The Securization of Music Rights – Music Enterprise Analysis

A New Increase of Music Rights Securization

A long time later, Bowie’s avant-garde monetary experiment will be seen in a brand new mild because the time appears ripe for brand new monetary merchandise that package deal music rights for buyers. After Northleaf, KKR in February 2022 introduced the securitization of an unlimited music rights portfolio, acquired by its Chord Music three way partnership with Dundee Companions. KKR Credit score Advisors meant to promote greater than US $732 million of ABS supported by publishing and sound recording royalties from a list of 65,000 songs, together with hits from The Weeknd, Infantile Gambino, and Stevie Nicks.[4]

Nevertheless, a forerunner of this securitization increase was the US music accumulating society SESAC, which was purchased by Blackstone in 2017. In August 2019, SESAC bought US $560 million in bonds backed by licensing agreements and music royalty streams. In comparison with the later ABS offers, SESAC bought basic company bonds providing a yield of 5.25 per cent for a weighted common lifetime of 6.7 years. Kroll Bond Ranking assigned these bonds a ranking of BBB minus.[5] Three years later, in July 2022, SESAC once more issued company bonds price US $335 million to finance the acquisition of Audio Community, acquired by SESAC in 2021.[6] These bonds act like loans, however from a bunch of buyers as a substitute of elevating cash from a financial institution. The buyers anticipate the payback of their investments plus curiosity after an outlined interval, when the underlying asset has earned the required revenue.

These music rights ABS transactions, nonetheless, created new monetary merchandise, tradeable in a specialised market. This was the intention of Blackstone’s Hipgnosis Songs Capital fund, when it introduced the launch of a US $221.65 million securitization of 950 songs of its music catalogue, together with hit songs by Leonard Cohen, Justin Timberlake, and Nelly Furtado.[7]

Determine 1: The method of securitization of music rights catalogues, 2019-2025

In December 2022, Apollo Asset Administration’s Capital Resolution issued asset-backed securities price US $1.8 billion in cooperation with JP Morgan. Apollo’s ABS are backed by greater than 1 million copyrights from Harmony’s music catalogues, together with songs from Phil Collins, Creedence Clearwater Revival, Daft Punk, Miles Davis, Genesis, Think about Dragons, James Taylor, 9 Inch Nails, Pink Floyd, Cyndi Lauper, Little Richard, Otis Redding, R.E.M. and lots of different superstars.[8] In February 2024, it was introduced that ATLAS SP Companions, along with Truist Securities, had provided to promote US $266.5 million price of music ABS primarily based on roughly 5,000 songs from 66 songwriters from the Kobalt Music Publishing  catalogue.[9] A month later HarbourView efficiently satisfied the personal fairness agency KKR to challenge US $500 million in ABS backed by the royalty revenue from the exploitation of the acquired rights catalogue.[10] In November 2024, Blackstone accomplished a US $1.47 billion music rights ABS transaction, backed by the Hipgnosis Songs Fund 45,000-song portfolio, which Blackstone had acquired in July 2024 for US $1.58 billion. The proceeds from the so-called Lyra 24-2 ABS deal had been used primarily to repay debt and to finance future music catalogue acquisitions.[11]

A complete of US $6.2 billion of music-related bonds and asset-backed securities (ABS) has been issued since 2019 primarily by the big PE corporations, Apollo, Blackstone, KKR, and Northleaf. The securitization of music catalogues is each a monetization of music rights but additionally an exit technique for PE initiatives.

How the Securization Enterprise Works: Benefits & Disadvantages

In 2022, the pre-sale report for Hipgnosis Music Belongings (MUSIC 2022-1) by Kroll Bond Ranking Company (KBRA) highlighted how the ABS enterprise works. The MUSIC 2022-1 ABS had been issued by Hipgnosis Music Belongings 2022-1 L.P. with a price of US $221.65 million, collateralized by the royalty streams from the music publishing and grasp rights catalogue comprising 950 songs from charting songwriters and artists, together with Justin Timberlake, Nelly Furdato, and Leonard Cohen. This music catalogue was administered by the three music majors Common, Sony and Warner in addition to seven different music rights directors. The 950 songs catalogue was valued at US $341 million with a reduction fee of seven per cent. The bonds bear curiosity semi-annually and no repayments are scheduled earlier than the anticipated compensation date in Could 2027. The ranking company instructed a ranking of A- for the MUSIC 2022-1 bonds, suggesting a low danger profile.[12]

