Music industry executives at this week’s Structured Finance Association’s SFVegas conference told GlobalCapital that the revival of music rights ABS will continue apace this year as fixed-income investors warm to an asset class that promises consistent long-dated returns, and more issuers emerge.
“We are extremely bullish on the industry and on the usage of securitization,” one music executive told GlobalCapital on the sidelines of the conference. “Music rights are the perfect match for ABS because of the long duration of the assets and the consistent cash flow they offer.”
The ability of older music to continue to generate revenue thanks to streaming services gives the asset class particularly strong duration credentials in the world of intellectual property securitization — ahead of sectors which have a far shorter life, such as drug patents. This has made the asset class particularly appealing for some, such as insurance money.
Music was first securitized in the 1990s with Bowie Bonds. It was revived in 2020, as deals could be sold on the back of proven revenue generation from modern streaming services, as the industry begins to leverage new opportunities to generate revenue. All recently securitized portfolios have outperformed projections, said one panellist at SFVegas.
Since 2020, there has been over $8bn of ABS issuance, said one banker, with $3.5bn issued in 2024 alone. Market participants say the pipeline suggests that 2025 volumes will probably far exceed last year’s, due to a combination of repeat and new borrowers and a greater range of issuer types.
In 2024, Universal Music Group acquired 25.8% of Chord Music Partners, which had debuted in the ABS market in 2022, in a deal that saw KKR exit its stake in Chord, bringing the potential for one of the world’s leading music companies to enter the securitization market.
“What’s really interesting about the development of the market is the range of issuers, from midmarket funds to music majors,” said one banker. “It comes as the investor base is starting to really understand the asset class, and there are well over 50 accounts that are active in the sector.
When music ABS returned in 2020, the investor education process went back to basics due to the need to clarify how copyright works and how revenue stabilisation of a song occurs. But the music executive said that improvements in pricing in recent deals showed how willing fixed-income buyers are to get to grips with the asset class.
“Last year, there was a music ABS that priced at 185bp [Concord’s TUNES 2024-1], so I’d suggest we’ve already made huge progress in building an investor audience,” he said.
In its previous issuance, in December 2022, Concord had paid a spread of 340bp over the I-curve. Both its 2022 and 2024 deals were rated A+.
A different music industry executive told GlobalCapital that although credit analysts at private equity firms were “very sophisticated”, a lot of equity analysts covering the issuers had a “very nascent” understanding of the music business.
New revenue streams
Bullishness on music ABS comes as the music industry is discovering more ways to monetise song publishing rights by using digital streaming services.
Investors in the bonds have to understand how cash flow decelerates with the life of a song and what its terminal value is. But in recent years, the music industry has undercovered more ways to monetise rights, including those of songs from older vintages. Panellists in SFVegas gave TikTok and Peloton as examples of important revenue streams for the music business which did not exist 10 years ago.
There is also huge room for growth in emerging markets, with a still underpenetrated market in terms of mobile phone use and paying streaming users. This means EM countries could become far greater contributors to music revenues than in the pre-digital age.
Despite the optimism, the industry is still getting back on its feet to some extent. One source noted that while global music publishing revenue has been increasing rapidly since 2014 to around $40bn per annum, it was still falling short of the $50bn the industry earned in 1999.
In 1999, Napster — the first major peer-to-peer file-sharing service — was launched. It specialised in distributing music files as MP3s. The enormous amount of pirated content distributed via Napster, and the P2P services which followed it, triggered a crisis in the music industry from which it is still recovering. Yet one source argued it showed the potential for greater growth.
“We are still in the early innings of that recovery,” he said.