How Kenyans can capitalise on music as an asset class

While the world is still trying to make sense of the viral song Heart on My Sleeve - a product of artificial intelligence simulating the music of artists Drake and The Weekend, I am still trying to get over my amazement.

I mean who doesn’t enjoy the prospect of a juicy musical collaboration?

Alas, for every dream collabo that we never got to hear - Johnny Mathis and Luther Vandross, Patti La Belle and Barry White, Modern Talking and our very own Kelly Brown and so on and so forth. But I understand the backlash.

AI-synthesised voice technology is powerfully harmful to the world’s creative community. But here’s what I’d like to see come back again: vinyls.

Good to read (State of the Industry Report by IFPI Global Music Report 2023) physical format revenues – including CDs, vinyl and other physical formats – increasing for a second year running with vinyl leading the upward trajectory.

Noted in the report is the ongoing comeback story of the global music business after many decades in the slump.

With the industry finding its footing again, it’s also getting attention from investors. In the current market environment of low and correlated returns, music royalties are increasingly being viewed as an attractive asset class.

Music royalties are a great source of recurring income - a compelling factor for investors who desire predictability.

Their low correlation with macroeconomic performance and high-income potential makes a good investment case.

To give some context: according to the IFPI report, total global streaming (including both paid subscription and advertising-supported) revenues grew by 11.5 percent to reach Sh2.4 trillion, or 67 percent of total global recorded music revenues.

Worth noting, sub-Saharan Africa became the fastest growing region (the only region to see more than 30 percent growth) for recorded music revenues in 2022 with streaming accounting for 95.5 percent of these revenues.

How can we capitalise on this? The easy answer is royalty funds. These special funds essentially buy music catalogues and from royalties received, distribute the majority of the cash flow after expenses to shareholders as dividends.

Here's the catch: although our regs may accommodate such alternative funds, this is easier said than done.

Our infrastructure is inefficient at best. Artists frequently complain of meagre receipts from streams, radio play, performance rights, synchronisation, etc.

With most music lovers preferring ad-based services to paid subscriptions, this indicates the problem is deeply behavioural.

And then there’s the “decay” effect - new songs tend to generate royalty payments in the first six or so years after they are released, before stabilising at a lower level.

All the same, it’s worth a try with our best bet being starting off as a private market with individual copyright deals between bankable artists and investors.

No doubt, there’s a clear investment opportunity in the growing music streams. There is now greater confidence in owning music intellectual property (IP) assets and the royalty income derived from them.

Now before I drop this, have this nagging question: does switching to Vinyl make you a better DeeJay?

Mwanyasi is the MD of Canaan Capital.