In the music publishing sector, digital revenue growth is outpacing the loss of performance rights income, which bodes well for music royalty funds.
Liberum Capital Markets, in a research note on the burgeoning sector that includes in the UK Hipgnosis Songs Fund Ltd (LON:SONG) and One Media IP Group PLC (LON:OMIP), said competition for assets remains fierce with several investors announcing their intention to deploy significant capital in the coming years.
“We believe this will contribute to valuation gains over the medium term. Rising acquisition multiples on new acquisitions remains the key risk, but the managers of the listed funds have demonstrated an ability to access transactions,” the Liberum team said.
Liberum noted that big players in the sector Hipgnosis and Round Hill have yet to publish revenue data for the first quarter but the portents are promising, based on figures recently released by the Warner Music Group that showed publishing revenues rose by 12% on a constant currency basis in the first quarter from a year earlier.
Digital revenues rose by 33%, offsetting the impact on performance revenues. This was a result of continued growth in streaming and new deals with other digital providers such as TikTok and Peloton, Liberum noted.
“Synchronisation revenue increased year-on-year due to growth in motion picture and commercial income. The overall 12% growth is not strictly like-for-like as acquisitions did have an impact but the company indicated that acquisitions only contributed US$11mln of the US$268mln of adjusted EBITDA [underlying earnings] generated in the quarter,” Liberum added.
Universal Music Group, meanwhile, saw 6.9% organic year-on-year growth in publishing revenues in the first quarter while Sony’s publishing revenues grew by 11% in dollar terms during the quarter.