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What financial instruments do singers and labels use to raise funds?

The most obvious ways for musicians and record companies to make money are the actual sale of music, on records or through streaming services. Nevertheless, more and more often the methods tried and tested by financiers and startup creators are being used to make money in this sphere. Hence IPOs and investments in royalties, and the issue of bonds secured by music content, and the search for investors in the model of high-tech start-ups.
IPO in the world of music

This week, Korean music label Big Hit Entertainment, whose most popular project is the group BTS (it is also the most popular k-pop group in general) https://www.investing.com/analysis/china-market-monitor--sto... conducted an IPO on the Korean Stock Exchange. Big Hit shares were issued at a price of $135 and the company raised a total of 963 billion won ($822 million) during the IPO, bringing its capitalization to 4.8 trillion won ($4.1 billion). The seven participants of BTS received a total of 1.5 percent of the company before the offering - each participant received about 68,000 Big Hit shares, the value of each share is about $7.9 million.

Going public, issuing bonds and other financial instruments, not just directly selling music, tickets to concerts, etc., is an increasingly popular source of income for musicians, labels and other companies in this field.

 

In June, the IPO on NASDAQ https://www.investing.com/news/stock-market-news/warner-musi... was held by the third largest record label in the world - American Warner Music Group, whose studios in different years recorded albums of such musicians and bands as Queen, The Beatles, Led Zeppelin, Bob Dylan and Ed Sheeran. During the IPO, it raised $1.93 billion, thus the company as a whole is estimated at $ 12.75 billion. Earlier this year, the French media group Vivendi, which owns the world's largest record label Universal Music Group, announced its intention to hold its IPO in the next three years - although, of course, these plans may have changed because of the pandemic.


Korean boy-band BTS became the owners of about 68 thousand shares of Big Hit, their record label Big Hit Entertainment, thanks to an IPO.

 

Music streaming services are also actively becoming public companies. In 2018, Swedish music service Spotify, the most famous streaming service of its kind in the world, conducted a direct offering on the New York Stock Exchange (NYSE). The company's shares were trading at $165.9 at the time of the opening of trading, the total value of Spotify was then $26.5 billion. In December of that year, the IPO was held by the Chinese counterpart Spotify and the world's largest music streaming service Tencent Music. During the offering on the NYSE, it https://www.investing.com/news/technology-news/tencent-music... attracted $1.1 billion, and its total capitalization amounted to $21.3 billion.
Trading and investing in royalties

One of the most obvious sources of income in https://taketones.com/ music is royalties - the royalties received by musicians and composers for performing, distributing, etc., their works. Royalties are also being traded and invested. Since 2011, there has been an online platform Royalty Exchange, which is designed to buy and sell royalties of different types, but mostly music royalties. In 2017, Royalty Exchange bought the rights to 25 percent of rapper Eminem's song catalog from his production company FBT Productions, then transferred it to its subsidiary Royalty Flow. Royalty Flow wanted to float its stock on NASDAQ and raise between $11 million and $50 million in the offering-though the deal ultimately fell through, it demonstrates the overall appeal of this kind of project.
Some investment funds specialize specifically in royalties.

Between 2013 and 2017, investment funds in this area raised about $1 billion in music royalty investments, according to consulting firm Cambridge Associates. Among these kinds of funds is Round Hill Music Royalty Partners, which bought the rights to the proceeds of many songs by The Beatles and The Rolling Stones. The Hipgnosis Songs Fund buys rights to songs and song catalogs - in total, the fund already has rights to more than 13,000 songs, with revenues of about $81 million last year. Since 2018, its shares have been traded on the London Stock Exchange.

The Hipgnosis Songs Fund says that songs and royalties on them are a good long-term investment, which, if successful, can generate income for decades. Investments in music royalties are one of the types of so-called alternative investments that have grown in popularity in recent years, including, for example, investments in collectible wine and whiskey, art, cars and collectible coins.


Rapper Eminem sold 25% of his song catalog to his production company FBT Productions for further listing on NASDAQ

 

"In this new and somewhat unpredictable market environment, alternative investments are coming to the fore; investors see them as a way to protect against volatility as well as an opportunity to diversify income," notes Marzio Scena, founder of European music royalty trading platform ANote Music.In a space ripe for viable substitutes for traditional investment methods, music royalties are turning out to be an innovative new investment structure with a manageable risk profile, which is what BoM strives for.
Bonds secured by musicians

There are also investment funds whose activities are generally centered around the music industry, such as the Alignment Artist Capital fund, launched by the well-known BlackRock investment company, or the Unison Fund. Musicians for such funds are something like technological start-ups from the point of view of investors investing in high tech, investing in them in exchange for a share of income from their albums and performances in the future. Alignment Artist Capital typically invests between $5 million and $20 million in music projects and predicts a 10-15% return over three to six years.

Typically, Alignment Artist Capital invests in fairly new but established singers who have already released albums that have become famous-the fund plans to get its percentage from their future performance and album revenues.

Some musicians are actively involved in their own finances: according to https://www.theguardian.com/music/2016/apr/29/radiohead-corp... The Guardian , the British rock band Radiohead has registered several dozen companies over the decades of its existence. Some of them were created for specific areas of activity, for example, the company W. A. A. S. T. E. Products was engaged in the production and sale of goods with the band's insignia. However, most of these companies with names like LLLP LLP, Random Rubbish, or Dawn Chorus were opened for specific events and related revenues (or losses), such as the release of a new album or tour, and then liquidated.

 "It makes perfect sense for them to do a separate company for each individual project," says Philippa Conor, director of RNF Business Advisory, which has worked with the group on financial matters. "Having separate companies protects them, among other things, so that if something goes completely wrong with one of the businesses, it won't destroy the whole structure. If they had a record where they were losing money fast, they wouldn't want it to affect everything else."

The Society for the Protection of European Musicians and Composers (SESAC) last year issued $560 million in bonds to secure content created by musicians who collaborate with it.

SESAC works with more than 35,000 musicians and collects royalties on their songs and passes the proceeds on to them. Among the musicians who work with SESAC are Bob Dylan, Adele and Guns N' Roses. The company itself was bought back in 2017 by the Blackstone investment fund for $1.3 billion.

There are even more exotic ways to raise money in the music industry. In 2017, startup Vezt announced an ISO, which stands for Initial Song Offering (similar to ICO - initial issuance of tokens): fans of rapper Drake were offered to finance the release of his new music video "Jodeci Freestyle'' by buying Vetz's own cryptocurrency - VZT. A number of startups, including Choon, Ujo Music, Fanmob, and SingularDTV, tried to link cryptocurrencies and music creation, but none of these projects was too successful.
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