Capital Markets and Reshaping the Business of Songs

Photo by Lo Lo

The music industry has always existed as a vehicle between art and commerce- a conduit between those that consume art and those who create it. 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. It’s a development that has both professionalised and complicated the business of songs- aligning music more closely than ever before with the global capital markets.

As a market, music has traditionally been described as “uncorrelated”- immune to and disconnected from the wider economy’s booms and busts. Generally, people keep listening (and paying) in good times and bad. Yet the more financialised the business becomes- with returns dependent on interest rates, debt markets, and investor sentiment- the more the core IP of the music business has become in other ways deeply tied to macroeconomic cycles.

Royalties to Returns

The financialisation of music has evolved in phases, with the first wave driven by recognition of music royalty streams behaving like fixed-income assets- particularly those of established, hit catalogs.

Music generates predictable, long-dated cash flows. A catalog’s income pattern is typically stable (particularly if of a vintage older than 10 years) and is diversified across different usage verticals beyond simple streaming- television, radio, gaming, live performances. Its revenue can become very predictable, behaving much like a bond- steady yield, low volatility, and resilient through cycles.

This framing converted music into its own 'investable asset class'- allowing investors to apply discounted cash flow models, risk-weighted returns, and asset-backed lending frameworks that had long been used in other industries. Suddenly, music could be valued with the same tools used for utilities or infrastructure.

As funds began to buy up and see the steady returns provided by catalogs, the underlying structure of their financing models began to evolve. Banks and more traditionally focussed funds, attracted by the reliable income streams, began lending at scale- the beginning of music’s entry into the capital markets in earnest.

The Rise of Debt and the Road to Securitization

Debt financing was the main mechanism quietly underpinning the first wave of catalog purchases. As the acquisition space matured in the 2010s, and interest rates remained historically low, cheap leverage fuelled an extraordinary period of growth- acquirers could borrow at 2-3%, acquire catalogs yielding 6-8%, and pocket the spread.

This led to banks and credit funds being willing to lend against royalty income itself. Catalogs became collateral for loans- a remarkable shift for an industry once viewed as too opaque and unpredictable for institutional lending (and ironically, one that in many ways still is).

The logic was simple: music generates recurring, diversified, and relatively stable cash flows that can service debt like any other income-producing asset. This was the financialisation of music IP in its earliest form- and it opened the door to further, more sophisticated evolutions. Once the capital markets had seen proof that royalty streams could reliably service these financing arrangements, the next step was inevitable: securitization.

The Era of Securitization

Asset-backed securities (ABS) are financial instruments that pool income-generating assets into tradable securities- and they began to appear in earnest in the late 2010s (ignoring early outliers like Bowie Bonds). These structures took the same principle as debt financing but applied at scale: bundling royalty streams into notes that could be sold to investors, who receive repayments from the underlying cash flow.

By 2022, funds that had been caught in the heady winds of the acquisition boom led by Hipgnosis realised they were sat on an awful lot of ‘collateral’, with the cost of servicing debt suddenly rising. What better way to refinance than through securitization? It facilitated access to vast pools of institutional capital at attractive rates, without surrendering ownership of the underlying rights. But it also highlighted an ongoing, marked philosophical and practical shift: treating music not as cultural property, but as financial collateral.

The investors buying these securities were not necessarily music fans (though, who isn’t?)- they were yield-seeking institutions who expected transparency, audited data, and predictable returns. It is these expectations that have fundamentally reshaped how music companies are required to report, value, and manage their assets.

Public Vehicles and Private Equity

As music entered the realm of structured finance, another natural extension was public and private capital participation. Funds like Hipgnosis's Songs Fund- the first listed pure-play music IP vehicle on the London Stock Exchange- brought music directly into the equities market (and to the attention of the wider financial industry- illustrated by the FT’s obsession with SONG).

Meanwhile, financial giants like Blackstone, Francisco Partners and New Mountain Capital have injected adjacent financial rigour across the sector through large-scale acquisitions and strategic investment into infrastructure players such as BMI, Kobalt, SESAC, and HFA.

As highlighted by the securitization trend, the same cheap leverage that powered the boom has also revealed the industry’s exposure to wider macroeconomic cycles. When global interest rates began to rise in 2022 and 2023, financing costs climbed sharply. Deal volumes slowed, valuations softened, and many acquisition funds paused new activity to reassess portfolio yields.

The notion that music was “uncorrelated” to the broader economy in this context begins to look increasingly fragile. While consumers may keep listening through downturns, the financing structures that support catalog investments do not exist in isolation from the cost of capital. The closer music aligns with financial markets, the more its fortunes are influenced by them.

This has produced a word of warning for music too, via the cautionary tale of Hipgnosis. Public markets demand high levels of disclosure, rigorously consistent valuations and financial management- all difficult in a sector riddled with opacity and data fragmentation. Hipgnosis’s eventual restructuring/acquisition by Blackstone highlights both the promise and the growing pains of a future integrated with institutional financial.

The Data Dividend

Capital markets don’t tolerate opaque accounting or unverified revenue streams. As capital has flowed into music, so too have expectations for auditability, reporting consistency, and financial modelling. The “data layer” of the music business, from royalty processing to rights reconciliation, has had to evolve to meet that standard.

Funds acquiring catalogs are routinely conducting financial due diligence akin to corporate M&A. They require independent verification of income by source, reconciliation of metadata, and go-forward modelling tied to market-level projections of consumption.

In practical terms, this has accelerated the professionalisation of rights management. Publishers, administrators, and CMOs are needing to improve data pipelines, standardise reporting, and embrace technologies that facilitate real-time visibility into earnings. Transparency has become both a compliance requirement as well as a competitive advantage.

The thirst for data also extends to investors’ desire to understand market dynamics, and how portfolios are correlated to these. Interest rates, inflation, currency fluctuations, alongside traditional industry verticals such as platform economics, negotiations and rate changes. Music is now tracked not only by streaming volumes, but by yield curves.

What Comes Next

The financialisation of music is not a passing phase, but has become an embedded structural evolution. Catalogs have proven that creative IP can function as an investable asset class, but sustaining that confidence requires continuous transparency and powerful analytics- both of which can only be built upon a foundation of credible data.

Another concern is that short-term arbitrage will introduce such devastating, mass data fragmentation/duplication as to tie up millions in royalties that societies and publishers have spent years methodically unlocking through metadata/registration cleaning.

Whatever the future holds, the line between Wall Street and Music Row is increasingly integrated. Music has traditionally been ‘uncorrelated’- but its financial ecosystem is increasingly drumming to the beat of the capital markets.