How Music Royalties Back Asset-Backed Securities
- Brandon Chicotsky
- 3 days ago
- 10 min read
Music royalties are now fueling a new type of investment: asset-backed securities (ABS). By bundling predictable royalty streams from streaming, licensing, and performance rights, these securities offer stable returns for investors and upfront cash for artists. This model gained traction thanks to streaming platforms, which generate consistent income. Between 2020 and 2025, music royalty ABS deals totaled $8 billion, with high-profile examples like Concord's $1.8 billion issuance backed by works from Phil Collins and Pink Floyd.
For artists, this means immediate funding without losing ownership of their work. For investors, it’s a way to diversify portfolios with assets less tied to economic shifts. However, risks include fluctuating consumer tastes, legal disputes, and challenges from AI-generated music. Still, the market's growth, fueled by streaming and global music demand, suggests this trend will continue to expand.
History and Development of Music Royalty Securitization
The Story of Bowie Bonds
In 1997, David Bowie made history by securitizing his pre-1990 music catalog. Partnering with banker David Pullman from Fahnestock & Co., Bowie secured $55 million from Prudential Insurance Company. This was done by leveraging future royalty streams from 25 albums (a total of 287 songs) recorded before 1990 [8][9].
The deal featured a 7.9% interest rate over a 10-year term [9]. Moody's gave the bonds an A3 investment-grade rating, marking the first time intellectual property had been rated as collateral by a credit agency [8][10]. Bowie used the funds to buy out his former manager, Tony DeFries, for $27 million [8][12].
"He has some songs going back twenty-five years that are still selling today, and they will still be selling [in the future]." – David Pullman, Managing Director, Fahnestock & Co. [10]
By 2004, Moody's downgraded the bonds to Baa3 (just above junk status). This was attributed to falling CD sales and the rise of digital piracy [8][9]. However, the bonds matured successfully in 2007 without default, proving the concept's durability over time [8][10]. Inspired by Bowie’s success, other artists followed suit. For example, the Motown songwriting trio Holland–Dozier–Holland raised $30 million by securitizing 70 Billboard hits, and James Brown securitized royalties from around 750 songs [9][13].
Bowie's innovative approach laid the groundwork for a securitization market that would later evolve into more diversified, portfolio-based models.
Market Growth Since the 2000s
After Bowie Bonds, the market saw limited activity before regaining momentum with the rise of stable streaming revenue. Between 1997 and 1999, only five music royalty deals were completed, totaling $150.5 million. Unpredictable revenues caused by declining physical sales and digital piracy deterred institutional investors during this period [2].
The market began to rebound in 2021, marking a "renaissance" for music royalty securitization. The value of music catalog deals surged from $1.9 billion in 2020 to $5.3 billion in 2021 [5]. Between 2021 and 2024, music royalty-backed transactions grew by nearly $3 billion [11]. A notable example came in February 2022, when KKR Credit Advisors raised $732 million through asset-backed securities backed by a diversified portfolio of publishing and sound recording royalties [5].
This shift from single-artist deals to large, diversified portfolios has become the norm. By spreading risk across multiple artists and genres, these transactions reduce reliance on the popularity of any single performer [2][14]. By 2015, niche asset-backed securities - an idea Bowie helped pioneer - accounted for 11% of total asset-backed debt [12].
How Music Royalty Securitization Works
The process of turning music royalties into liquid assets has evolved significantly. Here's a closer look at how it works.
Types of Music Royalties That Can Be Securitized
Music royalties operate on a dual copyright system, distinguishing between the musical composition (lyrics and melody) and the sound recording (the recorded performance, or "master") [6][15]. Composition rights generate mechanical, performance, and synchronization royalties, which typically provide steady, predictable cash flows suitable for securitization.
Master recording rights, on the other hand, are tied to specific recordings. For instance, Jeff Buckley's rendition of "Hallelujah" earns revenue not only from streaming and physical sales but also from licensing for audiovisual projects and digital performance royalties on platforms like Pandora and SiriusXM. While composition rights often offer lower risk and steadier income, master rights can yield higher returns but come with greater financial risk, as they depend on the popularity of a single recording.
Valuation also varies: high-quality, enduring catalogs (often called "evergreen" catalogs) may sell for 10x to 18x their Net Publisher's Share, while newer catalogs (less than three years old) typically trade at lower multiples of 3x to 5x [15].
With these royalty types in mind, the next step is structuring these revenue streams into marketable securities.
The Securitization Process
Securitization turns future royalty income into upfront cash. It starts with selecting and pooling assets - usually music catalogs with a proven track record of consistent income. Established repertoires are preferred over one-hit wonders. Afterward, due diligence ensures clear ownership of the rights, verifying that all copyrights are free from third-party claims.
