The Silent Boom: Understanding the Music Rights Industry

Have you noticed that every year, during the months leading up to Christmas, we hear the same songs being played across the radio, or through shopping mall speakers.

These songs trigger waves of memories from the past, fosters the holiday spirit, and ultimately provides a steady passive income for its artists. Even when they are long dead.

Just take a quick look at the list of top earnings of deceased artists.

It is amazing that the likes of Elvis Presley and John Lennon are still making millions, even decades after their death. This is a form of passive income that we, as investors, all dream about.

And what if you could reach these aspirations? What if you could build a solid base of passive income to ensure that you will live comfortably, forever?

Royalty-The Basics

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A royalty is a monetary compensation paid to the owner of a property, to whom a percentage of net revenues of the asset is provided based on its utilization. Like stocks, royalties allow investors in a business to claim equity ownership and future revenues, and are paid out at a specified interval.

Royalty investments take many forms, from venture financing to pharmaceutical products to entertainment and energy.

Entertainment royalties can be films, books, television shows, and music.

And every time it is used for commercial purposes, it generates income for its artist or a holding company. Sounds lucrative, yes?

Compared to other asset classes like stock, music royalties could be an uncorrelated investment, which provides a stable income to investors via regular payments in specific intervals like monthly and annually:

Recovery from the 15-year bear market

Do you remember Napster?

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The release of this pioneering peer-to-peer (P2P) file-sharing software sent shockwaves across the music industry as Napster users could freely share digital audio songs encoded in MP3 format on the platform.

To make it worst, following Napster’s footsteps came a variety of P2P software like Limewire, Kazaa, Freenet, which allow sharing of both videos and audio files. This negatively affect the entire entertainment industry as professionally-produced contents are unable to be monetized.

As the majority of music sales came from physical contents like CDs, piracy software like Napster effectively destroyed the music industry, of which at its zenith in 2000, generated over $20B in revenues globally (see picture below).

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The decline was immediate as revenues collapsed and the music industry has been in a bear market for the last 15 years.

With the emergence of high-speed internet, smart phones, and paid streaming services like Pandora and Spotify sales have slowly recovered, with streaming content assuming more than half of music sales last year.

According to the IFPI Global Music Report 2018, streaming revenues are growing at 45.5% rate in 2018 with 176 million paid subscription accounts globally.

At this growth rate, we are projecting the industry to surpass 1999’s level by 2021 with streaming music continuing to dominate.

Peter Pham