Between 2014 and 2023, recorded music industry revenues more than doubled, from approximately $13bn $28bn, marking nine consecutive years of growth according to the International Federation of the Phonographic Industry’s Global Music Report 2023.
The main growth driver behind? Streaming.
Streaming revenues grew from $1.8bn in 2014 to $17.5bn in 2022, and now account for nearly 50% of the global music market.
Josh Gruss, CEO of music-focused private equity firm Round Hill Music, has been in the industry for over a decade and has witnessed firsthand how streaming has transformed the music rights ecosystem
“In the ’90s, people used to steal music. In the early 2000s, they didn’t buy it much, and if they did it was a one-off. Now with subscription platforms like Spotify, there’s a predictable, recurring cash flow,” he says. “Streaming has largely ended piracy – it’s a clear value proposition.”
This has shifted a once-niche asset class into the mainstream, attracting interest from the likes of BlackRock and Blackstone. And there’s plenty of opportunity to tap into.
“Every time we hear music – whether in a bar, a restaurant, on YouTube, TikTok, TV, at a football game, or on a plane – there’s a royalty involved,” says Gruss.
The pitch
A major part of the appeal is the transparency and data around a song’s performance that streaming provides, with play counts and listener demographics all readily accessible.
“It’s very easy to get a comprehensive understanding of a song’s royalty history,” explains Gruss. “The transparency makes underwriting much more precise. You can access a range of services to analyse how many streams a song has received, and spot trends over time.”
Streaming has lowered distribution costs and made revenue collection more efficient, particularly for legacy artists, according to the World Intellectual Property Organisation (WIPO). Social media is also proving influential as discovering new music has never been easier.
“We’ve seen some of our older repertoire get discovered by the younger generation. The streams jump majorly when a song goes viral or is used in a movie,” says Gruss, citing the Goo Goo Dolls’s 1999 song Iris which, following its recent appearance in ‘Deadpool & Wolverine’, has spent over 70 consecutive weeks in the UK Top 100.
The key
When Round Hill was founded in 2010, “music royalties were largely under the radar,” says Gruss. But he saw parallels with pharmaceutical royalties – steady, long-term, IP-based cash flows that could appeal to investors.
The music rights universe is divided into two types: publishing, or the ownership of the composition; and master recordings – the artist’s interpretation of the song.
From the start, Round Hill’s investment thesis rested on songs that would “stand the test of time”, typically favouring older music than new releases. This also works to lower the risk as it’s been stabilised.
When evaluating acquisitions, the firm looks for tracks that are recognisable over chart toppers: “The songs you hear at weddings, on American Idol, or movie soundtracks. They’re part of the public consciousness,” says Gruss. Examples from Round Hill’s catalogue include All by Myself by Celine Dion and Total Eclipse of the Heart by Bonnie Tyler.
In addition, Round Hill also targets assets that it believes to be unloved but with room to grow. “You don’t want to buy a song at its peak moment,” Gruss adds.
Alongside ensuring royalties are paid and distributed, the firm has an internal licensing team dedicated to creating value for the portfolio, including placing songs in film, TV, advertising, gaming, or producing new covers.
One such case was Olivia Newton-John’s 1981 hit Physical.
“That was a big song back in the 1980s, but it hadn’t done much in recent years. We expected to see more usage in commercials or TV based on its profile, but the numbers were surprisingly low. Once we acquired it, we secured a lot of placements right out of the gate.”
Then came American singer-songwriter Benson Boone and his song ‘Mystical Magical’ which borrows part of Newton-John’s melody. The fund now receives a certain percentage from the Top 20 Global Hit.
More recent acquisitions include the catalogues of British post-punk band Modern English and American songwriter and producer Vini Poncia. The deals include both publishing and master rights for I Melt With You, as well as hits like I Was Made for Lovin’ You by KISS and You Make Me Feel Like Dancing by Leo Sayer.
These transactions have brought Round Hill’s assets under management back to circa $1bn, following the 2023 sale of its LSE-listed vehicle to Concord for $463m.
Changing tempo
Music rights investments are not without risk.
WIPO reports several considerations include shifting trends, artists falling from favour, or strategic decisions by artists that can impact valuations – Taylor Swift’s re-record of her back catalogue following Shamrock Capital’s acquisition, for instance.
It’s also different from the traditional private equity playbook.
“This isn’t a ‘buy and flip’ strategy. It’s about patience,” Gruss says. “The cash flow is steady enough that you can earn back your investment through dividends alone. Rights can last for decades – far beyond the lifecycle of a typical private equity fund.”
Round Hill currently manages five private funds, each ranging from $300m to $400m, and maintains a diversified approach, spanning artists, genres, copyright type and time period.
“We could have spent it all on a Sting catalogue,” says Gruss, “Instead we own 60 to 70 catalogues per fund.”
While the average vintage is 1980s-1990s, Round Hill also holds tracks from the 1950s and present day. This flexibility matters to clients seeking music from specific eras, such as film or TV producers working on period projects.
Looking ahead, the firm is considering how the proliferation of asset-backed securitisation may work in a portfolio such as theirs – a theme to be further explored in the private markets ecosystem.
