The business of music assets has remained resilient despite the Covid pandemic

The speakers at the Music Finance Forum's panel 'State of the Music Industry' (from top left, clockwork): Barry Massarsky (Massarsky Consulting), Sherrese Clarke Soares (Tempo Music), Hector Baldonado (The Baldonado Group), Carlos Cruz (Fifth Third Bank), Katherine Winston (Winston Baker), Paul Pacifico (Association of Independent Music) and Amy Baker (Winston Baker).

By Emmanuel Legrand

  The value of publishing and recording catalogues has not suffered from the Covid-19-induced lockdown, and investors remain as buoyant as before the pandemic in their chase for music assets, as low-cost capital continues to flow in the sector. Those were the conclusions from financial experts speaking at the virtual edition of the Music Finance Forum, presented by Winston Baker on September 24, 2020.

  Several factors can explain why music assets are still highly valued. For a start, streaming consumption, which dropped at the start of the pandemic in March, picked up quickly and has proven resilient ever since. Market figures published for the first six months of the year in countries such as the US, France or Germany show year-on-year increases, boosted by streaming revenues, while downloads and physical formats were down (vinyl has since picked a lot of lost ground).

  For investors, the impact of lockdown has been mostly felt on the live side, and in a lesser way in the performance side on revenues, but the former is not taken into consideration for the valuation of catalogues and the latter is expected to be absorbed rather quickly, before returning to normal in 2021.

IP resilience

  “Consumption of premium content has never been more engaged,” said Sherrese Clarke Soares, Chief Executive Officer of Tempo Music, a portfolio company of Providence Equity Partners. “Technology has been all we've had during the pandemic, and this has given confidence about IP and its resilience.”

  Speaking at the panel “State of the Music Industry,” Clarke Soares added that her company was focused on long term value of content IP, and that the pandemic validated their strategy since recorded music revenues have been strong. “We have a long term view because we believe that [IP assets] will continue to be resilient,” she said. “We value premium IP as a long term strategy for investing.” 

  Hector Baldonado, Founder of The Baldonado Group, which represent young artists, concurred, stating that while the live music side has been hit hard, “royalties have been very robust.” He went on: "When [the pandemic] started off, we saw an immediate decline in music consumption but it picked up and there's been continuous growth since. Eventually people settled into what was going on and started listening to music again and finding comfort in it. So there's opportunities to get value in IP and purchasing IP.”

Play catch up with Gen Z

  For Paul Pacifico, Chief Executive Officer of the British Association of Independent Music (AIM), one of the learnings from recent times was that streaming has had a significant effects on the way investors look at master catalogues. “Masters are now seen through the similar lenses as publishing and it open opportunities,” he enthused.

  Pacifico said he was buoyant about new ways to disseminate music such as livestreaming but also the development of AI-driven technologies, as well as the “gamification of music” that will further enhance the value of catalogues, once monetisation points will be effective. “There is a world of innovation going on and we are seeing it now in front of out eyes,” he said. “New innovators will come to market in the next 24 months and we will see the convergence of revenue flows that are going to cross over into the [online] live experience. We will see long growth and that will be bleeding into valuations."

  The challenge for the music industry, he added, will be in having “to play catch up” with the new consumption patterns of the Generation Z (described jokingly by the panelists as "the broke generation") and monetise these behaviours. 

Streaming boosts music assets

  Barry Massarsky, President of Massarsky Consulting, which works with investors and assets owner to put a valuation price on IP assets, cautioned nonetheless that performance income from the use of music in bars, restaurants and other businesses, which represents 48% of income sources for transactions, suffered during the pandemic. However, the solid performance of streaming helped offset losses from other revenues. He also forecasts a strong return to growth for synchronisation and mechanicals too, with the rise of streaming.

  Massarsky said that during valuations, investors look at all sources of income, but live “does not come into the picture.” He elaborated: “We are looking at masters and publishing. We look at streaming and radio airplay. That's what drives increase in value. We do not mark up live performances.” He added that for publishing catalogues, investors look at the Net Publishers' Share (NPS) and/or cash flow and apply multiples. With catalogues of standards, the average multiple went from 15.2 in 2017 to 17.3 in 2019/2020. 

  Another aspect that keeps pushing prices up in valuations is the rolling effect of successes due to streaming, with songs starting a career in the US and then spreading around the world, or the other way around. This, he said, boosts the value of assets since the exploitation of songs lasts longer and songs gain a longer shelf value due to international exposure. Investors value more than anything the financial returns from a healthy streaming market, said Massarsky.

No shortage of buyers

  “Digital streaming does not know how to stop its growth and this will ramp up masters' value,” he said. On a practical side, Massarsky indicated that during lockdown, a lot of consumers listened to more “catalogue” music, which played in the hand of owners of such music, and also for those who owned such music and decided to put it on the market. “Clearly in streaming there's a movement towards older songs, and catalogues we value dedicated to standards [songs that are two to three years old and more] were not affected. The market kept going on with transactions.” 

  As this is a market with buyers and sellers, Massarsky noted that he saw no shortage of the former nor the latter. “Every day you have new folks who want to sell and look at assets and putting them to market, and there's more buyers,” he said.