Investor Insights – The Year Ahead In Music Royalties

In this month’s Insights, we will look at the global music market and the dynamics impacting music industry cash flows as we enter 2021.
February 12, 2021

Overview of the Current State of Global Recorded Music & Music Publishing

The global recorded music industry is growing again. According to the International Federation of the Phonographic Industry (IFPI), the recorded music industry revenues began to increase again in 2015, after nearly a decade of piracy-driven declines. The global recorded music industry bottomed at $14 billion in 2014 and has grown to $20 billion in 2019, which is in-line with 2004 levels.

Streaming is driving this growth. The convenience and personalization of music streaming combined with the accessibility via smartphones and other smart devices have driven the recorded music industry’s return to growth. According to the International Federation of the Phonographic Industry (“IFPI”), global recorded streaming revenues have grown at a 42% CAGR since 2015 while the entire recorded industry has grown at a 9% CAGR. The graph below from IFPI shows how streaming growth has more than offset declines in physical and download formats over that period.

Meanwhile, the global music publishing industry has been resilient through economic cycles over the past decade. According to the International Confederation of Societies of Authors and Composers (CISAC), global publishing collections have increased steadily from €6.1 billion in 2008 to €9.0 billion in 2019, as shown in the graph below. Will Page, the former Chief Economist at Spotify, estimates that the global publishing business – CISAC collections plus estimates of non-CISAC publisher revenues from Music & Copyright – is currently $11.7 billion.

Globally streaming is still in the early innings of adoption. Consider the following market penetration math:

But in the US, streaming growth may slow over the next few years. As Will Page has pointed out, “The United States now has 110 million music-streaming subscriptions, which sounds like it leaves plenty of room for growth in a country of 333 million. But only 220 million are addressable by streaming services, according to the consultancy MIDiA Research, and they live in just 110 million households — many of which share subscriptions.”

Several positive catalysts for music IP rightsholders are potentially on the horizon this year, including 1) new licensing opportunities; 2) regulatory changes; 3) emerging market growth.


There are new licensing opportunities for music IP owners that are just starting to be realized. Short-form videos (e.g., TikTok and Triller), e-fitness (e.g., Peloton), and other platforms (e.g., Facebook) are just starting to license music IP from rightsholders, creating new sources of future monetization. For example, in July 2020, the National Music Publishers’ Association (“NMPA”) reached a licensing agreement with TikTok, a short-form video platform with roughly 100 million US monthly active users and 700 million worldwide monthly active users. Prior to signing the licensing deal, the NMPA claimed that approximately 50% of the music publishing market was unlicensed with TikTok.

Other large platforms, such as Facebook and Peloton, have recently signed inaugural licensing deals with music rightsholders. These licensing deals create exciting new future sources of income for music IP owners.

One other major new licensing opportunity is video gaming. 35 million people watched hip-hop star Travis Scott perform an in-game Fortnite “concert” in 2020. Later in the year, Sony Corporation (whose subsidiary owns Scott’s label) announced a $250 million investment in Fortnite maker Epic Games. More recently, Sony announced a new subsidiary, Sony Immersive Music Studios, focused on developing “immersive music experiences” in Unreal Engine, Epic’s game engine on which Fortnite is built.

Sony isn’t the only major music company exploring gaming partnerships. Warner Music also recently announced a $520 million investment in kids’ gaming platform, Roblox. Lil Nas X held an in-platform Roblox concert that attracted over 30 million views. The intersection of music and gaming promises to be an exciting one to watch for music rightsholders in 2021.

Regulatory Changes

There have been recent positive regulatory announcements for music IP rightsholders. For example, US musical composition mechanical royalties are regulated by the Copyright Royalty Board (“CRB”), a panel of three judges who determine music royalty rates and terms over a period of time. In January 2018, the CRB ruled that on-demand subscription streaming services (e.g., Spotify, Apple Music, etc.) have to increase the percentage of revenue paid to songwriters and publishers by 44% to 15.1% of revenue over the five-year period of 2018 to 2022.

