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12 Predictions on the Future of Song Investing
Who will eventually own all the dead stars of rock & roll?
The collapse finally came.
When I analyzed the song buyout mania, led by the Hipgnosis fund, back in June 2021, I predicted that this ultra-hot investment trend would “come to an unhappy end.” And now the collapse has arrived.
We’ve reached the endgame. The song fund’s share price has dropped 50% since I made that assessment—and now shareholders have voted to dissolve or reorganize the investment trust.
But where do we go from here? What are old songs really worth? And who will end up owning all these old rock and pop tunes?
Below I offer 12 predictions.
Much of what I have to say is harsh. That’s unfortunate—if I were a real judge, I’d err on the side of leniency. It’s never fun issuing such hardass verdicts. But if I claim to be the Honest Broker, I really have to stick with truths, even when (as in this case) they’re painful truths.
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12 PREDICTIONS ON THE FUTURE OF SONG OWNERSHIP
(1) Many musicians still want to sell their songs, but it will be hard to find generous buyers.
Bob Dylan got out at the top, but the times are now a-changin’. Musicians won’t get the big payouts available back in 2021. A telltale sign will be more deals with “undisclosed terms”—because nobody will want to brag about these lowball transactions.
(2) Professional financiers have finally learned their lesson.
The two big finance outfits promoting song investing, Hipgnosis and Round Hill, have faltered and will now sell the songs they bought. Sophisticated investors no longer believe the hype. So don’t expect to see the launch of new song investment funds any time soon. The remaining buyers will be bottom fishers and the terminally naive (described in more detail below).
(3) In the new reality, songs will be viewed as depleting assets, with cash flows declining sooner than investors previously assumed (as has already happened with Elvis memorabilia).
Almost every hit song (except the holiday perennials) loses its audience long before its copyright expires. Right now, hits from the 1940s are totally dead, and songs from the 1950s are on their last legs. This same sad fate awaits most of the Billboard charted singles from the 1960s and 1970s. Maybe 50 or 100 songs from this era will retain a meaningful audience that outlasts the generation that created them. This won’t be enough to constitute a real investing category. You’re better off buying paintings or baseball cards.
(4) A few financial outfits will buy song catalogs on the cheap, but as a scavenging sideline to their other businesses.
As prices decline, a few investment funds will be lured back into the business. So don’t be surprised if firms like Blackrock or KKR or Blackstone or Bain Capital end up owning lots of rock tunes. But they will be bargain hunters, not committed investors with a bold strategic vision.
(5) Look out for these vultures in all sectors of the music business.
When private equity firms knock on your door, it’s a sign that you’re already half dead. These folks actually enjoy picking on carcasses—which is easier work than hunting for live prey. I tend to avoid name-calling, but there’s a reason why some folks refer to them as vulture capitalists. That’s their specialty and their economic model is built on bottom-feeding. This is why private equity firms bought up lots of failing local newspaper, struggling local radio stations, etc. Guess what’s next on their list? Expect to see these tough hombres play a bigger role in all aspects of the music business over the next decade.
(6) The last enthusiastic buyers of old songs are major record labels—but this is truly the ‘greater fool’ theory at work.
When Disney decided to sell Queen’s catalog , potential buyers really boiled down to Universal Music and Sony bidding against each other. In other words, music companies are now playing musical chairs, trying to see who’s willing to pay the most for the least. The other buyer of last resort nowadays is Concord Records.
These corporations don’t have much choice—they feel locked into the music business, but have zero confidence in their ability to launch new artists. So squeezing cash out of old intellectual property is the only poker hand they know how to play. I fully expect that they will continue to buy up old songs—because it’s a brain-dead strategy that can be run entirely by lawyers and accountants, without any need for innovation or vision. Which is good, because they don’t have any to spare.
(7) This whole situation is a case study in misallocated investment capital.
