As culture and finance intersect, a chance to invest in music royalties and support Cantopop
This article appeared originally in South China Morning Post on 29 Jul, 2023.
Authors: Yolanda Lam, Researcher and Grace Zheng Internship at Our Hong Kong Foundation.
At a shopping centre or in the comfort of home, music accompanies us everywhere. But have you ever imagined being able to earn royalties on your favourite songs?
The phrase “copyright trading” has become increasingly popular, even appearing for the first time in Hong Kong Chief Executive John Lee Ka-chiu’s policy address last year, after China’s 14th five-year plan envisioned Hong Kong becoming a centre for regional intellectual property trading and international cultural exchange.
While we traditionally associate copyright trading with buying the rights to an illustration or literary work through licensing and assignment, it can take a variety of forms. A platform has recently emerged in South Korea that lets retail investors buy the rights to song royalties.
Musicow works by paying artists a sum upfront for rights to their song royalties, before splitting the rights into smaller shares and putting them up for auction. Based on streaming activities, investors receive royalties each month and can also trade their shares through the platform. So far, the company has accumulated more than 200 billion won (US$157 million) in investments, with transactions worth twice that.
Music as an asset class is not a new concept. As the music industry has moved from a transaction-based to a subscription-based model in recent years, music content is more accessible than ever. Musicow has jumped onto this trend by bringing investment in songs – something previously reserved for large corporations – to retail investors. As the streaming model has matured, music royalties have become more predictable, making it attractive to investors looking to diversify.
Fractional investment platforms like these are particularly welcomed by young investors. The barriers to entry are low – some rights are available for less than HK$100, or US$13 – and it is a new way to engage with and own a small stake in the cultural works they enjoy. Musicow features songs by well-known K-pop stars, including IU and Exo. For lesser-known creators, the platform could also theoretically provide an avenue to channel financial support. The initial lump sum payment for music rights helps artists secure short-term finance and once the rights are auctioned, they receive half the profits.
Musicow features songs by well-known K-pop stars, including IU and Exo. For lesser-known creators, the platform could also theoretically provide an avenue to channel financial support. The initial lump sum payment for music rights helps artists secure short-term finance and once the rights are auctioned, they receive half the profits.
Musicow’s model is not unique. SongVest in the United States and ANote Music in Europe also allow investment in music royalties. A new platform, JKBX (pronounced Jukebox), is also due to open this year with over US$4 billion of music rights. On the Chinese mainland, music streaming service NetEase Cloud Music has a similar service.
These platforms not only help to capture members of the public beyond regular fan bases, but also show the financial viability of music as an asset class.
Music offers a unique investment opportunity. Revenue from recorded music is relatively immune to economic downturns, and offers recurring income, which is particularly attractive amid low interest rates and dividends. The adoption of new technologies also promises to lower the risk, for example, in the use of artificial intelligence and big data to improve valuations.
Private equity giants like Blackstone have invested billions into back catalogues and Goldman Sachs expects the recorded music industry to exceed US$50 billion by 2030.
Cantopop: a genre for Hong Kong that went global among music lovers
Cantopop may not be in its golden years, but Hong Kong’s music scene is still thriving. The likes of Beyond and Anita Mui still have an active audience base, with hundreds of thousands of monthly listeners on Spotify. New artists have been steadily gaining popularity, such as Keung To, MC Cheung and Gareth.T, to name a few.
This way of monetising and trading copyrights illustrates how the music and finance industries can collaborate to engage audiences, encourage creators and diversify investments. It may also offer fresh ways to finance the cultural and creative industries. Hong Kong’s financial sector is in a good position to mobilise support for cultural and creative endeavours, and models like Musicow are worth picking up on.
Of course, risks cannot be eliminated. Rights to lesser-known songs might be hard to trade and streaming activity, which is ultimately based on personal preferences, can be hard to predict. Quality remains king when it comes to investing in creative works and having an environment that cultivates high-quality content is a prerequisite for any copyright trading to happen.
It is high time to explore ways to integrate culture with finance to create better content, support artists and encourage wider participation in creative endeavours.