While several streaming services are currently appealing this decision, it could potentially have a very positive impact on US mechanical royalties for rightsholders. Meanwhile, proceedings to determine streaming rates over the 2023 to 2027 period began in January 2021. These two rate decisions will determine composition on-demand streaming pricing for 10 years!

Emerging Market Growth

Emerging markets, such as China and India, are only just starting to pay for music IP. According to IFPI’s 2019 Global Music Report, China was the seventh-largest recorded music market and India was not even in the top 10, despite having the world’s two largest populations. A Goldman Sachs analysis notes that paid streaming penetration rates in China and India are 4% and 3%, respectively. Furthermore, the below chart from Goldman shows how little is currently spent per capita on music in emerging markets relative to developed markets. With that being said, IFPI notes strong 2019 recorded music growth in China and India of 16% and 19%, respectively, as progress is made in copyright laws and streaming adoption.

COVID-19 Impact on Music Growth Drivers

Music industry revenues have held up relatively well compared to other industries during the COVID-19 pandemic. The growth of digital streaming has allowed consumers to access and enjoy music regardless of social distancing restrictions. At the same time, other forms of music consumption, especially live, have suffered.

Despite modest disruptions to streaming as a result of COVID-19, music consumption increased in 2020. At the start of the pandemic, audio streaming saw a decrease in listening hours, as consumers drove less and focused on other platforms (e.g., video streaming) and forms of entertainment (e.g., TV, video gaming). However, according to Billboard, these declines returned to growth by the end of April, as shown in the graph below. For all of 2020, audio streaming increased 17% year-over-year and total audio consumption increased 12%.

Indeed, the modest decline in engagement as measured by listening hours has not impacted consumers’ willingness to pay for audio streaming. Spotify’s 3Q 2020 Monthly Active Users (“MAUs”) and paid streaming subscribers increased 29% and 27% year over year, respectively, which was at the top of the company’s guidance. As a result, Spotify’s 3Q 2020 premium revenue increased 15% year-over-year.

Spotify forecasts continued growth in subscribers and revenue through year-end 2020 as it continues to expand in new territories and convert free tier users to paying subscribers.

However, other sources of music income, especially live music, have suffered during the pandemic. The live music market has been severely impacted by the global pandemic. For example, Live Nation, a leading live entertainment company, experienced an 80% year-over-year revenue decline through the first nine months of 2020 with global concerts shut down due to the pandemic. Live Nation management expects concerts to return to scale by summer 2021. Similarly, an analysis by Goldman Sachs projects live music revenue to decrease 75% in 2020 before recovering in 2021 or 2022, as reflected in the graph below.

Digital radio, terrestrial radio, and general licensing income have also been adversely impacted by the pandemic. Sirius XM, the satellite and digital radio broadcaster, saw total company sales increase 2% year-over-year through the first nine months of 2020, driven by a 5% increase in subscription revenue offset by a 7% decline in advertising revenue. For the full year, Sirius XM management expects total company sales to increase 1% year over year.

Lower advertising spending has impacted terrestrial radio too, although the pullback may be improving. iHeartMedia, the owner of 800+ AM/FM radio stations, saw 3Q 2020 sales decline 22% year over year, an improvement from the 47% year-over-year in 2Q 2020. iHeartMedia did note that the year-over-year revenue decline had improved each month from April (down 50% year-over-year) through September (down 18% year-over-year).

As a result, the royalties paid by radio stations to Performance Rights Organizations (“PROs”) may fall over the next couple of quarters. Indeed, ASCAP, one the largest PROs, President Paul Williams released the following statement in April 2020: “As COVID-19 has continued to escalate and more and more of our licensee businesses have shut down, we have had to carefully review our cash forecasts and plan for more disruption to our revenue collections and member distributions. As I mentioned in my last letter, the pandemic will have a material and negative impact financially on almost every category of licensing, so it is important to ensure that we are prepared for a decline in both revenues and distributions, which is why we took the step weeks ago to freeze numerous operational expenses.”

(A recent Royalty Exchange analysis shows that the bulk of this decrease is likely to affect songs that rely on in-venue or live performances, while songs that [redominantly earn from streaming platforms are less likely to be impacted.)

