“The most important thing to understand when it comes to music is that you are going to invest in financial flows generated from a habit, the habit of listening to music but more, of listening to the same songs over and over again “. (Marzio F. Schena – ANote Music CEO and co-founder)
When we think about music, we associate it to feelings and emotions, because when we listen to “our” songs, they remind us of moments, of parts of our lives that will always be in our memories.
However, there is a different angle to look at music and, more generally speaking, to songs.
In this interview with Marzio F. Schena, CEO and co-founder of ANote Music, we discussed about how songs can become a new way to diversify one’s investments, about his view on the impact of Artificial Intelligence on the music world and about the fact that people are still outraged if we talk to “music” associated to “investments”.
Are you ready to invest in music?
Q.: Before we talk about ANote Music, we would like to get to know you a little bit more as well. Tell us about your story, about the creation of this platform and, most importantly, about your passion for music.
M.S.: My name is Marzio. I was born in Milan (Italy) and I have a financial background. Before creating ANote I studied Finance. I also worked in Risk Management, as a fund manager in Luxembourg and in Investment Banking in Paris. In short, a very financial and very quantitative approach to the financial world. In 2017, while I was watching Sanremo, the festival which is kind of our story, with my friend Matteo, one of the co-founders of ANote and a former high school friend of mine, we wanted to bet on Gabbani’s song as the winner. However, we realized that it was not possible to bet or invest in music or songs at that time. We even forgot about it, until Gabbani actually won Sanremo and we started to think what would happened if we could have invested in that song, which basically meant buying some of song rights. In fact, the music world is a world that allows you to have a payoff not only in the moment a song is released but also over time. We decided to try to find out if it was possible to buy or invest in music, and we discovered that, behind the scenes, there was a world of buying and selling music rights, but most importantly, we realized that the music world has this as its very foundation. In the end, when a song is created, it is a joint action between who writes the lyrics, who sings the song, the publisher, the labels etc. Therefore, every time there is a combination of different forces to create a song, there is a buying and selling, a passing on of rights, a sharing of rights which are exchanged again and again (i.e.one label sells the rights up to another label). We simply discovered that the music world already worked like this, and we thought of opening it up to the public by giving the possibility to anyone to take a piece of a song, in a very similar way to what happens inside the traditional markets, where if you own a share you are entitled to dividends. Here it happens the same thing: when you buy a little piece of a song you are entitled to the royalties it generates over time.
Q.: ANote Music: how did you come up with this idea and how has it evolved over time? Why did you choose Luxembourg?
M.S.: We chose Luxembourg because the three of us were working in Luxembourg at the time. I was working for a Luxembourg UCITS investment fund, Matteo was working as a consultant at EY and Grég, who represents the technical side and is the third co-founder, was working at LuxTrust. After a series of meetings and working until two or three in the morning studying the music world, preparing pitches, trying to figure out if the idea would work, the idea itself turned into reality. The choice of Luxembourg seemed to us to be a good one to create business, especially because the country is located at the center of Europe, and this implies that you are not identified as the Italian player or the French player. Creating business in Italy is very difficult, especially if you want to export abroad. Your vision and your market will always remain Italian. The beautiful thing about Luxembourg is that you are European. You have a company that immediately positions itself as a European company and you do not have the Luxembourg market as a reference, which, by the way, remains quite nonexistent, but the whole European market. Our great fortune was that we were in the right place.
Q.: ANote Music benefits both artists and investors. Why should artists have an interest in selling the rights of their catalog? And what is the potential interest of investors?
M.S.: It’s a question we have been asked many times, especially at the beginning of our journey. And, at the beginning, we did not even have an answer. The answer is that the artists can obtain an economic benefit from selling their rights. Going back to what we said earlier, we found out that the music world already worked and still works this way. In addition, we don’t just work with artists. We work with anyone who has music rights. It can be the songwriter, whoever wrote the lyrics or whoever wrote the melody, the artist himself, the publisher, the record label, the producer etc. There are so many players who hold music rights. We realized that we did not have to be the ones to go and ask if they might be interested, but they would come to us, because the transactions in the music world happen anyway, with or without ANote. When these players come to us, they request a valuation from us. In fact, this is the way our platform works. We provide a platform to meet an existing market with different counterparts in a liquid way. These transactions happen because there are monetary transactions. The return for an artist can be substantial, because when they give up royalties related to their catalog, they basically give up an income. On the other hand, a Wealth Management group, as well as a retail investor or a fan might be interested in having a piece of the rights to a song and receiving royalties for many, many years.
Q.: Can you explain what are music royalties?
M.S.: Music royalties are the economic benefit that comes from exploiting intellectual property, in this specific case of a song. Royalties are generated because people listen to music. The most important thing to understand when it comes to music is that you are going to invest in financial flows generated from a habit, the habit of listening to music but more, of listening to the same songs over and over again. For example, talking about myself, I am used to listen to the same songs I listened to ten years ago. I listen to a lot of jazz and, when I am working, to a lot of soundtracks. Around spring I start listening to Italian songs. Around May and June, techno, and in September I go back to quieter songs. An investment in music royalties is an investment in people’s psychology since people’s consumption habits stay pretty much the same over time. There is also the fact that music habits are not correlated with financial markets. In addition, this is a growing market because more and more people are listening in streaming and are willing to pay a subscription fee to use these services. However, unlike video streaming where each platform offers content which is different from the others, music streaming requires only one platform, for example Spotify. Then there is “passive income,” thanks in part to the finding that returns in the music world are between 6% and 16% cash on cash.