There’s a general lesson here too. I realized, early on in my consulting work, that the single biggest mistake large corporations make is investing too much to keep their old business units alive—when they would be wiser putting that cash to work in new opportunities. The major record labels in the current moment are poster children for exactly this mistaken sense of priorities. They will support the ‘old songs’ business model at all costs—it’s a core part of their self image—but return on investment will be dismal.
(8) The inevitable result of this will be that record labels will increasingly look and act like second-rate bankers and half-assed financiers.
With each passing year, the execs at big labels will have less and less connection with the current music culture. People in the executive suite won’t play an instrument, but might have a Wharton degree. Yawn!
This shift is already underway. That’s why the new owner of Bandcamp is an IP licensing company. It’s sad and sobering that a vital and happening indie music business like Bandcamp gets swallowed up by a new boss who might as well be in the oil change franchising business. This is the new normal, and it’s boring as sin.
(9) Music, of course, can never totally lose its allure. So song investing will still resemble other ego-driven businesses—as a semi-glamorous way for rich people to flaunt their status.
I fully expect to see rich people throw away money for the privilege of owning a piece of a famous song. But these won’t be smart rich people—they will be wannabes with more money than common sense. These kinds of investors operate out of Saudi Arabia or Las Vegas, not Wall Street and Sand Hill Road. The cash will come from daddy’s trust fund.
You get the picture. In these situations, song investing resembles other rich-people investments with poor returns, such as opening an over-priced restaurant, buying a second-tier winery, or financing a Broadway show.
By the way, these may be securitized or tokenized songs, to give the transaction an appealing high tech veneer. But that’s just putting lipstick on the proverbial pig.
(10) Over the long run, events will prove that these last willing buyers are lousy investment managers.
So here are the folks who will eventually own all those old songs:
bottom-feeding investment groups;
rich people seeking status;
legacy music businesses who don’t know how to build new artists, and will settle for declining cash flow from old assets.
You don’t see Warren Buffett on that list.
In the future, everyone will agree that record labels should have done more to create a healthy music culture for the future, not just collect royalty payments on 50-year-old IP. Even in this diminished capacity as rent-seekers in suits, they will underperform. But they might have made a difference if they had just shown a little more love for—and confidence in—new music.
(11) So this will have a bad ending, but not immediately. Big players in music will suffer a slow, protracted death by a thousand cuts.
The day of reckoning won’t happen for a few years. The song business is like an oil well, where you can continue to frack and pump and squeeze out a few more barrels. If you economize you can delay the collapse, maybe even for another decade or so.
So this story will play out like Sears—which even today still operates 11 stores (down a bit from 3,500 at its peak)—or Kodak or Motorola or RadioShack. These businesses kill themselves slowly, and delay the inevitable by milking old assets until they finally run dry. But make no mistake: The moment major record labels decided to build their future on assets from the last century, they started down the same path.
In the meantime, expect record labels to live in denial, defending their obsessive focus on the past—built on licensing, catalog revenues, reissues, and other backward-looking strategies. That’s all they know, and these dogs won’t learn new tricks.
(12) I hardly need to say it, but I will: All this is unhealthy for the music ecosystem and the larger culture. We deserve better—and may actually get it.
The last time the larger culture preferred old stuff to new stuff was the late medieval period—and we needed a renaissance to restore some sense of forward motion to artistic endeavors. As strange as it sounds, we’re in a similar situation right now—partying like its 1299 A.D. In that era, social stagnancy ended in the Black Death. I do hope we find a better resolution this time around.
We deserve better. And we will probably get it. But it will come from some unexpected direction, and certainly not a major label.
I hear constantly from entrepreneurs trying to launch artist-friendly music platforms. In just the last week, three different music start-ups asked me to evaluate their business plans. I turn down these requests, so I have no specifics to share. But there are hundreds of these optimistic people out there—and they’re staking their careers and livelihoods on revitalizing the music business.
I wish them well.
So we can celebrate this one fact—namely that a lot of smart people outside the legacy music industry have a higher priority for its future than just buying up old tunes. This is where the solution will come from. And the sooner, the better.