written by band member Christine McVie and another 161 songs written by bandmate Lindsey Buckingham. The fund apparently didn’t believe the “Rumours” that nothing is ever easy when it comes to Fleetwood Mac.

Movies and TV are other ways to create income from the intangible asset of music. Some of the most memorable scenes in cinematic history are intimately tied to beautiful and catchy songs. Thor’s battle with his evil sister Hela would be boring without Led Zeppelin’s “Immigrant Song” playing in the background. And could any song other than Peter Gabriel’s “In Your Eyes” blast from Lloyd Dobler’s boombox in Say Anything? Some movies, like Forrest Gump, are so tightly bound to the soundtrack that it is impossible to imagine one without the other.

If they choose not to sell their music rights as a package, an artist can still create a decent income stream by charging usage rights by the song, by the movie scene, by the number of seconds a song plays or by an infinite number of permutations. The perfect song placement in exactly the right media can have enormous value for a rightsholder. Following this logic, Kate Bush is probably having a nice year thanks to the TV show Stranger Things.

In the business world, building up value over years and then “exiting” the company is a celebrated moment of reaching success. Yet when an artist does the same thing by offering their intangible assets to the market, it’s called “selling out” and frowned upon. This attitude simply isn’t a productive way to think about intangible assets.

After all, many of the artists now selling their catalogues tend to be on the “B-side” of life with their music-making years well behind them. They are justified in wanting to unlock that value, not just for themselves but also for their families.

But it can turn messy. Music rights were a large factor in the squabbles about inheritance for Prince’s estate. When the court proceedings were over, Primary Wave struck a deal with several of the late artist’s siblings to acquire their portions of his catalogue. The music company clearly understood the value of those assets.

Music rights are a fantastic example of value hidden in plain sight. You may not be able to physically touch a song, but you can certainly feel emotions when they play on the radio. There is value in these intangible assets. And in the correct hands, these assets can be a huge generator of well-deserved wealth for an artist and their families.

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