Analyzing intellectual property, and "scoring" it according to the above framework, creates a compelling case for considering IP within the scope of real assets.
Take, for example, music copyrights. Much like infrastructure or other more traditional real assets, music copyrights often have long, profitable life spans — for example, songs produced 30, 40 or 50 years ago are still being consumed today. An investment in a song's copyright preserves its value under transfer of ownership control, and ownership rights can be long-lasting. In the U.S., for instance, a song's copyright does not expire until 70 years after the death of the last living songwriter.
This long economic life provides a basis for the generation of relatively stable cash flows — in the form of royalties — and a diversified earnings stream that might be suitable for funding long-term liabilities. The owner of a song will get paid not only when someone downloads or streams the song on iTunes or Spotify, for example, but also when that song is played on the radio, performed live in concert, or used in a commercial, movie or video game.
In this respect, music copyrights tend to hold their value through periods of instability, a characteristic we often see across other real assets sectors. This is perhaps best demonstrated with a real-world example — the vast transformation the music publishing and recording rights industries have undergone in the past decade as consumption patterns have changed, with MP3 players and streaming services replacing CDs (which replaced cassette tapes, etc.). Despite this seismic shift, and even as CD sales have declined, music publishing revenue has increased.
In fact, the proliferation of smartphones and streaming services has arguably added to the intrinsic value of the asset class, as it has allowed more customers to be reached around the world more profitably (e.g., without the costs of the old physical distribution model). We view this adaptability as an indicator that these royalty-producing copyrights will likely hold their value as technology and consumption patterns evolve.
While there are certainly nuances particular to specific segments of the IP market, most segments tend to demonstrate some combination of the above mentioned characteristics, and as such, can play a meaningful role in investors' portfolios. As IP becomes an increasingly important part of the global economy, and the investment universe it represents expands both in size and diversity, the opportunity set — and potential benefits to investors — should only continue to grow.