Paper: arXiv 2602.05007

Authors: Sasha Stoikov, Aadityaa Singla, Umu Cetin, Luis Alonso Cendra Villalobos

Abstract

In the streaming era, music revenues distributed to rights holders have become more transparent. However, it is not yet clear how to quantify the risk and return characteristics of music royalty assets, as is done with equities. In this paper, we fit three discounted cashflow models to transactions on the Royalty Exchange platform. We use our best model to backtest the one year and five year performance of music royalty assets, after transaction costs. We find that Life of Rights (LOR) music assets had risk and return characteristics comparable to stocks in the S&P500, when held over 5 years. Since the performance of stocks and music assets are likely to be uncorrelated, this result may help investors assess this asset class within the context of a more traditional stock and bond portfolio.

Complexity vs Empirical Score

  • Math Complexity: 2.5/10
  • Empirical Rigor: 6.5/10
  • Quadrant: Street Traders — practical and empirical, lighter on theory

Why this score: The paper tackles a novel empirical topic by evaluating music royalties as an asset class using a unique transaction dataset from Royalty Exchange. While the mathematical modeling is relatively simple (basic parametric DCF models optimized via MSE), the backtesting methodology provides practical, real-world insights into risk-return profiles and transaction costs.

Research Flowchart

  flowchart TD
    A[Research Goal: Quantify Risk & Return of Music Royalty Assets] --> B[Data Input: Royalty Exchange Transactions]
    B --> C[Fit 3 Discounted Cashflow Models]
    C --> D[Select Best Model & Apply Transaction Costs]
    D --> E[Backtest Performance: 1-Year & 5-Year Horizons]
    E --> F[Key Outcome: Life of Rights Assets Match S&P 500 Risk/Return over 5 Years]
    F --> G[Implication: Uncorrelated Alternative Asset for Portfolio Diversification]

Cited References (8)

  1. Copyright and Economic Viability: Evidence from the Music Industry (2020)
  2. Valuation of Music Catalogs (2022) — link
  3. Evaluating Music Recommendations with Binary Feedback for Multiple Stakeholders (2021) — link
  4. Money Moves - Barry Massarsky on Data-Driven Catalog Valuations and Drivers of Growth in the Music investment Market (2020) — link
  5. Music Creators’ Earnings in the Digital Era (2021) — link
  6. Music in the Air (2022) — link
  7. Hipgnosis Music Assets 2022-1 L.P. (2022) — link
  8. The Market for Lemons: Quality Uncertainty and the Market Mechanism (1970) — link

0 of 8 cited works are in the corpus; resolved via arXiv source bundles, Semantic Scholar and OpenAlex. Corpus-wide: 2518 linked papers.