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Behind the Buyouts: Kilometre Music Sings PE's Praises for Royalties

Published: July 15th, 2021
Kilometre Music Group CEO Michael McCarty and Apex Fund Services' John Bohan say PE firms remain keen on acquiring music royalties, with an eye on subscription revenue from music streaming services.

Hello and welcome to Behind the Buyouts, The Deal’s podcast where we sit down with private equity, venture capital and other dealmakers in the world of private markets and talk about their deals.

In our latest episode, Kilometre Music Group CEO Michael McCarty and John Bohan, regional managing director Europe at Apex Fund Services Ltd., talk about private equity’s move into the music business.

Toronto-based Kilometre Music Group launched this year with a focus on acquiring music rights of Canadian recording artists.

In April, the firm announced its first acquisition of most of DJ Shaun Frank’s interests in “Closer” by The Chainsmokers featuring Halsey as a co-writer of the hit song, which ranks as the sixth-most streamed song of all time.

The firm also bought 50% of the rights for 180 songs of Canadian songwriter Belly (Ahmad Balshe), who co-wrote many of the biggest hits by The Weeknd.

McCarty said PE firms and their investors remain attracted to music royalties as a steady revenue stream through subscriptions to mobile devices, amid growth in the business both domestically and internationally.

“It’s a long slow drip of revenue as opposed to the intermittent big bangs of revenue with the sale of something,” McCarty said. “The world has converted largely from the discretionary or sometimes luxury consumption of music to continuous consumption of music. Some people say it’s acting like a utility. Every smartphone in the world is a potential commerce point for music.”

Music royalties also offer a hedge against inflation through potentially higher subscription rates. It’s also a business that’s mostly uncorrelated to financial markets, he said.

Bohan said the fund administrator is seeing more music royalty funds from PE firms. It’s a relatively recent fund type as streaming services bulked up in recent years. Apex Group expects to see more emphasis on music royalty funds in the future, he said.

McCarty co-launched Kilometre Music with Gavin Brown and Rodney Murphy after a long career in the music business, most recently as chief membership officer of the Society of Composers, Authors and Music Publishers of Canada, or Socan.

Kilometre Music teamed up with Barometer Capital Management Inc. to form the Barometer Global Music Royalty Fund LP with a $200 million target.

Here’s the podcast:

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