Investors may soon be able to speculate on which songs will head to the top of the streaming charts as part of plans developed by a US startup to launch a futures market tied to music revenue.
Chicago-based Clouty has created a tradable index of global streaming sales, and is eyeing an exchange-traded fund that would appeal to retail investors. It is also in early discussions with US Exchanges about launching a future associated with individual genres, artists and songs, according to two people familiar with the discussions.
Its long-term plan seeks to tap into the music business’ rapid financing as wealthy investors struggle to secure streams of streaming-related revenue.
In recent years, private equity groups like Blackstone and KKR have spent billions of dollars on the back catalogs of artists like Leonard Cohen, Neil Diamond and Bruce Springsteen in hopes of securing regular streams of income that would be immune to economic downturns. Other famous acts, such as Pink Floyd, have explored selling their rights or converting their catalogs into asset-backed securities.
“Music is an asset class hiding in plain sight and not unlocked,” said David Ohme, founder and CEO of Clouty.
Goldman Sachs predicted last year that revenue in the global music industry would grow at a compound annual rate of 12 percent between 2021 and 2030, with revenues of more than $150 billion.
As this rush continues, the development of markets that allow investors to trade music rights in a secondary market is “inevitable,” according to Ohme. “Whether in growth or recession, people will flock,” he added.
Clouty, a three-person company, is in the process of seeding a seed funding round but faces an uphill battle to turn the anomalous asset class into a long-term tradable market. Futures markets can take years to build depth and liquidity. Large futures exchanges such as CME Group offered contracts on unusual assets such as air and water temperature and hurricanes but failed to gain traction.
“There have been many examples of futures contracts failing to succeed, even on well-understood products. They are usually too complex to understand, difficult to price or Understand them when it comes to calculating their volatility.
Clouty obtained permission from Bloomberg to offer its Musiq 500 Index, which tracks revenue generated by streaming of the top 500 songs globally, on the financial data provider’s terminals. The value of the index rose more than 25 percent year-on-year to more than $10,000. Then he intends to release catalogs by genre and then singles. The future contract will also need regulatory approval.
Executives who watched Clouty’s bid wonder if he can find interest from large institutional investors and attract market makers, whose daily buying and selling helps build liquidity. One potential investor had reservations that the indexes are based on flow, not royalties.
Ohme said the large sums pouring into the music business created potential risks and rewards for streaming platforms and rights holders, creating a natural user base for futures contracts.
Unexpected revival of songs used in TV shows, like Kate Bush’s “Running Up That Hill” Weird things Or turn on Depeche mode “Never let me down again” The last of ushad generated millions of new dollars in royalty payments to copyright holders.
But it’s bad news for streaming platforms like Spotify, YouTube and Apple that have to pay the rights holder for songs when they’re streamed, and could theoretically use the futures market to hedge the risk of a sensation overnight.
Investors who have spent large amounts of money on music rights can also use futures contracts to protect themselves from the risk of artists going out of style.