On the pilot episode of Subprime Time — a podcast dedicated to unpacking all things asset-backed finance (ABF) — deputy editor Sasha Padbidri and ABF reporter Harrison Connery dive into the revival of music royalty asset-backed securities. They trace the market’s evolution from “Bowie bonds” to the current impact of generative AI on the asset class. Case in point: if a heartbroken teen can prompt AI to create a custom breakup song that sounds identical to Taylor Swift, what does that mean for the value of legacy catalogs?
Harrison also shares his reporting on which music catalogs investment firms are currently snapping up, plus the surprising origin story behind Kygo’s hit remix of Whitney Houston’s “Higher Love”.
Have any feedback for us? Send us a note at podcast@9fin.com. Thanks for listening!
Episode Transcript
This transcript was generated with the assistance of AI. For any inconsistencies, please send a note to podcast@9fin.com.
Sasha Padbidri
Hello everyone, I'm Sasha Padbidri, US deputy editor with 9fin. Welcome to the pilot episode of Subprime Time, the podcast where we unpack all things ABF. Joining me today is ABF reporter Harrison Connery, who will discuss his story on music royalty ABS, which I totally encourage everyone to have a read. So welcome Harrison and welcome to your debut on Cloud 9fin.
Harrison Connery
Hi Sasha, thanks so much for having me.
Sasha Padbidri
Awesome. So let's just like delve a bit into your story since it's like a really hefty read. So first up, music royalty ABS, been around for more than a decade, way more than a decade with Bowie bonds and all of that. So how has it changed over the years and why is it gaining so much attention right now?
Harrison Connery
Yeah. So music royalty ABS dates back to the late nineties when David Bowie became the first artist to securitize his music royalty cash flows. As you said, there were a handful of other securitizations right after that in the late nineties and early two thousands, but they didn't really catch on because there was some technological disruption. Streaming came along. iTunes came along. That really disrupted the cash flow model of the music industry of the late 90s and early 2000s.
So the sector lay dormant for a long time until about 2020, when ironically, there was enough data on streaming to allow for robust analysis of song and catalog cash flows. So they came back in 2020. And now we're paying attention to music ABS for a couple of reasons. One is Brookfield-backed Primary Wave Music is looking to get into the sector. Brookfield's a behemoth in the asset management space. Whenever they do something like this, that's a bellwether for the industry. Primary Wave's latest fund made some headlines earlier this year when it bought Britney Spears' catalog for $200 million. I think we can expect some more announcements like that coming down the road from them.
There've also been a bunch of mergers among issuers in the ABS space. Concord was bought by BMG in April. Recognition Music was bought by Sony in May. And that has some people wondering whether or not there'll be less paper coming down the road because there's just fewer issuers. So it's an interesting time right now to be paying attention to music ABS because on the one hand, investors are getting comfortable. There's a decent amount of paper out there. And on the other hand, that might be changing sometime soon.
Sasha Padbidri
Got it. Yeah. On that note, how many of these ABS deals have you guys tracked or written about so far for this year? And are we expecting any more on the horizon? I mean, I know you said less paper, but are there at least some issuers looking to do at least one transaction later this year? And also, what does the buyer pool look like?
Harrison Connery
So there should be some more transactions coming down the road in the second half of the year. Primary Wave might be one of them. They're looking at the ABS market as soon as this year. It could be next year. But so far this year, we've tracked a handful of public deals or broadly offered deals. There have obviously been some privately placed ones. So knowing the totality of the market is pretty difficult.
But among the ones we know about, the industry called Chord issued a large deal recently, over $500 million. And that priced at 160 basis points over, which a source said was roughly half of what deals were pricing at back in 2020 when the sector was nascent. So spreads have really kind of cut in half over the past five or six years. There was also an issuance from Seeker Music. That was a privately placed one, but a source told us that priced at 190 over. That was issued in March. And then there was a Duetti securitization in February, which was interesting because Duetti focuses on smaller music catalogs.
The buyer pool is primarily major insurance players, MetLife. Nuveen, GCM were names mentioned during my reporting. One banker said that Nuveen can take down half a deal by themselves. So Nuveen didn't get back to me, but they seem particularly interested in the music ABS space. Also, I have not gotten in touch with them, but, you know, we track emails who read our stories online and the story got a lot of attention from Aflac. So perhaps they're also interested in music ABS.
