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Music royalties have stopped being an artist’s income stream and have become an institutional fixed-income product.. |
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Investors including Blackstone, Carlyle and Michigan’s state pension fund raised at least $4.4 billion in music-royalty-backed debt in 2025 alone. Financial Times The market went from zero in 2020 to a multi-billion-dollar asset class in just under five years, according to the FT. |
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One Argument Music royalties joined the investable universe the day S&P, Fitch and Moody's agreed to rate them.David Bowie raised $55 million in 1997 by pledging future royalties as bond collateral, according to the FT. The bonds offered a 7.9% yield. A few others copied the structure but then it remained largely unused for 20 years. Serious institutional investors considered it too exotic for their portfolios. The structure only became a genuine asset class when S&P Global, Fitch and Moody’s began rating the bonds regularly. This enabled pension funds and insurance companies to invest and multiplied the buyer universe overnight. A $372 million Recognition Music debt financing deal in August 2025 was backed by rights to songs by the Red Hot Chili Peppers, Justin Bieber and Shakira. It was priced to yield 5.6%, one percentage point higher than a similarly yielding and maturing US corporate bond, according to the FT. Shot Tower Capital research finds that music assets are non-correlated to broader markets, meaning their value does not move with equities or bonds, and are unaffected by tariffs, according to Billboard. The structure has also become the preferred financing tool for catalog acquirers because asset-backed securities (ABS) deals allow up to 65% leverage, according to Shot Tower Capital (an investment banking firm) research. This means that an ABS-backed buyer can pay approximately 10% more for a catalog than a bank-financed rival while achieving the same equity return. Streaming has already survived one existential disruption — Napster nearly killed the recorded music business in the early 2000s, and the industry rebuilt itself into a more predictable cash flow machine than it was before. Spotify confirms having paid $11 billion in royalties in 2025, the largest annual music payout in streaming history, up from $10 billion in 2024. A new structural disruption would hit bondholders, not artists, who have already been paid upfront. Today’s disruption risk is no longer piracy but AI. On Deezer, a music streaming app, 44% of all new tracks uploaded each day are now fully AI-generated, up from 18% in June 2025. Streaming royalties come from a fixed monthly pool split across all streams, and AI-generated music dilutes every legitimate catalog’s share. Apple Music demonetised 2 billion fraudulent streams in 2025, representing about $17 million diverted from legitimate artists, according to Forbes.
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One Position Music royalty bonds are priced as if streaming royalty rates are permanent. They are not contractual. The position changes if streaming platforms lock in multi-year royalty rate agreements with catalog owners. At that point the cash flow becomes mortgage-like. If 44% of new music uploads are already AI-generated — who is actually buying the streams that back your bonds? |
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