Next, the rights holder transfers these royalty streams to a Special Purpose Vehicle (SPV) through a "true sale." This step isolates the assets from the originator’s creditors. The SPV then issues debt instruments, such as bonds or notes, backed by the future income from the catalog. This setup provides liquidity to the rights owner while royalties from streaming platforms and distributors fund interest and principal repayments. Many music bonds are self-liquidating. For example, in 2022, KKR Credit Advisors raised $732 million by issuing asset-backed securities tied to a diverse portfolio of publishing and sound recording royalties [5][1].
This structured approach has fueled the rise of music-backed securities, attracting institutional investors seeking stable, predictable income streams.
Main Participants in the Process
Several key players work together to convert royalties into securities:
Artists, songwriters, and producers: They transfer their royalty streams to the SPV.
Investment banks: These institutions structure the deals and manage the issuance of securities.
Rating agencies: Firms like Moody's, S&P Global, and Fitch assess the creditworthiness of the securities based on historical performance and the reliability of the royalty streams.
Institutional investors, such as pension funds, insurance companies, and private equity firms (e.g., Blackstone and Carlyle), supply most of the capital. In September 2025, these firms raised a record $4.4 billion in music-backed debt [4]. Retail investors can also participate through platforms like JKBX and SongVest, which allow fractional ownership of royalty streams.
Finally, collection and administration entities ensure royalties are distributed efficiently. Performing Rights Organizations (PROs) like ASCAP, BMI, and SESAC collect fees from radio, TV, and live venues, while the Mechanical Licensing Collective (MLC) handles mechanical royalties. SoundExchange collects digital performance royalties, and Digital Service Providers (DSPs) like Spotify, Apple Music, and YouTube generate the majority of revenue - streaming now accounts for 84% of total U.S. recorded music revenue [4].
"The bond structure also transferred the financial risk of Bowie's catalog to investors, who were arguably better equipped than the artist to evaluate whether the music would continue generating revenue over time." – Sven Goeggel, Partner, Global Treasury Services, EY Switzerland [7]
Risks and Challenges
Securitization can provide liquidity and predictable cash flow, but it comes with its fair share of risks that can affect its reliability.
Revenue Fluctuations and Market Changes
The unpredictable nature of music consumption directly impacts royalty income. For example, disruptions like Napster and widespread digital piracy between 1999 and 2014 significantly reduced global music revenues [2]. Today, Artificial Intelligence poses new challenges, such as enabling unauthorized music copying or creating original compositions that compete with existing catalogs [2][1].
Catalog concentration also plays a role. Portfolios focused on specific genres or artists are more vulnerable to shifts in consumer tastes, while diversified catalogs spread across multiple genres tend to provide more stable cash flows [2]. Additionally, newer songs often experience higher revenue volatility, with royalty streams typically stabilizing only after several years. On the other hand, "evergreen" catalogs, which include timeless hits, are less likely to see sudden revenue declines [2][6].
Macroeconomic factors also influence music investments. For instance, when the Bank of England raised its official interest rate to 3.5% in late 2022, music fund share prices dropped because their dividend yields became less attractive compared to risk-free government bonds [1]. As Josh Gruss explained: "If you can earn 4.5% risk-free, why should Round Hill pay 4.5%?" [1]
Operational delays can further complicate matters. Performing rights organizations like ASCAP or BMI sometimes take time to collect and distribute royalties. These delays can create timing mismatches, potentially causing liquidity issues for investors when bond payment dates don’t align with cash inflows [2].
Legal and Ownership Issues
Clear ownership and a verified "true sale" are critical to isolating assets from creditors. Any uncertainty in the "chain of title" for composition or sound recording copyrights can prevent rights holders from legally transferring assets to the Special Purpose Vehicle (SPV) [6].
Third-party claims or encumbrances can make asset transfers more difficult. Cross-border copyright enforcement adds another layer of complexity, as disclosure standards for securities vary significantly across countries.
AI-generated music has also introduced unresolved legal challenges, especially regarding copyright and data usage. These uncertainties make future royalty income harder to predict. For example, in February 2024, Universal Music Group pulled its entire catalog from TikTok, citing concerns over AI's "harmful effects" and the need for better control over copyrighted works [2]. Such disputes between platforms and rights holders can unexpectedly cut off revenue streams that investors rely on.
"Intellectual property could serve as stable collateral, provided that the underlying rights are well-defined, enforceable, and free of encumbrances." – Trent Anderson, Miami Law Review [11]
Credit Ratings and Assessment Factors
Legal and operational challenges add to the complexity of securitization, and rating agencies carefully evaluate these deals to ensure reliability. Portfolio diversity is a key factor - catalogs with a wide range of songs, artists, and genres are considered safer because they generate more predictable cash flows [2]. Older songs with established revenue histories, often referred to as "seasoned" tracks, are viewed as less risky compared to newer releases [2].
