Investing in the music industry is a lot less fun than it sounds


music industry

The music industry is in a weird state these days. Gone are the times when everyone and their mother would fork over $10 to $20 to listen to an album they’ve never actually heard before. Now, listening to that album in full — and often for free — is the new norm thanks to streaming music service.

The music industry is also a lot smaller than any other entertainment industry. Last year, the U.S. music industry made approximately $15.5 billion in revenue. Compare that to, say, the near-$100 billion the video game industry made. That’s a substantial difference between two heavily publicized yet wildly different entertainment mediums.

Still, $15.5 billion isn’t anything to balk at. Plus, there will always be ravenous music fans attending concerts and festivals, buying albums, and subscribing to streaming services.

With this in mind, it might make perfect sense to you to invest in the music industry. That begs the question: is there much of an industry left to invest in?

There are three major music labels, but you can only invest in two.

Sony Music ($SNE) and Universal Music Group ($VIV) are two of the three existing major labels. Both are subsidiaries of major publicly traded corporations (Sony and Vivendi SA, respectively). These company’s parent corporations own many other subsidiaries and produce much more than music. In fact, music is likely worth a mere fraction of the total revenue and profit made by Sony and Vivendi.

Warner Music Group, the third major label, is surprisingly not owned by Time Warner. Access Industries, a privately owned conglomerate, purchased the label in 2011. Access isn’t just a music business, though. The company oversees everything from chemistry companies to telecommunications subsidiaries.

Smaller indie labels like Beggars Group and Merge are still owned by private owners. They might have international reach and notable, million-selling artists, but they’re as far from a publicly traded entity as can be.

You can invest in music streaming…kinda.

Apple Music ($AAPL), Google Play All-Access/YouTube ($GOOG), Amazon Music Unlimited ($AMZN), and Pandora ($P) are the only four major publicly traded streaming music services on the market. Some are relatively new endeavors; Pandora Premium, for instance, just launched less than a month ago and existed only as an internet radio company before that. It’s worth noting that Apple Music, Google Play All-Access, and Amazon Music Unlimited have a minimal impact on their companies’ respective revenue streams. Pandora, on the other hand, is just a streaming and internet radio company, and they’ve been on a decline for over three years.

Spotify is the largest streaming music company by subscribers, but they’re still a private company. There are rumors that Spotify will go public later this year, though they have yet to be confirmed by any investment banks or the company themselves. So, no, you can’t invest in Spotify.

You can sort of invest in Tidal, Jay Z’s high-quality streaming service, by investing in Sprint ($S). Sprint recently invested millions into the company in exchange for a 33% stake, and nothing’s really stopping them from buying the service outright. Yet Sprint is just a minority owner, and Tidal’s revenue streams probably have no impact on the mobile services company.

You can invest in digital and physical music stores.

Apple’s iTunes ($AAPL), Amazon Music ($AMZN), and Google Play ($GOOG) are three of the biggest digital music stores, especially in North America. Like each company’s streaming music service, song and album sales don’t make up a substantial part of each company’s respective revenue. They do, however, provide millions of dollars in revenue while keeping users locked into their digital and mobile ecosystems, enticing them to buy more of their products.

Physical music stores might be a thing of the past, but Trans World Entertainment ($TWMC) still barely exists. The company owns f.y.e and other mall-based entertainment stores. These stores, however, number in the low hundreds, and the company isn’t doing as well as they used to a decade ago. Now, when people buy physical albums in stores, they mostly get it Best Buy ($BBY), Barnes & Noble ($BKS), Walmart ($WAL), or Target ($TGT).

You can invest in concerts, but not Coachella.

Live Nation Entertainment ($LYV) is one of the biggest live entertainment companies on the planet. It was created in 2010 after Live Nation and Ticketmaster merged. In addition to being a ticket company, Live Nation is an artist management, product licensing, and merchandising company, as well. They even own major venues across the world and handle the ticketing for all events.

Live Nation’s rival, Anschutz Entertainment Group (AEG), owns many major music venues in the United States. The company also owns Goldenvoice, which puts on the ever-popular Coachella Valley Music and Arts Festival every year in California. Unlike Live Nation, Goldenvoice is a privately owned entity, and will likely remain that way for a while.


Should you invest in the music industry?

Revenues from album sales declined in the last several years, though revenue from streaming is growing at an accelerated pace. The concert industry is also growing, though there are fewer companies in the live event space — and even fewer publicly traded companies.

If you really want to invest in the music industry, consider looking at the industry gatekeepers: those that sell the content, those that own the rights to the content, and those who put on the shows. All other bit players in the industry are waiting to either be bought out, merge with competitors, or evaporate into nothingness. Just be sure to do your research before you invest in any of the mentioned companies. And if you’d rather deal with a more profitable industry, you can always invest in video games.


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