Cyclical stocks rise and fall with consumer confidence, reflecting patterns of discretionary spending on non-essentials or ‘treat’ products when individuals have disposable income to spare. As such, many see a correlating spike with the winter holidays, as shoppers shell out on gifts for friends and family.
That said, while festive periods spark a seasonal uptick across many cyclical investments, their performance is predominantly correlated with broader macroeconomic conditions. Discretionary stocks ebb in and out of favour in line with economic expansion, peaks, recessions and recovery. In other words, their performance is proportional with the market, and more bleak economic periods trigger dulled Christmas spending habits as shoppers become consciously conservative in their purchases.
Separate from this trend, but still very much correlated with the winter holiday period, is the performance of festive music royalties. Every year, come mid-November, department stores jolt into Christmas mode and kick-start their high season by cranking carols in anticipation of increased footfall. After the floodgates open, these songs see a staggering surge in plays by radio stations, layman listeners (streamers) and public venues in the month-and-a-half long lead up to the 25th of December. In turn, this prompts corresponding attractive returns on the music’s royalties. With ‘Mariah Carey season’ upon us, it brings with it an opportune moment for investors to rethink the diversification of their cyclical stocks.
Music royalties operate on a pay-per-play basis. Every time a song airs or is streamed, parties with ownership are entitled to a stipulated payout and in recent years, a new market has evolved to deliver investors access to this revenue stream. On a platform like ours, artists and other rights holders offer up a portion of their share in the profits in return for upfront cash, increasing the liquidity of returns on creatives’ musical output and providing them with resources to reinvest in new projects and song writing.
For Christmas music, the result can be an investment opportunity that delivers regular, annual returns which, crucially, are dependable – earworms such as Michael Bublé’s ‘Christmas’ album will reliably reappear in holiday playlists for years to come. And whereas periods of economic recession dampen performance of ordinary discretionary stocks, these music royalties sit in a class of their own. They form an integral part of festive cultural tradition and regardless of market conditions receive impressive base streaming numbers that are likely only to increase in periods where a stronger economy warrants more events and therefore more celebratory music.
It is in this respect that music rights can be differentiated from other so-called ‘alternative alternative’ investments likewise decoupled from macro-economic trends. Compared to, say, the volatile art or wine markets, holiday pop music’s resilience to economic downturn means returns on its royalties can be more easily anticipated. It is also more affordable. Different players within the sector offer a range of price-points and products that allow investors of all backgrounds to select songs and catalogues in keeping with their personal objectives and music tastes.
At present, the market for festive music royalties remains largely constrained to Christmas pop songs, however as it continues to grow it is likely songs for other festivals from different religions and traditions will become listed and available investors, enabling them to build portfolios in line with their cultural leanings. For those looking to balance out their spending throughout the year, they can also choose to invest in more steadily performing songs that, without a concrete association with a particular holiday or season, don’t just see a once-in-a-year spike.
However, for those really looking to double down on their cyclical portfolio in the run up to the Christmas consumer spree, music royalties might offer a lucrative and complementary chance to diversify discretionary stock holdings. Indeed, mood-changing music has been shown to have the power to boost spending, so as chipper consumers return to the shops for the first Christmas back from lockdown, ‘All I want for Christmas’ may very well be the gift that keeps on giving.
Stay tuned!