Investors still see opportunities in the music industry and music tech

“Investors are still seeing opportunities in the music sector. However, there is no real prevailing theory or acceptance of where the real opportunity lies.” This article explores the trends.

from ArtistVerified on Medium

It was announced recently that Techstars Music, the longtime sector-based incubator for music startups, has been shut down. The reason given by Managing Director Bob Moczydlowsky was that the model was outdated as it pertains to the music startup environment and hasn’t evolved in a way that could best serve its participants. Makes sense. But what are some of the outside factors that have emerged that could have contributed and how are they reflected in the investments being made by the biggest investors in the music space?

Creator as Consumer

With the advent of new AI and future-tech tools empowering music creation by almost anyone, there has been a paradigm shift in what is being considered “monetizable” as it pertains to music investment. Music sector investors have seen this coming apparently as creation tools and platforms such as Splice, BandLab and Soundful have raised significant capital. On these platforms, the creators are in fact the consumers. There seems to be a common theme through much of the investments being made that the way music is consumed is changing significantly as a result of the ability for more people to create consumable music. Spotify has recently announced that it is re-structuring its payout model to filter out tracks that are deemed either “not real music” or not streamed enough to warrant a payout. We believe that theme will permeate into the value of music rights and licensing investments as well.

Re-Thinking Web3

With the collapse of the crypto boom came an abandonment of the early Web3 music investment trend. Whereas the NFT and NFT marketplaces were the darlings of the pre-to-early COVID ball, that ship has sailed and most Web3-tied investments are focused on fan communities or metaverse platforms such as Futureverse, Afterparty, Medallion and Wave. Streaming NFT marketplaces are still in the investment picture with Sound.XYZ and Audius still being the primary recent recipients of investor capital.

You Gotta Fight For Your Rights (to party??)

Despite some considerably devastating developments with Hipgnosis Fund’s share value decline and extreme underperformance for investors, investment in song rights continues to be seen as desirable as evidenced by Morgan-Stanley’s recent announcement that it is investing $700M in a partnership deal with Kobalt to acquire catalogs. It marks Kobalt’s return to the space and they will oversee the administration of the catalogs. Also noteworthy was Harbourview Equity partners purchase of Christine McVie’s Fleetwood Mac catalog as well as the catalogs of Pat Benatar and Neil Geraldo. The recent launch of heavily-funded consumer-facing fractional song rights investment platform JKBX and it’s subsequent reception will be very interesting to watch over the next year as it shows early signs of being the most likely platform to establish success in the domain. The X-factor from our perspective is how AI-generated music will influence the licensing value of the classic catalogs which have been acquired. We believe that the valuation of a song’s copyright earnings based on past performance does not stand up in the face of unprecedented influx of new and potentially very similar music, and that’s before we consider that we have probably reached “peak stream”. An increase in content certainly does not equate to an increase in consumption, and therefore unlikely to result in maintenance of historical income streams.

Live-Streaming has ended its broadcast

COVID created an immediate market for live-streaming platforms and it wouldn’t be inaccurate to say that every label group, management firm and music investment group has parted with money investing in one or more of them. Simply put, there wasn’t nearly the demand and there were too many platforms that rushed to market essentially nullifying all of them. A few remain and the Madden Brothers’ Veeps appears to be the one that will stick around for a while, plenty of others (eg Mandolin, Sessions) have folded.

What about the fans?

Fan engagement platforms are still receiving checks from forward-thinking investors who still believe that hyper-monetizing the super-fan and converting passive fans into active fans is the means to higher artist revenue. Notable platforms that have received significant funding include Fave, Laylo, Komi and Fanbase. While the models are similar and provide tools for artists to more effectively monetize their fans, all follow the theory that fanbases need to be siloed between platforms, and have a tendency to focus on increasingly smaller audience segments in pursuit of share of wallet.

The Synopsis

Investors are still seeing opportunity in the music sector. However, there is no real prevailing theory or acceptance of where the real opportunity lies. The most commonly held assumptions are:

• AI will have an impact on the value of recorded music
• Music creation tech is a growing market
• Artists need better access to their fans in order to grow revenue
• Streaming models are and will continue to change which could result in new market opportunities
• Labels need to invest and partner with platforms that give access to more artists

We believe that emerging artists will need a strategy on how they choose to create and market their music and IP going forward. Tantamount to this is securing their own identity and establishing the most direct connection possible with their fans based on fan identity. Only then, can artists navigate their career trajectory with any degree of control.

ArtistVerified is a two-sided platform which reconstructs the engagement between music artists and fans by establishing a blockchain-anchored digital identity index for both sides of the relationship empowering the artist and rewarding the fan.

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