Universal Music Group’s public listing on the Euronext Amsterdam stock exchange gained widespread attention in the financial and trade press after share prices jumped as much as 39% for a $56.2 billion valuation on Tuesday — but for investors, getting in on that action has been no easy feat. For starters, U.S. residents are unable to trade on the Netherlands-based exchange. And for those investors who can get their money through the right brokerage, UMG shareholders are largely holding onto their equity –trading volume in the first three days was 69 million, about 9% of the 762 million-share float.
The good news is investors have other paths to get into music. UMG has had a halo effect that touches other publicly traded music companies such as Warner Music Group, whose share price jumped 13% on Tuesday. Similar companies, such as Reservoir Media and Believe SA, which invest in music rights and collect royalties, also rose on UMG’s strong debut. (The spotlight won’t hit UMG’s closest competitor, Sony Music Entertainment, a part of the Sony Corporation conglomerate, however. Nor will UMG’s debut influence the value of BMG, the record label and music publisher that’s a small part of German media conglomerate Bertelsmann.)
If an investor wants even more exposure to music, they might also consider a complementary company, such as music streaming services Spotify and Tencent Music Entertainment, radio company iHeartMedia or satellite radio provider Sirius XM Holdings. These companies are joined at the hip with UMG: Spotify, TME, iHeartMedia and SiriusXM owe UMG a royalty each time they play one of its recordings or compositions — so the better they do, the better UMG does. The royalties are small, but trillions of them add up to billions of dollars each year.
For investors newly interested in music after UMG’s public listing, here are 10 other publicly traded companies with similar or complementary businesses to consider.
Warner Music Group (Nasdaq: WMG)
- +16.3% YTD
- Market capitalization: $23.1 billion
- Average price target: $42.50
- Current share price: $44.18
- IPO date: May 26, 2020
Universal Music Group tops Warner Music Group’s market share, but WMG was first to test the public market’s reignited interest in music. (Recall that WMG went public in May 2005 after an Edgar Bronfman Jr.-led group purchased the company from AOL Time Warner in 2003. Bronfman led WMG during a prolonged industry slump and sold to current owner Access Industries in 2011.) WMG’s 2020 IPO raised about $1.8 billion — all shares were sold by owner Access Industries – and proved that investors’ appetites for music assets weren’t contained to upstart, big-spending music rights companies like Hipgnosis and Round Hill (both featured below). On Tuesday, UMG’s soaring share price lifted WMG shares 13%, a vote of confidence for the smallest of the three major labels. (WMG pulled back 3.7% the following morning, however, and has since remained steady.) UMG trades at a 13% premium to WMG, indicating investors believe bigger is better in the music business. That may be true. Nevertheless, WMG stands to benefit from the same market forces — positive and negative — and opportunities that made investors swoon over UMG.
Hipgnosis Songs Fund Limited (LSE: SONG)
- +4.2 YTD
- Market cap: 1.48 billion euros
- Current share price: 124.60 euros
- IPO date: June 29, 2018
Music publishing catalog acquisitions were becoming popular investments when Hipgnosis Songs Fund launched in 2018 with something not yet seen in music: a royalties investment fund that acquires revenue-generating assets with the sole purpose of returning a portion of the returns to shareholders. Then the levee broke and Hipgnosis started acquiring established catalogs at a frenzied pace. At the time, Hipgnosis, based in the Isle of Guernsey, was the only pure-play, publicly traded music investment, and it arguably primed the market for later IPOs by Round Hill Royalty Fund and Warner Music Group. The money Hipgnosis raised in the IPO, and numerous additional offerings, along a small amount of debt, have helped fund acquisitions of the catalogs of dozens of artists (Rick James, Neil Young, Shakira) and producers (Bob Rock, RZA, the Chainsmokers) spanning decades and genres.
