Music shares some similarities with fixed income assets like bonds that make it an attractive place to invest. The potential to generate recurring income in the form of royalties is just the beginning. Music also possesses unique characteristics that distinguish it from traditional fixed income assets that in many ways, make it more attractive to a new generation of investors.
Similarities between music and bonds:
Regular Income: Both music and bond offer the potential for regular income. There are multiple ways music creators can earn royalties from the composition and recorded versions of their song, while bondholders receive periodic interest payments.
Income Stream: The income generated from both sources can serve as a stable source of revenue for individuals and organizations.
Long-Term Value: Successful songs can continue to generate income for an extended period, similar to the way bonds pay interest over a fixed term.
Differences between music and fixed income assets:
Infinite Duration: One significant difference is the duration. Music royalties can last indefinitely, potentially providing income for generations, while bonds have a finite term. Once a bond matures, interest payments cease.
Interest Rate Sensitivity: Bonds are sensitive to changes in interest rates. When interest rates rise, bond prices tend to fall, potentially leading to capital losses for bondholders. Music royalties are not influenced by interest rate fluctuations.
Emotional and Cultural Value: Music holds unique emotional and cultural value. Successful songs often become timeless classics and can generate income long after their release due to their emotional connection with audiences.
Infinite Replication: Unlike bonds, which are specific to a particular issuer, music can be replicated, remade, and reimagined by various artists, leading to multiple revenue-generating versions of the same song.
No Limits: The cost of creating a song is small relative the potential outcomes that could result from sharing it. The incentive is to create and share as much as possible, continuously expanding a catalog of revenue-generating songs.
In summary, while music shares some characteristics with fixed income assets, it is a distinct asset class with unique attributes. Music's infinite duration, resistance to interest rate fluctuations, and emotional/cultural value set it apart from traditional fixed income assets. It’s not hard to believe that for a new generation of investors who might look at new ways to invest and have impact with their capital, music may be a fertile and attractive place to play.