If you are a fan of TV’s The Voice or X Factor, then you’ll know that breaking into the music business is tough – and backing a winner is even harder.
If you want to hit the right note as an investor, you also need to be in tune with how finances work in the music industry.
Music is a £10 billion a year industry and a lot of people are keen to get their hands on a piece of the action.
That might sound a lot of money – but the sector has shrunk by two-thirds in the past 20 years.
The fall of the music industry lines up with the rise of the internet and streaming.
Ed Sheeran sleeping on the Tube
Even the rising stars like Ed Sheeran have had their bad times – he reportedly spent two years couch surfing and sleeping on the London Tube to keep warm. Now, Sheeran is worth £40 million.
So where does the money come from?
Streaming services are notoriously stingy. Spotify pays around 0.003p every time a song is played, while the most generous are Napster, which shells out 0.01p a play and Tidal, giving artists 0.008p for every stream.
Clearly, an artist needs a big following to turn a few pounds online.
To make some money, a band must drum up a following. Fans mean downloads and streaming leads to gigs.
Backing music and SEIS
Sell a CD or vinyl album and expect to make between 6p and 20p a track.
If you want to back a band, beware you may lose all your money regardless of how much you enjoy the thrill of recording music and live gigs.
Several Seed Enterprise Investment Schemes (SEIS)invest in new music. Amplify Music is one of the best known. For a minimum £10,000, backers pool their cash with other investors to finance five bands who are each handed £300,000 recording contracts.
Investors are the money men and don’t get to pick the artists.
Recent music SEIS have returned 60p in the £1 after 3.5 years invested.
Amplify has recently been involved with the London Community Gospel Choir and Boxer Rebellion.