The pre-sales report additionally included an evaluation of the royalty construction of the music catalogue. Virtually two thirds of the entire annual income of US $13.4 million (earlier 12 months to Q1 2022) had been derived from licensing of publishing rights with one third from sound recording rights. Nevertheless, the income figures present that only some songs are worthwhile. For instance, ‘Hallelujah’, written by Leonard Cohen and carried out by himself and 9 different acts, generated by far the very best annual revenues accounting for 12.8 per cent or US $1.71 million.[13] General, the highest 10 songs accounted for nearly 40 per cent of all royalties. This extraordinarily uneven distribution of royalties can be seen among the many artists. The highest 10 artists within the catalogue account for 78 per cent of the entire revenue. An evaluation by age of songs revealed that outdated repertoire, outlined as songs launched 30 years in the past or extra, generated income of US $4.6 million per yr, or 35 per cent of complete income. An additional 34 per cent of gross sales had been generated by songs 10 to twenty years outdated, and an additional 8 per cent got here from songs that had been between 20 and 30 years outdated. General, songs that had been greater than 10 years outdated generated gross sales of US $10.2 million, which corresponds to a 77 per cent share of gross sales. Conversely, this meant that solely 23 per cent of annual catalogue income got here from repertoire lower than 10 years outdated.[14]

Nevertheless, in comparison with different ABS transactions, the focus of income from the highest 10 songs within the Hipgnosis MUSIC 2022-1 ABS is the very best at virtually 40 per cent. By comparability, the highest 10 songs from the 65,000-song Chord Music catalogue, on which the KKR ABS is predicated, generated 10.7 per cent of annual revenues, whereas the highest 10 songs from the 52,729-song Spirit Music catalogue, on which the Northleaf ABS is predicated, generated 15.9 per cent of complete annual revenues. This robust focus of revenue within the Hipgnosis ABS most likely led to the A- ranking by the KBRA, whereas the KKR and Northleaf ABS had been every rated A.[15]

The KBRA report highlights each, the benefits of the securitization of music rights catalogues in addition to the disadvantages. ABS transactions allow the monetisation of music catalogues, which thereby enhance in worth. Securitisation additionally creates new monetary merchandise that may be traded on a market which supplies music rights an financial worth that’s decided by provide and demand.

The KBRA report additionally reveals one other downside that the worth of the brand new monetary merchandise depends upon a couple of fashionable songs. Ought to these songs, for no matter motive, lose their reputation, the worth of the related music bonds will undergo. If, as well as, different leisure rights or different claims to future revenue (e.g. authorized proceedings received) are bundled with the music rights within the ABS, non-transparent monetary merchandise might come up that solely serve hypothesis. On this case, losses in different areas might even have a unfavorable impression on the worth of the music rights.

All elements of the collection “Comply with the Cash! Huge Capital within the Music Rights Market”

Half 1: A Quick Historical past

Half 2: The Funding Giants

Half 3: Shamrock Capital Advisors

Half 4: The Enterprise Mannequin of Non-public Fairness Corporations

Half 5: The Securization of Music Rights

Endnotes

[1] Music Enterprise Worldwide, “‘Bowie bonds’ are again: Northleaf makes use of Spirit Music Group belongings to lift $303.8m providing”, December 20, 2021, accessed: 2025-02-14.

[2] Music Enterprise Worldwide, “Spirit Music Group acquires grasp recordings of Tim McGraw initially launched by Huge Machine”, September 9, 2020, accessed: 2025-02-14.

[3] Music Enterprise Worldwide, “The title’s bonds. Music bonds.”, October 19, 2021, accessed: 2025-02-14.

[4] Music Enterprise Worldwide, “KKR purchased a music catalog from Kobalt for $1.1bn. Now it’s turning it into bonds”, February 7, 2022, accessed: 2025-02-24.

[5] Reuters, “SESAC sells $560 million in bonds backed by music royalties”, August 2, 2019, accessed: 2025-02-24.

[6] Bloomberg, “Adele License Charges to Assist Fund $335 Million of Bonds”, July 1, 2022, accessed: 2025-02-24.

[7] Music Enterprise Worldwide, “Music’s bond journey continues, as SESAC and Hipgnosis each launch nine-figure choices”, August 10, 2022, accessed: 2025-02-24.

[8] Music Enterprise Worldwide, “Harmony costs $1.8bn bond providing backed by over 1m music copyrights”, December 8, 2022, accessed: 2025-02-24.

[10] Music Enterprise Worldwide, “HarbourView raises $500m in debt financing led by KKR”, March 13, 2024, accessed: 2025-02-24.

[11] Music Enterprise Worldwide, “Blackstone’s Hipgnosis closes $1.47bn asset-backed securities transaction”, November 11, 2024, accessed: 2025-02-24.

[12] Kroll Bond Ranking Company, 2022, Hipgnosis Music Belongings 2022-1 L.P., ABS Pre-Gross sales Report, August 2, 2022.

[13] Ibid., p. 8.

[14] Ibid., p. 7.

[15] Ibid., p. 9.

* This weblog publish is predicated on the report IP Finance within the Music Business, which was commissioned by the World Mental Property Rights Group (WIPO).