You can now buy shares of Taylor Swift or Adele song sales, but is it a good idea to do so?
In 1985, Michael Jackson made headlines when he invested $45 million to purchase the music rights to the Beatles music albums. In return for this investment, he received all the proceeds from the future sales of these timeless Beatles songs.
While such large investments are beyond the reach of most individuals, JKBX, a fintech platform founded in 2021 and pronounced “jukebox,” now allows the purchase of a fraction of the share of royalty proceeds from sales of songs. Investors can buy a share of an Adele song, for example, for $30 and receive 0.1% of the total expected future proceeds from the sale of that song. This works out to around $1 per year on an investment of $30, based on the most recent year’s song sales.
While JKBX’s technology has expanded access to this new “alternative” asset class, assigning a price to future song sales is a risky endeavor.
The price of a financial asset is equal to the present value of future cash flows that an investor can accrue. The ability to ascertain whether a particular song will be popular in the future is fraught with uncertainty.
Music tastes change rapidly. The long-term durability of a song and its corresponding royalty proceeds depend on so many factors. Is it readily available and heard on the radio? Was it rediscovered in a movie? Where does it fall in the generational divide? Each of these outcomes are difficult to foresee.
Therefore, shares in music and royalty assets are risky because of the unique challenges in determining how future sales of a song may evolve.
On the other hand, the perceived risk may be lower for a music enthusiast with a pulse on the market who is able to pick a unique opportunity, given their familiarity with tastes and trends.
Consumers are not likely to turn off their favorite Beatles song just because the economy is not looking up. In fact, they may turn more to their favorite tunes. Music, therefore, has the additional benefit that song sales, largely, are not tightly related to economic conditions.
Even so, the currently available share prices on JKBX reflect relatively high prices; royalty payments reflect returns in the neighborhood of 3%, which are lower than short-term, risk-free treasury notes or CDs with yields of more than 4%, making music assets quite expensive from a purely valuation standpoint.
One argument for owning these shares is from the point of view of music enthusiasts who may derive some “happiness and utility” by owning these song assets. This is akin to investors who finance climate improvement (green) technologies and willingly accept lower returns because of the perceived societal benefits.
JKBX has provided a unique platform that can be used by investors to access these erstwhile opaque markets. It enables singers and songwriters to sell a share of their creative output and immediately receive payments that monetize their expected lifetime earnings for their creative work.
While these royalty assets are risky for a typical investor and offer relatively low returns, they provide those with an “ear for music” an opportunity to participate in this market, and benefit from the value of songs and songwriting.
Karan Bhanot is a professor of finance in the Carlos Alvarez College of Business at The University of Texas at San Antonio.
A version of this op-ed appeared in the San Antonio Express-News.
