Investors may soon be able to guess which songs will head to the top of the streaming charts as the US startup plans to launch a futures market that tracks music revenue.
Chicago-based Clouty creates a tradable index of global streaming sales and considers exchange-traded funds to attract retail investors. is in early talks with U.S. exchanges about launching futures trading related to genres, artists and songs.
Its long-term plans seek to capitalize on the rapid financialization of the music business as deep-pocketed investors battle to secure streaming-related revenue streams.
In recent years, private equity groups such as Blackstone and KKR have spent billions on the back catalogs of artists such as Leonard Cohen, Neil Diamond and Bruce Springsteen, ensuring a regular stream of income that is immune to recession. I’m trying Other famous artists like Pink Floyd are considering selling their rights or turning their catalogs into asset-backed securities.
Clouty Founder and CEO David Umeh said:
Goldman Sachs last year predicted that global music industry revenues will grow at a compound annual rate of 12% between 2021 and 2030, surpassing $150 billion in revenue.
As this rush continues, Umeh said the development of a marketplace that allows investors to trade music rights on the secondary market is “inevitable.” “Whether it’s a growth period or a recession, people will stream,” he added.
Clouty, a three-man company that has raised a seed funding round, faces an uphill battle to turn a quirky asset class into a long-term tradable market. Futures markets can take years to build depth and liquidity. Large futures exchanges like CME Group offered contracts for extraordinary assets such as temperature, water and hurricanes, but failed to gain momentum.
“There have been many examples of futures where even well-understood products have failed to succeed. said Andy Simpson, CEO of Sigma Financial AI, a trading technology company.
Clouty, with permission from Bloomberg, tracks the revenue generated by streaming the top 500 songs worldwide on terminals of financial data providers using the Musiq 500 Index. The value of the index has risen over 25% year-over-year to over $10,000. After that, we plan to start indexing by genre, then individual song indexes. Futures contracts also require regulatory approval.
After seeing Clouty’s pitch, executives wonder if it can be used by large institutional investors and attract market makers whose daily trading can help build liquidity. One of her potential investors had reservations that the index was built on streaming rather than loyalty.
The huge amount of money being poured into the music business creates risks and potential rewards for streaming platforms and rights holders, creating a natural user base for futures contracts, Umeh said.
The unexpected return of songs used in TV shows like Kate Bush’s “Running Up That Hill.” stranger things Or Depeche Mode’s “Never Let Me Down Again” Last of Usgenerated millions of new dollars in royalty payments to publishing rights owners.
But it’s bad news for streaming platforms like Spotify, YouTube, and Apple. These platforms would have to pay the song rights holders when they streamed them, and could theoretically use the futures market to hedge against the risk of becoming an overnight viral sensation.
Investors who have invested heavily in music rights can also use futures to protect themselves against the risk of artists becoming obsolete.