Real World Asset Tokenisation Promises to Transform IP Management and Open New Investment Horizons

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April 26, 2024

Over the past few years, institutional investors have attracted significant interest in music catalogue investments due to streaming royalties’ long-term predictability and consistency. However, music is not an easily accessible asset class for most institutional and retail financial players. This is due to the absence of a public, open market for music IP. This highlights the need for innovation in IP infrastructure and management processes within the music industry to unlock its full economic potential and pave the way for new investment opportunities

Streaming changed the financial structure of the industry

From 2010 to 2022, the alternative investments market has risen from $3 trillion to $12 trillion globally (Source: Preqin Pro, Sifma). A study from Bain & company further indicates that there are still growth opportunities, with $8 to $12 trillion of household funds available for alternative investments. Over the years, music has become one of those recognised alternative asset classes. 

“ I think everyone realized that publishing catalogs were assets you could finance, like a building… So investment bankers, hedge funds, private equity – they all look at this as an asset class.”

– Martin Bandier, former CEO and Chairman of Sony / ATV Publishing

Before streaming, music was seen as an asset class with event-focused returns and heavily dependent on the right owner’s ability to develop a business around music content. Streaming transitioned the industry’s cash flow from launch and event-focused to a more consistent revenue stream driven by recurring, predictable subscription payments and advertising. This had a strong effect on how investors perceived music. Music catalogue and IP investments have attracted significant interest from institutional investors due to royalties’ long-term predictability and consistency. 

Naturally, investments in music carry a distinct risk profile, including the unpredictability of music trends and popularity and the swiftly changing technology sector, which can affect the stability and predictability of investment returns. However, music is a promising asset class for traditional investors to consider.

The lack of infrastructure has been a barrier to alternative asset investments

The lack of technological infrastructure has been the main barrier identified by Bain & Company for the growth of alternative investment into asset classes. Outdated intellectual property infrastructure and a lack of an open IP market make music a less accessible and illiquid asset class, especially for those outside the industry. The lack of a market infrastructure significantly limits the flow of investments, restricting them to large exclusive deals accessible to very few institutional counterparties today. It is almost always one-to-one deals, with a single counterparty, often of very high amounts (e.g. Bruce Springsteen’s catalogue for $500 million to Sony).

Real World Asset Tokenisation stands out as a promising solution for establishing efficient market infrastructure

The advent of blockchain technology, particularly the “Real World Asset Tokenisation” concept, could present a significant turning point for the industry. “Music IP tokenisation” refers to the process of representing conventional music intellectual property through digital tokens on the blockchain – extending beyond just the intellectual property itself to contain the vast array of associated rights, ranging from royalty- and copyrights to distribution- and sampling rights. These IP tokens are inherently digital assets that reside on the blockchain, making the blockchain itself the market’s technological infrastructure.

  • McKinsey [1], and Citigroup [2] indicate it to become a staggering 5 trillion-dollar marketcap by 2030
  • Blackrock CEO says that tokenisation “will be the next generation for markets” [3]
  • Boston Consulting Group see a $16 trillion opportunity for illiquid asset tokenisation by 2030 [4]

Tokenisation of music intellectual property on blockchain infrastructure transforms the investment landscape by disaggregating the IP and its rights into smaller, tradable units. This model seeks to develop an open, transparent market for music IP, ensuring global access and liquidity around the clock. Additionally, tokenisation promises to digitise and streamline the processes of licensing, royalty distribution, and other revenue-generating activities. For investors, these streamlined processes translate to potentially more stable and consistent streams from their investments.

Beyond streamlining processes and opening up new avenues for investment, tokenisation paves the way for new use cases and business models, incorporating music IP into the broader DeFi ecosystems. This includes IP-backed loans, efficient IP price discovery mechanisms, and other IP-centric financial products, thus elevating the value of music IP and rendering it a more dynamic and attractive asset class.

Blockchain Promises to Transform IP Management and Open New Investment Horizons

While music has historically been an inaccessible and illiquid investment asset, blockchain technology emerges as a potential solution, offering robust infrastructure for tokenising music IP. This process transforms IP ownership, valuation, trading, and monetisation mechanisms and creates a public and open market. This open market is more accessible, transparent, and dynamic than traditional systems today, presenting new opportunities for investors and creators alike. This promise stands to unlock the full economic potential of the music industry and open up new avenues for investment.

You can read more about the opportunities tokenisation offers here.

Contributor

Web3 Music Association Executive VP of Token Economies and Blockchain Strategy

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