Illustrations by Franziska Barczyk

Illustrations by Franziska Barczyk

Back in 1985, when Michael Jackson paid what at the time was an eye-popping $47.5 million for ATV Music—and with it the Beatles’s back catalog—he justified the sum by reportedly saying that, just as “you can’t put a price on a Picasso … you can’t put a price on these songs.” By 2016, when Sony purchased Jackson’s share of ATV, the figure had ballooned to a staggering $750 million. Music has been raking in top-dollar valuations ever since, in part because of the unique role it plays as the backing track of life. Music also stands out as the rare commodity that remains as lucrative in the good times as the bad, since we don’t switch off the radio—or stop watching the films or TV shows that license music and generate revenues—when the economy sours. The last couple of years, though, have been record-setting.

Icons like David Bowie, Bob Dylan, Tina Turner, Paul Simon, and John Legend made headlines for catalog sales in 2021, a year that was noteworthy both for the volume of deals and their valuations. When Sony Music Entertainment bought Bruce Springsteen’s publishing rights and master recordings, the deal hit a high-water mark for the valuation of an individual artist’s catalog: more than $500 million, according to the New York Times. Estimates by Music Business Worldwide suggest that investors, including many of the biggest players in private equity, pumped at least $5 billion into the industry last year.

While the economics of the music industry have always been a little convoluted, there’s at least one simple reason contributing to all the attention from private equity, according to Sherrese Clarke Soares (MBA 2004): interest rates. The founder and CEO of HarbourView Equity Partners, a new multistrategy firm focused on investment in the entertainment and media space, says that when interest rates are as low as they were for the last decade, “investors start looking for places to pick up returns that feel safe but also have a premium over the low-yield environment that exists everywhere else.” With its ability to hold steady and provide a regular return, rather than bounce around in time with the volatile stock market, music also starts to look more attractive as a non-correlated risk. The extra yield is especially appealing to institutional investors like insurers and pensions that have long-dated liabilities and need to deploy cash continuously, Soares says. “The appetite for ever-larger buyout transactions from those mega funds trickled into the music industry also.”

Those trends collided with a “combustion” of other factors to drive the current momentum, Soares says, beginning with the digital revolution. With a smartphone in every pocket and the equivalent of what you’d spend on a CD, consumers can buy a month of access to a wide world of streaming options. And while the global economy contracted by 6 percent in 2020, streaming revenues surged by 20 percent, according to the IFPI’s Global Music Report. Apple Music and Spotify, services that were once thought to be the industry’s coup de grace, have actually transformed cash flows.

Streaming has also created important data sets. As listeners gain wider access to global music, investors are listening in on the numbers. “The thing that most people don’t realize is that the music space is very data intensive, just as other asset-backed securities and investments are,” Soares explains. “You get huge sets of unstructured data that detail billions of rows of micro transactions—whether it’s streams or downloads or radio spins or physical sales.”

HarbourView, which launched in 2021 through a strategic relationship with finance giant Apollo Global Management, uses that data to drive decision-making. The firm announced its first major deal in early 2022 when it purchased the entire catalog of Latin superstar Luis Fonsi, most famous for his single “Despacito.” “What we see with his catalog is a huge opportunity for continued upside because there’s a lot of growth in the Latin markets,” Soares says.

It’s a trend that is only beginning to open up and will lead ultimately to a democratization of options, Soares predicts. “In a world where I can sit in my living room in New Jersey and pull content from Africa or Asia or Europe, music won’t have to live in the Top 40 to find an audience anymore, which is still what dominates from an economic perspective,” she says. It’s an idea that particularly resonates with Soares and her diverse team at HarbourView. “So much of what we’ve been consuming up to this point has been fed to us, but there are billions of people who have a differentiated experience, and for them to have music that’s resonant with their communities is a big deal.”

As these shifts continue to play out, the current wave of technologies will be subsumed by the next—just as Blockbuster was eaten by at-home DVDs, which were in turn devoured by on-demand video, Soares says. Platforms that license music like TikTok and Roblox will give rise to the next buzzy developments, whether that’s the metaverse or Web3, and with it the next wave of revenue streams. “We don’t know where the road will take us, but content will endure as a long-duration asset. I think that’ll be really interesting to watch.” The pie, she says, will only get bigger.

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