Music as an Asset Class

TL;DR

This paper evaluates the risk and return profile of music royalty assets using discounted cashflow models, finding that long-term music assets have similar performance to stocks, aiding investors' portfolio decisions.

Contribution

It introduces a quantitative framework for assessing music royalties as an asset class using financial modeling and backtesting.

Findings

LOR music assets have risk and return similar to S&P 500 stocks over 5 years.

Music assets' performance is likely uncorrelated with stocks, offering diversification benefits.

The study provides a method to quantify music royalties' financial characteristics.

Abstract

In the streaming era, music revenues distributed to rights holders have become more transparent. However, it is not yet clear how to quantify the risk and return characteristics of music royalty assets, as is done with equities. In this paper, we fit three discounted cashflow models to transactions on the Royalty Exchange platform. We use our best model to backtest the one year and five year performance of music royalty assets, after transaction costs. We find that Life of Rights (LOR) music assets had risk and return characteristics comparable to stocks in the S\&P500, when held over 5 years. Since the performance of stocks and music assets are likely to be uncorrelated, this result may help investors assess this asset class within the context of a more traditional stock and bond portfolio.