Q: In 2021, the deal signed by ANote Music with Artist First regarding Le Vibrazioni’s image rights generated a lot of buzz. Then, not long ago you announced the offering of “Music Royalties Enhanced Strategy Certificates (MRESC)” to professional investors and the achievement of 3.3 million euros in funding. This was perhaps a bit symbolic of the evolution that has taken place in ANote. Give us more details on these certificates.
M.S.: Certificates are instruments that give exposure to the investor who holds them to an investment strategy in a diversified portfolio of music royalties that are traded on ANote’s platform. They are like a 2.0 version of the “Bowie bonds.” We are talking about real financial instruments that have a pool of royalties as their underlying. These instruments are offered only to professional investors, considering also that the minimum investment ticket is 125,000 euros per individual investor. The returns derive from the royalties generated by the purchase of shares on ANote’s platform. It is interesting for us because these certificates allow us to reach diversified customers such as the Family Offices or other professional investors on one side, and the fan bases – where the interest is in having a piece of the royalties of their favorite artist – more retail investors, on the other.
Q.: Why are there many people still outraged knowing that Goldman Sachs has been publishing the report: “Music in the Air” focused on the analysis of the music market or if Reuters coins a new term “Bey-flation”, referring to the rising on the inflation rate due to increase in the price of concert tickets?
M.S.: It’s definitely a very interesting topic and this is a very cool question. I can really think of a lot of cues to answer it. It’s a bit of a hiccup scandal because these people are outraged by one thing and then they are also outraged by the exact opposite. Since CDs are no longer sold, the music world has gone through an incredible depression. From 1999 to 2014 there was a real “free fall” when CDs were not being sold anymore and everyone was “pirating.” There was no parachute. Therefore, the music world tried to switch to the “live music” industry, because promoters realized that people were still used to go to concerts. The “live music” industry is the only one that grew a lot in those fifteen years. For fifteen years, the whole music industry went through a depression. At some point, streaming came along. However, streaming was always seen as an “armrest” rather than a real lifesaver because the artist, was paid an average of 0.006 Euro for every listening. We are outraged because we think that in the music industry we do not pay enough. Until four months ago we were outraged because Spotify had kept its pricing unchanged from 2015 to 2023 (9.99 Euro/month). From a certain point of view, there is no inflation, but from a “live music” point of view, there is a lot of inflation. Year after year, it becomes more and more difficult for concert promoters to attract mainstream artists because they are always asking for more. There are certainly a lot of different issues to consider. Goldman Sachs’ tracking in the report “Music in the Air” report is focused on the increasing of listening volumes rather than on the inflation rate level, because they are focusing their analysis on the increasing number of people who listen to music. It is a fact that the “live music” industry is currently having skyrocketing prices.
Q.: Another hot topic, related to music but not only, is the use of Artificial Intelligence. In fact, when we talk about music, the component of the “human touch” also comes into play. How far can we go in using AI? What is your view on this issue? Is there an insurmountable limit? And, most importantly, what is your view on the contribution that AI can bring to music?
M.S.: From a certain point of view, I am extremely scared about the whole topic of AI, because it creates a lot of uncertainty that goes far beyond the music world. Everyone is scared now because Artificial Intelligence is going to touch sectors that were previously thought to be untouchable. All sectors are affected by the impact that the development and use of AI could have. In the music world, however, everyone has an incentive to prevent a flood of AI-created lyrics, even the major record labels. There will be a self-regulation, and, in part, we are already seeing this with YouTube making deals with the majors. There will be an evolution at the legal level going to determine – and this, of course, is my point of view – the concept of “right to the voice.” However, even before the arrival of AI, Spotify broke the barrier of 100,000 new songs uploaded daily. However, listening reports showed that most of these songs did not even have a single listen and that only a very small percentage were being listened to. The music world has been inundated with an enormous amount of new production. And, in the end, as it has always been, it is the audience that determines whether a song works or not, regardless of who created it. We, as an investment and trading platform, stand downstream. We have a very simple barrier to entry: the song must be at least three years old. If after three years of life, the song has a certain number of royalties that amount to more than 10,000 euros/year, we consider whether it is possible to put it on the platform. We are neutral to the fact that maybe, three years earlier, that song could have been created by a “human” or by an Artificial Intelligence. Artists, however, must be vigilant in evaluating new trends and not to miss something.
Q.: What do you like to listen to? What’s on your playlist?
M.S.: I am a huge fan of the Italian band, Pooh. I really like Italian music and especially listening to film soundtracks. When I work, I like to listen to soundtracks. It’s a type of listening that charges me up. Music changes your mood, and you can have your mood changed by music.
