Music investments may strike the right tone
The UK is the third largest music market in the world and in 2011 UK artists accounted for 12.6 per cent of global music sales, equivalent to £1.9bn, which is four times the UK’s overall share of world trade in goods at 2.7 per cent.
With such a thriving business, it is little wonder that investors are looking towards the music industry to make a profit, with the launch of a number of specialist investment vehicles offering investors an alternative to the traditional stockmarket.
Figures from the BPI, the UK recorded music trade body, show last year UK average accounted for one in eight of every artist album sold, with Adele’s album, 21, selling 18m copies, equivalent to 1.6 per cent of all albums sold globally.
Venture capital trust (VCT) and enterprise investment scheme (EIS) vehicles are the most popular choices for investors.
As well as being able to provide access to niche investment opportunities there are added tax benefits, with both vehicles offering 30 per cent income tax relief and capital gains tax relief if held for a certain period of time, while EISs are also exempt from inheritance tax after two years.
However, while the success of artists such as Adele draws investors in, Paul Bedford, investment director at Ingenious Investments, which runs a number of specialist VCTs including the Ingenious Entertainment VCT 1 and 2, explains direct investment in artists is less favourable than live events.
“We did originally invest in music – we set up a music-based fund five or six years ago – but what we became aware of is with the issues of piracy and everything else that was going on, music is going through such an incredibly transitional phase that it became less and less clear how you could actually make money from direct investment into artists. That was what we did originally, we invested in artists and the making of albums, and that used to be the way people made money in the music business,” he explains.
“We’ve since transformed ourselves very much – we took a long hard look at the music business and how artists are making money at the moment – and [it turns out] many artists are saying they’re making up to 80 per cent of their money through the live scene.”
As a result the company now invests in festivals and live venues, recently exiting the popular Creamfields event for a total consideration of £2.78m.
The live scene is certainly big business with the IFPI, the International Federation of the Phonographic Industry, noting in its 2010 Investing in Music report that while it is estimated recorded music retail sales as an industry is worth $27.8bn (£17.6bn), the live music sector is not far behind at an estimated $21.6bn.
Edge Investment Management, which also offers investors access to entertainment VCTs, was launched in 2006.