The three “major” record labels and publishers have seen these trends play out in recent earnings reports. Universal Music Group, which is a part of Vivendi, reported total company revenue increasing 5% through the first nine months of 2020 with Recorded Music segment revenue up 6%, Music Publishing segment revenue up 16%, and Merchandising segment revenue down 43%.

Universal’s streaming revenues drove the revenue increase offsetting declines in physical (CDs), downloads, and merchandise sales. Sony Music segment revenue declined 5% year-over-year in the six months ended September 30, 2020. Sony’s Recorded Music streaming revenue increased 11% but was more than offset by declines in other Recorded Music, Music Publishing, and Visual Media revenue primarily caused by COVID-19.

Finally, Warner Music Group reported total company revenue flat year-over-year in the twelve months ended September 30, 2020. Warner’s Recorded Music streaming revenue increased 10% and Music Publishing increased 2% during the fiscal year but was more than offset by declines in physicals, downloads, and artist services revenues.

Recent Music IP Acquisition & Capital Markets Activity

Wall Street has taken notice of the industry’s secular growth story. In the past few years, billions of dollars have been raised privately and publicly to invest in music intellectual property rights and the companies that own these rights. Just recently, Warner Music Group went public, raising just under $2 billion and valuing the company at roughly $13 billion with the company’s current stock price valuing Warner at more than $18 billion. Hipgnosis Songs Fund raised over £1.05 billion in its July 2018 IPO and subsequent equity offerings. Round Hill Music raised nearly $300 million in its November 2020 IPO. Universal Music announced that it is planning an IPO in 2022.

Meanwhile, several private equity firms have raised funds focused on music IP rights. In December 2019, Providence Equity Partners announced $650 million of equity and debt capacity for its music IP acquisition platform Tempo Music Investments. In July 2020, Shamrock Capital announced the closing of its second Content IP Fund, which focuses on different types of intellectual property, including music IP. In the debt capital markets, Concord Music closed a $1 billion debt financing in August 2020. In short, there has been and likely will continue to be a significant amount of activity in the equity and debt capital markets for music IP assets in 2021.

With capital pouring into the space, music IP acquisition activity has been extremely hot.

  • In January 2018, Round Hill Music purchased Carlin Music Publishing – home to songs by Elvis Presley, James Brown, and Billie Holiday – for an estimated $240 million.
  • In June 2019, Scooter Braun’s Ithaca Holdings and Carlyle Group acquired independent label and publisher Big Machine Label Group for an estimated $300 million.
  • In March 2020, a consortium led by China’s Tencent Holdings bought a 10% stake in Universal Music Group (“UMG”), valuing UMG at €30 billion.
  • In December 2020, Universal Music announced the acquisition of Bob Dylan’s publishing catalog for a reported $300 to $400 million.
  • Since going public in July 2018, Hipgnosis Songs Fund has spent over £1 billion, acquiring more than 100 catalogs.

In short, the M&A market is very active, with BMG’s CEO Hartwig Masuch even calling the current environment a “feeding frenzy.” At Royalty Exchange, we expect transaction activity to remain hot in 2021.

As a result of this increased demand for catalogs, music IP valuations have generally been increasing. For example, Hipgnosis has reported the average blended acquisition multiple across its entire portfolio has increased from 12.8x in its fiscal year-end 2019 to 14.8x in its fiscal 1H 2021, as shown in the graph below.

Buyers of some recent iconic catalogs, such as Bob Dylan’s publishing rights, have reportedly paid as high as 30x cash flow! While we do not expect the average multiple to approach the Dylan deal’s rarified air any time soon, we expect the combination of strong investor demand and limited supply of evergreen music IP to keep acquisition multiples elevated in 2021.


In short, the music industry has experienced a dramatic turnaround in the past five years. Technological advances driven by streaming have ushered in a period of growth. And while COVID-19 has created several challenges, the industry is holding up relatively well with several potential new licensing opportunities on the horizon. Capital is flowing into music IP investing with acquisition activity remaining high and multiples trending higher. As a result, we expect 2021 to be another busy and exciting year here at Royalty Exchange.

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