Trading In Music’s Futures: How to Cash In on the Industry’s Gold Rush (Guest Column)

"There is wealth to be had in this new era, and it’s time to get a piece of it," writes Nick Jarjour.

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The music industry is entering a time of financial prosperity thanks to the widespread use of streaming services like Spotify, Apple Music, and Tidal. According to a recent report by Musicwatch, 77% of all internet users in the U.S. stream music, while Goldman Sachs projects a revenue pot of $34 billion by 2030. Finally, the music business is returning to the dog days of the 1990s, and while the margins are smaller — a fraction of a cent for a stream versus $14 and up for a CD — there is wealth to be had in this new era, and it’s time to get a piece of it.  

Major record companies have essentially always operated as mini-banks, providing an advance (which is effectively a loan) to artists in exchange for the rights to the music the artist releases. But now, actual banking institutions, hedge funds, and private equity groups are sniffing around the music industry, seeing an investment in music Intellectual Property rights as a safe bet. Billions of potential investment dollars are circling the music business, and coming in at an unprecedented rate.

In the past, innovators have dabbled with the idea of bringing IP rights into the financial world. David Bowie famously sold Bowie Bonds, a form of an asset-backed security that allowed people to buy into the revenue he was making off of his albums for 10 years. Bowie sold the bonds to Prudential for $55 million in 1997 (more than $87 million in 2019 dollars when accounting for inflation) and when they were liquidated in 2007, the rights reverted back to Bowie.

Today, Merck Mercuriadis, former manager of Beyoncé and Guns N’ Roses, and his publicly traded Hipgnosis Songs has been taking Bowie’s strategy to another level by deploying a massive fund to acquire the catalogs of hit-making producers, songwriters and artists. His belief: that proven hit songs are as predictable and reliable, and therefore as investable, as gold or oil.

Hipgnosis recently acquired the rights to Starrah’s back catalog, which includes No. 1 hits like “Girls Like You” by Maroon 5, Camila Cabello’s “Havana,” Spotify’s most-streamed song by a solo female artist, as well as other platinum and multi-platinum records for such acts as Katy Perry, Travis Scott, Quavo, Young Thug, Rihanna, Drake and Calvin Harris.

Starrah joins the likes of the Chainsmokers, Benny Blanco, Poo Bear, (Chris Brown, Justin Bieber), Teddy Geiger (Shawn Mendes), Johnta Austin (Mariah Carey, Mary J. Blige), Tricky Stewart (Rihanna, Beyonce) and many more whose rights have been acquired by Hipgnosis.

Why are artists cashing out and what exactly are they selling? The artists’ share of their copyright ownership of the songs. The purchaser is banking on the collection of royalties earned from composition rights — which for a No. 1 hit song can potentially earn millions in a year — and will see their return from the investment over the long haul.

As for why they’re selling? Neil Jacobson, who represents successful producers Jeff Bhasker (Bruno Mars) and Emile Haynie (Lana Del Rey), recently told Variety that it offers “a great opportunity for a producer to be able to take some risk off the table.” But he also cautioned: “A creator has to walk in with eyes wide open and remove any emotional connection to the work. This is a stream of income and that’s it. If you don’t feel that way, do not sell your catalog. The only way to be able to live with this is to simply see it as the money.”

This view runs contrary to Taylor Swift’s recent outcry over the sale of the master rights to her first six albums, which certainly held sentimental value for the singer and songwriter, and stung even more considering they were sold by the man who discovered and first invested in her, Big Machine Label Group founder Scott Borchetta, to the man she identified as a “bully,” Scooter Braun, a majority shareholder in Ithaca Holdings. But there’s a key difference here. As the songwriter, Swift will always earn from her catalog, no matter who owns the master recording. Loosely defined, a master is the original sound recording of a song and the broad rights that come with owning it. Most record deals give labels ownership of the masters in exchange for a budget for recording, promotion, marketing, distribution, etc. The composition rights, however, are owned by the songwriter and producer, not the label.

Composition rights is what Hipgnosis has been purchasing. Regardless of who owns the masters, when a song is streamed or purchased, the songwriters and producers get paid according to a pre-negotiated split with the owner of the master.

After negotiating a deal with Hipgnosis for my client Starrah, she and I have been invited to join the Advisory Board and we have been using our position to help negotiate and broker deals with a variety of songwriters and producers. With first-hand experience from both sides of the table, I am compelled to share this information to let today’s and tomorrow’s hitmakers know that there is a market out there for these catalogs. These rights are consistent and valuable and songwriters and producers are in a unique position the likes of which they’ve never seen before.

As for those who are not making hits, take note, because you can choose to invest in hit songs via a fund like Hipgnosis. Music is now being traded and invested in like oil, gold, or stocks, and now you can get involved and bet on your favorite hit songs like never before.

Nick Jarjour is a manager at Maverick and an advisor to the Hipgnosis Song Fund. Follow him on Twitter at @NickJarjour and on Instagram