A recent addition to the Invesco Select Trust plc Global Equity Income Share Portfolio is Universal Music Group (UMG). Though relatively new – having only listed in Q3 last year1 – it is the world’s leading music rights company, with corporate headquarters in the Netherlands and offices in over 60 territories.
UMG owns and operates a variety of businesses that engage in music recording, publishing, merchandising and creating audio-visual content. It has a 34% market share2 of the digital market in recorded music and owns the back catalogues of some of the world’s biggest artists, including Billie Eilish, Taylor Swift, Lady Gaga and The Foo Fighters.
It is an attractive business model for investors – it is possible to own music rights for up to 70 years in some cases, which affords us a fair degree of visibility on earnings.
This is an interesting time for recorded music. The industry peaked in terms of revenues in the late 90s – then, as we entered the early 2000s, music piracy became increasingly commonplace and caused real challenges for revenue streams. Audio streaming platforms like Napster3 introduced peer-to-peer file sharing, essentially allowing consumers to access music without paying for it. Companies in this space quickly encountered copyright infringement issues and many were shut down. But they had already rocked the industry, as consumers abandoned traditional methods of acquiring music in favour of downloads.
Today’s digital music providers – Apple Music, Spotify, Amazon Music – have built on this history, reimagining the way we listen to music. And how we pay for it. Most require consumers to pay a subscription fee in return for near-unlimited access to a huge variety of artists. To offer this, these providers have to pay royalties to companies like UMG who own the music rights. This is a royalty stream on what we believe is an expanding market.
The industry is still below where it was at its peak in the late 90s in revenue terms, so we think the potential for earnings growth is there. Music is not only accessed by individuals on their phones – it is used in videogames, health and fitness classes, advertisements and films. With the technology available now, it is easier than ever for music rights owners to trace where music is being used – and therefore easier to monetise those assets effectively.
We like companies with utility-like characteristics and UMG fits that bill. In a world where few of us buy CDs and want music wherever we go, our subscriptions to streaming platforms are seen as an essential. Perhaps not as essential as water or electricity, but still one of the last things to be scrapped when we review our bank statements looking for ways to make savings.
Stephen Anness is manager of the Invesco Select Trust plc Global Equity Income Share Portfolio
1IPO September 2021
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