KKR Looks To Sell Music Catalog As Royalty Valuations Drop But Spotify Soars On Streaming Success

The global music industry has grown rapidly in the past five years as increasing numbers of listeners head for streaming services, but traditional areas of investment such as revenues from royalties have suffered in the face of high interest rates.

On Tuesday, the Financial Times reported — citing sources familiar with the matter — that private equity group KKR & Co Inc KKR hired bankers to evaluate the possible sale of its music assets after interest from potential buyers.

KKR owns a catalogue of some 65,000 songs — including tunes by The Weeknd and Stevie Nicks — which it bought from Kobalt Capital in October 2021 for $1.1 billion. Back then, thanks to historically low-interest rates, valuations on music royalties-based assets stood at multi-year highs.

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Investors Push Into Music

Competing with traditional music industry titans, KKR and other institutional investors spent billions of dollars on song copyrights, which added to their valuations — making it attractive for stars such as Nicks and Bruce Springsteen to sell their ownership rights.

Springsteen sold his catalog in 2021 for a reported $500 million to Sony Music Entertainment SONY, while Bob Dylan sold his royalty rights to Universal Music Publishing Group in 2020 for a reported $400 million

In its Autumn 2023 report Making Sense Of Music Valuations In An Evolving Market, investment bank Shot Tower Capital reported that music valuations had declined 14% from their 2019 peak.

Indeed, some traditional music publishing companies have been struggling for share price growth in recent years. This year, Sony Music is up 18%, while Warner Music is down fractionally over the year.

Streaming Services Revenue’s Surge

Music streaming services, however, are powering ahead helping to drive revenues for recorded music. Statista said that in 2022 recorded music revenue surged to $10 billion, up from around $5 billion in 2019 as more people tuned in to streaming music during the pandemic.

According to a report from Goldman Sachs last month, the global music industry will be generating $153 billion by 2030.

Spotify SPOT rose 151% since the start of the year, while Apple AAPL and Amazon.com, Inc. AMZN, which run competing streaming music services to Spotify, were up 49% and 74%, respectively.

In July this year, MUSQ launched its first exchange-traded fund, the MUSQ Global Music Industry ETF MUSQ, which tracks the entire industry ecosystem, including streaming services, distribution, live events and ticketing. Since its launch, MUSQ has fallen 2.8%.

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