HYBE Corporation (KRX: 352820)
- +71.4% YTD
- Market cap: 10.8 trillion won ($9.2 billion)
- Current share price: 271,000 won ($230.68)
- IPO date: Oct. 15, 2020
HYBE Corporation — formally Big Hit Entertainment — went public on the Korea Exchange to the delight of local fans of BTS, the K-pop supergroup that accounts for most of HYBE’s revenue. On the first day of trading, the BTS Army rushed the Korea Exchange and doubled the 125,000 IPO price. After the initial frenzy, investors have focused on HYBE’s unique business model for a publicly traded company: record label, management company, e-commerce and digital business is under one roof. Going public during a pandemic showed the limitations of a business dependent on BTS concerts, however. Because venues closed and touring was suspended due to COVID-19, HYBE’s concert revenues fell 98.2% in 2020 and will likely fall to zero in 2021. BTS canceled its upcoming Map of the Soul: 7 world tour on Aug. 20, ensuring that HYBE will have virtually no concert revenue this year either. To its credit, HYBE quickly focused elsewhere to soften the shortfall. Non-concert revenue grew 100%, with most of the gain coming from BTS music releases and almost a quarter from merchandising and licensing. In April, HYBE spent $1.05 billion to acquire Scooter Braun’s Ithica Holdings, owner of SB Projects (management for Justin Bieber and Ariana Grande) and country music-focused Big Machine Label Group (Florida Georgia Line and Tim McGraw are on the roster), diversifying its business and landing Braun, now the co-CEO of HYBE America.
Round Hill Royalty Fund Ltd. (LSE: RHM)
- +3.9 YTD
- Market cap: 439 million euros
- Current share price: 1.06 euros
- IPO date: Nov. 13, 2020
Round Hill followed Hipgnosis onto the London Stock Exchange to raise $328.1 million for its music royalty fund. Like Universal Music Group, Round Hill gives investors a way to participate in music publishing’s returns from streaming services, synchronization licenses and performance royalties from businesses like live venues, retail stores and gymnasiums. Unlike UMG, however, Round Hill Royalty Fund only buys rights – often the songwriter’s, sometimes the publisher’s, occasionally both – rather than develop and partner with active songwriters. By April, Round Hill Royalty Fund — not to be confused by the privately held Round Hill Music and Round Hill Music Royalty Partners — used its funding to acquire the pipeline of rights it lined up prior to its IPO. That catalog includes songs by The Beatles, Marvin Gaye, Rod Stewart, Kiss, Phil Collins and Celine Dion.
Believe SA (EPA: BLV)
- -0.4% since IPO
- Market cap: 1.75 billion euros
- Average price target: 24.00 euros
- Current share price: 18.33 euros
- IPO date: June 1, 2021
While companies like UMG, WMG and Hipgnosis are plays on the power of chart-topping artists and songwriters, Believe is a bet on the power of lesser-known names. Believe, which went public on the Paris Stock Exchange on June 1, 2021, is an investor’s best opportunity for exposure to independent music’s growing popularity — and market share. More and more artists are choosing to retain their rights and use the distribution services of companies such as Believe’s TuneCore to get their music on streaming services like Spotify. And with more alternative financing options available — not offered by Believe — independent artists are increasingly able to fund recording, promotion and marketing.
Reservoir Media, Inc. (Nasdaq: RSVR)
- -12.6% YTD
- Market cap: $569 million
- Current share price: $8.76
- IPO date: July 28, 2021
At 14 years old, Reservoir Media remains one of the lesser-known rights companies. But the company, which went public on July 29, 2021, after a SPAC merger, is well known within the music business for building a catalog of roughly 130,000 copyrights and 36,000 master recordings. Like Hipgnosis and Round Hill, Reservoir primarily buys or licenses intellectual property and does not sign and develop songwriters like UMG and WMG’s publishing divisions do. With an increasing number of bidders chasing a seemingly never-ending supply of copyrights, Reservoir has nabbed some important names, including country group Alabama’s recordings and a publishing administration deal with Joni Mitchell. In June, Reservoir paid $100 million for Tommy Boy Media, a trailblazing hip-hop and dance label with such gems in its catalog as House of Pain’s “Jump Around,” Naughty By Nature’s self-titled album (which features “O.P.P.” and “Everything’s Gonna Be Alright”), De La Soul’s 3 Feet High and Rising album (“My, Myself and I,” “The Magic Numbers”) and Africa Bambaata’s “Planet Rock.” Its publishing catalog includes the requisite pantheon of legendary songwriters, from Bob Crewe (“Sherry” and “Big Girls Don’t Cry” by The Four Seasons and “Lady Marmalade, first recorded by Labelle) to Sheryl Crow (“All I Wanna Do Is Have Some Fun,” “Every Day is a Winding Road”).