Agencies also assess whether distributors can effectively negotiate deals to maximize royalty income [2]. They require detailed revenue data, including historical earnings, song release dates, payor identities (e.g., Spotify or ASCAP), and projected copyright expiration dates [2].
Structural safeguards, like reserve accounts and Loan-to-Value (LTV) ratios, also play a role in managing liquidity risks. Recent music ABS deals have featured LTV ratios ranging from the low 40s to as high as 65% [1]. For instance, in August 2025, KBRA rated the Series 2025-1 Class A-2 Notes issued by Lyra Music Assets, which were backed by a $2.95 billion catalog featuring artists like Red Hot Chili Peppers, Journey, Justin Bieber, and Shakira [16].
The original Bowie Bonds issued in 1997 received an A3 rating from Moody's and offered a 7.9% interest rate, which was 1.53% higher than the 10-year U.S. Treasury note at the time [7]. While streaming has brought more stability to music revenues, making investment-grade ratings more common, agencies remain vigilant about potential disruptions from technology, including AI and changes to platform algorithms [2][7].
Conclusion: Market Outlook and Opportunities
Main Points
The securitization market has come a long way, evolving from a niche concept into a recognized asset class with strong investment-grade ratings. In 2025, it raised $4.4 billion, signaling growing institutional confidence and a shift toward private asset-backed securities [6, 16, 30]. Streaming platforms have played a major role in this transformation, turning music into what EY Switzerland calls "infrastructure-type assets." These assets generate steady cash flows, largely unaffected by economic ups and downs, with streaming now accounting for 84% of U.S. recorded-music revenue [4].
This model benefits both artists and investors. Artists can secure upfront capital without giving up their copyrights permanently, while investors enjoy returns that are less tied to traditional stock and bond market fluctuations [5, 16]. Between 2017 and 2021, Life of Rights music assets delivered a median annual return of 12.8%, matching the S&P 500 but with far less volatility [3]. However, risks such as AI-generated content, platform disputes, and shifting consumer habits remain. These challenges, though, pave the way for creative solutions and continued market growth.
What's Next for Music Royalty Securitization
The future holds promising opportunities despite some hurdles. Global music revenue is projected to approach $200 billion by 2035, with a growth rate of about 6% annually. Paid streaming subscriptions are expected to double by 2030, while music publishing revenue could reach $11.7 billion in the same timeframe [26, 31]. Markets in Asia, Africa, and Latin America are poised for significant growth, fueled by increased smartphone use [17].
Technological advancements are also reshaping the market. Real-time streaming data now allows for quicker and more precise catalog valuations, making securitization more accessible [6, 30]. A notable example came in 2024, when Duetti completed an $80 million securitization of independent artist royalties - the first of its kind - demonstrating that even emerging artists can benefit from this model [17]. Revenue sources are also diversifying, moving beyond streaming to include short-form video platforms, fitness apps, gaming, and virtual reality [6, 30]. These developments help balance the risks, showcasing the market's adaptability.
Sven Goeggel, Partner at EY Switzerland, summed up the strong investor interest:
"There is so much capital in the world, an enormous amount, and that capital is asset-seeking" [7].
With over $8 billion in cumulative issuances between 2020 and 2024 [17], music royalty securitization has cemented its place as a vital part of modern investment strategies [17].
FAQs
How do investors get paid from music royalty ABS?
Investors in music royalty asset-backed securities (ABS) earn returns from the revenue generated by the underlying music rights. These rights create consistent income streams, including royalties from streaming platforms, licensing agreements, and performance fees. These income streams are then bundled into bonds or ABS, allowing investors to share in the profits.
What makes a music catalog “safe” enough to securitize?
A music catalog is deemed "safe" for securitization when it demonstrates stable and predictable revenue streams. This typically involves several factors: a diversified portfolio of rights (such as publishing royalties and master recordings), a consistent income history - with streaming revenue being especially important - and legal protections, like transferring rights to a bankruptcy-remote Special Purpose Vehicle (SPV). Additionally, spreading investments across various artists and genres helps minimize risks, ensuring steadier cash flows. These qualities make the catalog more appealing for securitization.
How could AI or platform disputes reduce royalty cash flow?
AI-related or platform disputes can create interruptions in royalty cash flow for music-backed asset-backed securities. Problems such as disputes over the ownership of AI-generated music, delays in royalty collection, and unclear attribution of rights can disrupt revenue streams. These challenges often lead to legal conflicts and misdirected royalties, which undermine cash flow stability and can negatively affect the valuation of these securities. Addressing issues around ownership and attribution is crucial to ensuring steady and reliable revenue for investors.
