Cost of Capital

A significant portion of the last decade in the Music Industry has been spent discussing capital inflows. Billions has poured into catalogs, billions into infrastructure and billions into technology and platforms. This week the latest turn in that saga is being reported- that Sony Music Group is in advanced talks to acquire Recognition for $4Bn. This is particularly illustrative of a wider dynamic emerging across the market- how does the money leave?

There was a moment, not that long ago, when music rights acquisitions felt almost mechanical- streaming growth was steady, capital was abundant. The underwriting conversation revolved around a small set of variables: historical cashflow, growth assumptions, discount rate, and multiple. If you believed in the long-term durability and expansion of streaming, the rest followed.

The music industry has always existed as a vehicle between art and commerce. In the last decade, a third dimension has pervasively entered the mix, and has been delicately impacting the status quo- institutional finance. Catalogs that were once considered illiquid creative assets are now treated as financial instruments. Music rights are being packaged, leveraged, and traded with the same language and logic once reserved for bonds, real estate and pension funds.