Private Equity Investors Are Getting Involved in the Music Industry — And Winning.
By Katherine Soucie ’26, Principal
In stores, in the car, on our phones: music is all around us. I listen to music every day from a variety of genres. I have used Spotify for the past several years because it is the most convenient option for me. But I have always wondered how Spotify works. How are the artists making money when my family plan is only paying $19.99 per month for my family of five? Are the artists earning their fair share of compensation? Are individuals able to invest in the music industry? If so, how? These questions are what led me to conduct further research on the music industry for this article.
Recording and publishing music falls into the entertainment industry. According to Pitchbook, the entertainment industry has 35,510 companies, 15,867 investors, and 8,874 exits. The industry has 26,854 deals to date, most being with venture capitalists, with the largest being $90.0 billion. From 2014 to 2022, the recorded music industry revenue has grown from $13.1 billion to $26.2 billion respectively. In 2023, global recorded music revenues increased by 10.2% to reach $28.6 billion, according to the International Federation of Phonographic Industry’s Global Music Report 2023, which is the ninth consecutive year of growth in the industry. This industry growth can be attributed to the introduction of streaming services. Revenue from streaming services increased from $1.8 billion in 2014 to $17.5 billion in 2022. Streaming services make up 48.9% of the entire global music market. In 2023, subscription streaming revenue grew by 11.2% and reached $14 billion. As of August 2024, there were more than 667 million paid subscriptions to music streaming services. I have personally been listening to significantly more music ever since the pandemic, which follows the trend of the music industry’s rising revenue.
“The Big Three” companies in the music industry include Universal Music Group, Sony Music Entertainment, and Warner Music Group. Universal Music Group is a public record company with recording artists including Taylor Swift, Drake, and The Weeknd. The company generates revenue primarily through recorded music, followed by publishing. Sony Music Entertainment is a privately held company that has many record labels under its umbrella. Sony Music Entertainment has Lil Nas X, Usher, and Bob Dylan signed to their record labels. Finally, Warner Music Group is a public company that produces recorded music and publishing. Artists signed with Warner Music Group include Ed Sheeran, Bruno Mars, and Dua Lipa. These three companies make up 68% of the global market share of the music recording market. I found it very interesting to learn how my favorite artists produce and record their music. Specifically, I am a big Taylor Swift fan and was interested to learn which recording company she is signed to.
While these three companies are the largest in the industry, recent investors have been acquiring existing music rights. Some of these investors include Round Hill Music and Kobalt Capital. Round Hill Music Royalty Fund Ltd is a private equity firm that looks to invest in high-quality music intellectual property and copyright assets. Kobalt Capital is a portfolio of music rights comprised of music publishing copyrights that encompass 62,000 copyrights by artists and songwriters in a variety of genres. Kobalt Capital was acquired by Kohlberg Kravis Roberts and Dundee Venture Capital through a $1.1 billion LBO in October 2021. Kohlberg Kravis Roberts is a private equity firm that invests in a variety of sectors including consumer products, energy, life sciences, and media, while Dundee Venture Capital focuses on commerce, fintech, and supply chain technology sectors.
With the adoption of streaming services, artists and record labels are no longer earning money per album sold physically or digitally. Instead, a fraction of a cent is earned each time someone streams a song. This new payment strategy has caused the music industry to rethink how recording artists are paid. Spotify pays the owner of the master rights between $0.003 and $0.005 per stream and the recording artists receive a negotiated percentage of the royalty. In sum, this value is significantly less than the artists would get paid per sale of a physical or digital album.
This new form of artist compensation can be challenging for artists, specifically smaller artists. Small or unsigned artists have trouble getting millions of streams to earn enough money to continue working in the music industry. This problem could be solved with regulation from the government that would address “the need to establish a new royalty program that would directly compensate musicians with a fairer royalty payment every time their music is listened to on a streaming music service.” While this legislation would benefit the artists, the streaming companies do not want this restriction. Another solution would be for the streaming services to start paying a larger amount per stream, but there is no guarantee that this will happen.
When an investor purchases a music catalog, they receive the streaming royalties earned by the music in the catalog from the streaming service. If the amount of compensation for owning a music catalog has decreased over the past decade with the introduction of streaming services, why are private equity investors investing in music catalogs? The reason is two-fold. Firstly, with the introduction of streaming services people are listening to music more frequently and the music industry is growing. As the number of streams on songs is increasing, the quantity of streaming royalties received is increasing. Secondly, when private equity investors buy a music catalog, they purchase the rights to multiple songs at once. Therefore, investors are receiving streaming royalties from many songs at the same time. The growth of the music industry is benefiting private equity investors because their purchases of multiple song rights at once compound with the increase in streaming royalties, significantly boosting their return on investment.
Katherine is a junior from Dedham, MA, pursuing a degree in Analytical Economics. Katherine is excited for her second semester in the fund and to lead her due diligence team as a Principal this semester. Outside of the fund, Katherine is in Alpha Kappa Psi, the co-ed professional business fraternity at the University of New Hampshire and she is a Rutman Leadership Fellow. Katherine looks forward to working with the other members of the fund this semester.