Spotify (NYSE: SPOT)
- -25.4% YTD
- Market cap: $44.9 billion
- Average price target: $237.98
- Current share price: $234.86
- Direct listing date: March 3, 2018
An investment in a music rights company — Warner Music Group, Universal Music Group, Hipgnosis, et al. — is effectively a bet on Spotify. The Swedish music streaming company, traded on the New York Stock Exchange since 2018, is arguably the single-largest contributor to the booming record industry, accounting for about one-fifth of the global music subscription market in 2020 (Billboard’s estimate based on IFPI’s statistics and Spotify’s financial statements). Exactly how much Spotify can grow over the next decade is debatable. Goldman Sachs forecasts 1.15 billion global subscribers in 2030, a 13.4% cumulative annual growth rate from 2018. It could happen — but Spotify, which revolutionized the music streaming experience, will have a lower market share (32% in 2030 vs. 38% in 2018, according to Goldman Sachs) while facing stiffer competition from Amazon, Apple Music, YouTube Music and other services. An oft-cited concern is that developing countries — a major source of new subscribers — generate lower revenue per subscriber than Spotify’s mature markets. That could hurt Spotify’s valuation somewhere down the road unless the company takes other measures, such as higher-priced high-fidelity audio, or acquires revenue-generating companies such as Locker Room, which Spotify acquired in March 2021 and rebranded as Greenroom.
Tencent Music Entertainment (NYSE: TME)
- -61.3% YTD
- Market cap: $12.4 billion
- Average price target: $11.94
- Current share price: $7.44
- IPO date: Dec. 12, 2018
Only one question applies to Tencent Music Entertainment right now: Are Chinese regulators done heaping rules and regulations on tech companies? In July, China’s State Administration for Market Regulation demanded that TME end its exclusive licensing agreements with record labels and receive prior approval for future such deals. Beijing’s demand was part of a broader move to eliminate anticompetitive practices. The government intervention caused TME’s market capitalization to drop 76.9% since hitting a 52-week high of $32.25 on March 23. Aside from those unavoidable problems, TME’s business is strong: its revenue grew 15.5% to 8 billion RMB ($1.23 billion) in the first half of 2021 compared to the prior-year period. Music subscribers grew to 66.2 million, up 40.6% year over year and about 18% over the previous six months. Some growth has likely come from TME’s aggressive moves into long-form audio with its acquisition of audiobook producer Lazy Audio and by producing podcasts.
Sirius XM Holdings Inc. (Nasdaq: SIRI)
- -4.4% YTD
- Market cap: $24.2 billion
- Average price target: $7.65
- Current share price: $6.06
- IPO dates: Sirius Satellite Radio, Sept. 29, 1994; XM Radio, Oct. 15, 1999
Satellite radio in 2021? While fast-growing Spotify is heavily covered in the financial press, SiriusXM quietly has the highest free cash flow of any digital music company: $1.66 billion on $7.78 billion of revenue in 2020, according to the company’s financial statements. SiriusXM has impressively been able to maintain modest subscriber and revenue growth even as driving — satellite radio’s calling card — fell during the pandemic. In 2020, the company added 909,000 self-pay subscribers in 2020, bringing the total to 30.9 million, and plans to add another 1.1 million in 2021. That speaks to the value of SiriusXM’s technology and programming — a mix of music, talk and sports. Steady revenue and cash flow allow the company to pour money into content — including exclusive channels for Bruce Springsteen and Pearl Jam — and share buy-backs. SiriusXM also bolstered its online presence by acquiring music streaming service Pandora in Feb. 2019. Pandora has continued to lose monthly listeners but gives SiriusXM an online product in an increasingly Internet-based world.
iHeartMedia (Nasdaq: IHRT)
- +96.1% YTD
- Market cap: $3.3 billion
- Average price target: $32.50
- Current share price: $26.00
- IPO date: July 18, 2019
There’s an old saying about the radio business: radio companies aren’t in the music business, they’re in the advertising business. But investors who want more exposure to the music business should consider iHeartMedia (and other radio companies, such as Audacy and Entercom). Radio stations pay performance royalties to songwriters and music publishers, and they provide vital promotion for record labels. (Record labels do not receive performance royalties from broadcast radio spins – a long-lasting vestige of a previous era.) So, labels, artists, publishers and songwriters benefit from a healthy radio industry. Stations were quick to lay off and furlough staff when brands pulled back their ad spending in March 2020. Today, the recovering advertising market means radio is no longer on life support. IHeartMedia, which exited bankruptcy in 2019 with a more manageable debt load, is nearly back to pre-pandemic levels: Q2 2021 revenue of $861.6 million was just 6% below the same period two years earlier. Investors should have piled into iHeartMedia’s stock on the pandemic’s onset: the share price traded below $10 from March 16th to June 5 and fell below $6 on 10 days during that span. For as much as the market dislikes uncertainty, a little foresight – the U.S. advertising business would begin to recover in the third quarter of 2020 — would have paid off handsomely.