Sasha Padbidri
Oh, that's awesome. And that's definitely a good thing that we can keep tabs on as the year goes on. But yeah, let's get to the juicy bit. So based on your reporting, what is the biggest issue facing music securitization today and why?
Harrison Connery
So the biggest issue facing music ABS today is undoubtedly AI. And that's because people are afraid that AI-created music is going to replace the biggest, most popular artists. And the reason for that, there's fear that AI may be able to create songs that sound just like them. But which aren't owned by them, which would be really bad news for catalog holders.
Sasha Padbidri
Yeah, you gave a great example using Taylor Swift in your story. Care to share that with the audience?
Harrison Connery
Oh, yeah. So one music ABS investor who's a little bit skeptical of this space said that the nightmare scenario for a catalog holder would be if an angsty teenager goes through a breakup in high school, and then they can turn to whatever AI they use and ask it to create a tailor-made breakup song about their breakup that sounds just like Taylor Swift that uses their name or maybe their ex's name and details specific to their life and it sounds just like Taylor Swift, but it's not Taylor Swift. If that kind of thing takes hold, there might be a lot less streaming from original artists.
On the flip side, some folks pointed out that AI-assisted music creation might help people like Taylor Swift put out more music by generating ideas and helping them get songs out. So it might be a boon for the industry. So we don't really know which way that's going to go, but it has the potential of really running the gamut from being a nothing burger to being very good to being very bad for catalog holders.
Sasha Padbidri
Yeah, no, that's definitely a very interesting development that I'm eager to follow. As it stands, it just seems that a lot of the people that I spoke to, at least not just for the story, but for my 9Questions, there seems to be a sense where it could be used as a music editing tool in the future. I don't know too much about the sector to go into detail on that, but it does reflect what you say that the range of impact on the industry is quite variable at this point.
But yeah. Also, your story suggests that there is a method to choosing which artists and or catalogs will be eventually successful. So could you unpack that a little bit for our audience? Because it does seem to be a little bit like a formula that some investors are sticking to.
Harrison Connery
Totally. And this was the most fun part of the story to report by far. So Primary Wave has a few rules it sticks to. And that's it wants to invest in older artists. Ten years or older seems to be the benchmark for them. And artists who were once really popular, but have kind of faded from memory. So the president of Primary Wave, Bill Cisneros, is telling me they own half of the Bing Crosby estate. And Bing Crosby is great if you're looking to increase the value of a music catalog, because this is all about buying into a music catalog where royalties are relatively low that you think you can increase.
So Bing Crosby, once really popular, there's probably an audience space for him. They just need to bring him back kind of into the public eye to increase his music royalties.
People like Taylor Swift or Dua Lipa? Great artists, but not good targets for music ABS investors, because they're at the height of their fame right now. So there's really no way to increase, no reliable way to increase their streams. If anything, they might just go down over time. It takes about six to eight years for a newly released song to start behaving like a deep catalog song with a modest growth trajectory, according to one of the investors you spoke to for the story.
There's other ways to do it, especially if you're using a deceased artist. There's a few ways to increase their revenue. Primary Wave bought into Whitney Houston's catalog, and they went back through her music, and they found a song called Higher Love. That hadn't gotten too much attention when she released it back in 1990, but they thought it was a good song, a catchy song, so they hired a DJ named Kygo to do a remix. That remix, actually, I showed my wife this story, and she was like, oh my God, those guys did that? So, you know, the remix hit number one on the charts. It became pretty popular, according to Billboard. It topped their Dance Club Songs chart. And the renewed interest of that one remix created in Whitney's music actually doubled the income of her estate within a year of Primary Wave's initial investment.
Then there's some other things you can do. They financed a biopic on Whitney called I Want to Dance with Somebody. And they've also released Whitney Houston-themed slot machines to play her songs in casinos for some kind of regular traction there because remixes fade over time.
Sasha Padbidri
Got it. Listen, I might be dating myself right now, but when they picked Kygo to do the remix for Whitney Houston, it made my inner millennial really happy. So that is all I will be adding to that conversation.
Harrison Connery
It's a good song. I listened to it a bunch.
Sasha Padbidri
Yeah, I agree. Anyway, Harrison, thank you so much for sharing that with us. And this was such a fun article to report on. I think it came out great. And to our audience out there if you'd like a copy of the article please reach out to us at podcast@9fin.com. Thank you.
