Buying Music Catalogs: Why Diversifying Your Investment Portfolio Is Important

Investment portfolios have traditionally always revolved around stocks and bonds, real estate, and more recently alternative assets such as cryptocurrencies and private equity. But one asset class has quietly gained prominence among institutional and private investors alike over the past years, namely music catalogs. With their unique mix of emotional resonance, cultural significance, steady income potential, and resilience to market volatility, music catalogs are now commonly part of diversified investment strategies. Let’s see why that is, and why this diversification is critical to long-term success.

Music catalogs offer predictability

At their core, music catalogs represent an income-generating asset, just like commercial real estate or market stocks. A report from Goldman Sachs from 2023 highlights the growing potential of music catalogs as reliable revenue generators, driven by the rise in streaming and licensing opportunities. Basically, a music catalog consists of the rights to compositions, recordings, or both, and generates revenue through royalties derived from licensing, streaming, synchronization, and other use types. Unlike many assets that rely on appreciation, music catalogs provide consistent cash flow, a feature that appeals to investors seeking reliable and predictable income streams.

The predictability of these revenues is the result of long-standing royalty frameworks. For instance, when a song is streamed on platforms like Spotify or Apple Music, the rights holder earns a share of the revenue generated by the platform. Additionally, synchronization deals, where music is licensed for use in films, commercials, or video games, often yield substantial payments, further boosting the catalog’s potential. These recurring revenue streams offer a form of stability that is particularly attractive during periods of market volatility, where other asset classes, like real estate, might prove risky. 

What’s more, the financial performance of music catalogs is not usually influenced by traditional economic cycles or fluctuations. Consumption of music tends to remain steady regardless of broader economic conditions; people stream music, watch TV, and attend virtual events even during downturns, ensuring that royalties continue to flow. This resilience makes music catalogs act like a hedge against economic uncertainty, much like gold or other similar assets.

What about inflation?

Inflation erodes the purchasing power of traditional investments, such as bonds or stocks. Music catalogs, however, are uniquely positioned to counter this trend, as revenue from royalties often scales with inflation, especially as subscription rates for streaming platforms and licensing fees increase over time. For instance, the ongoing growth in paid subscribers to platforms like Spotify and YouTube Music translates into higher payouts to copyright holders. And, as advertisers and filmmakers compete for access to popular tracks, the fees they are willing to pay also rise, further protecting music catalogs from inflation-related pressures.

The Tangible Value of Intellectual Property

Unlike speculative (read: risky) investments, music catalogs are backed by intellectual property, which represents a tangible asset class with intrinsic value. Iconic songs and albums, like The Beatles’ White Album or Pink Floyd’s Dark Side of the Moon, for instance, hold cultural and emotional significance that transcends monetary considerations. This financial and emotional value creates a unique, low-risk profile for music catalogs, which makes them so appealing to investors.

The appeal lies in the perpetual relevance of music. Tracks from iconic artists like The Beatles, Bob Dylan, or Fleetwood Mac continue to generate significant royalties decades after their release. This is mainly due to their universal appeal, cross-generational impact, and adaptability to new mediums, such as streaming and virtual reality platforms. This enduring value provides a level of stability that is very difficult to replicate in other asset classes. Think of the real estate crisis of 2008, which showed just how quickly commercial or residential properties can depreciate, leading to significant or even catastrophic financial loss.

Even for lesser-known catalogs, the potential for revenue generation is fueled by the digital age. Streaming platforms and algorithm-driven playlists have made it easy for people to discover new music, enabling older or niche tracks to find new, younger audiences. This dynamic ensures that even relatively obscure catalogs have the potential to generate consistent income over time.

What drives Demand for Music Catalogs?

The music industry has changed significantly over the past two decades. While physical sales once dominated revenue streams, the emergence of digital distribution and streaming has reshaped the landscape entirely, and today, global streaming revenue exceeds $26 billion annually, with this figure projected to grow even more. This trend, further fueled by the increased popularity of streaming services across the globe, creates a solid foundation for the monetization of music catalogs.

The surge in catalog acquisitions by major players also works to show the growing recognition of their investment potential, leading other inventors to shift their focus to this particular asset class. Companies like Hipgnosis Songs Fund, Round Hill Music, and major record labels have spent billions acquiring rights to prominent catalogs. This buying spree is driven by low interest rates, the stability of music as an asset class, and rising valuations driven by increased competition among buyers.

The music licensing market is also experiencing unprecedented demand from adjacent industries. Streaming services like Netflix and Amazon Prime, gaming companies, and social media platforms are all reliant on music to enhance user experiences. This demand then creates a diverse range of revenue streams for catalog owners, further reinforcing their appeal.

Challenges and roadblocks

While music catalogs offer numerous advantages, like any type of investment, they are not without risks. Valuation discrepancies can pose challenges, as pricing a catalog often involves forecasting future royalty streams, which can be tricky. Accurate valuations require expertise and data-driven analysis, which may be beyond the reach of inexperienced investors.

What’s more, the rise of AI-generated music and changing consumption patterns could introduce new uncertainties. As algorithms become more efficient at creating quality music, the market for human-created content may face increased competition. However, the emotional, historical, and cultural significance of established songs provides a protective barrier that mitigates these risks.

The growing interest in catalogs is also not limited to institutional players. High-net-worth individuals, family offices, and even retail investors are entering the market through fractional ownership platforms like Royalty Exchange or SongVest, which allow smaller investors to purchase shares in music royalties. 

In an era of economic uncertainty, inflation-related pressures, and continued digital transformation, music catalogs offer a unique blend of stability and growth potential. By understanding the market dynamics, addressing the potential risks and legal considerations, investors can unlock the full potential of this emerging asset class.

If you’re looking to kickstart your music career but have limited resources, we can help you get funding for your next project while staying in control of your own work and career trajectory. You can apply for an advance ranging from $1,000 to $3 million to get your career off the ground. Get an estimate now and start turning your dream into reality. We can also help you sell your music catalog at a competitive price. Find out what your music is worth.