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 accounts. Meanwhile, they were also building a deep portfolio of highly valuable intangible assets such as brand, content, invention and relationships.

Then one day, for whatever reason, the market changed and the normal metric of a musician’s success – cash and concerts – no longer paid the bills. Many give up at this point, but smart artists know that their intangible assets have worth, and begin searching for ways to value and package them correctly.

Willie Nelson and MC Hammer were stuck in the ordinary accounting mindset, believing that their wealth was stored in physical objects such as guitars and gold records. However, if they knew more about intangible assets, they might view their music, image and networks very differently.

Thinking about monetising music today requires 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 understand this new world; each of these artists has struck agreements reportedly in the nine figures over the past few years to sell their catalogues to record labels or investment funds.

If a record label or private equity firm shells out $100 million to buy an artist’s music, the buyer’s motivation is likely not entirely altruistic. Since song rights can be monetised for up to 70 years after a musician’s death, buyers have a long runway to generate a huge ROI from these intangible assets.

It is 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 Christine McVie and another 161 songs written by Lindsey Buckingham.

Movies and TV are two other ways to create an income source from the intangible asset of music. Some of the most memorable scenes in cinematic history are intimately tied to beautiful and/or catchy songs. Thor’s battle with his evil sister Hela would be boring without Led Zeppelin’s “Immigrant Song” playing in the background. Could any song other than Peter Gabriel’s “In Your Eyes” blast from Lloyd Dobler’s boombox in Say Anything? Some movies, such as 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 generate a decent income stream by charging usage rights by the song, movie scene, number of seconds a song plays or by an infinite number of other permutations. The perfect song placement in exactly the right media can have enormous value for a rights holder. Following this logic, Kate Bush is probably having a nice year thanks to the TV show Stranger Things.

In the business world, generating 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 is referred to as ‘selling out’ and is frowned upon. This attitude is not a productive way to think about intangible assets.

After all, for many artists now selling their catalogues, their music-making years are behind them. They are justified in wanting to unlock that value, not just for themselves but also for their families.

However, it can turn messy. Music rights were a large factor in the dispute over inheritance of 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, clearly understanding 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 they can illicit strong emotions when you hear them on the radio. These intangible assets have value, and in the correct hands, can be a huge generator of well-deserved wealth for an artist and their families.

This is an Insight article, written by a selected partner as part of IAM's co-published content. Read more on Insight

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