Catalog sales

A $ 550 million Springsteen deal? These are the glory days for catalog sales.

In 1972, a struggling musician from New Jersey rushed to Manhattan for an audition with Columbia Records, using an acoustic guitar borrowed from his former drummer.

“I had to wear it Midnight Cowboy style over my shoulder on the bus and the city streets,” rocker Bruce Springsteen recalls in his memoir.

Half a century later, he can afford plenty of guitars. Last week, Sony, which now owns Columbia, announced that it had acquired all of Springsteen’s work – its recordings and catalog of compositions – for what two people briefed on the deal said was d ‘approximately $ 550 million.

The prize, which may be the richest ever paid for the work of a single musician, has dropped jaws across the music industry. But this was only the last mega-transaction in a year in which many catalogs of prominent artists have been sold, fetching mind-blowing prices.

The catalog market was already boiling a year ago when Bob Dylan sold his writing rights for over $ 300 million, but since then has maintained a steady boil. The list of major artists who have recently sold their work, in whole or in part, includes Paul Simon, Neil Young, Stevie Nicks, Tina Turner, Mötley Crüe, Shakira and the Red Hot Chili Peppers, many for eight-figure payouts or more. . The industry is in turmoil over impending deals for Sting and David Bowie’s catalog of compositions.

“Almost everything is happening now,” said Barry M. Massarsky, an economist specializing in calculating the value of music catalogs on behalf of investors. “In the past year alone, we completed 300 appraisals worth over $ 6.5 billion,” he added.

It wasn’t that long ago that music was seen as a declining business, with widespread piracy and declining sales. Not anymore.

Streaming and the global growth of subscription services like Spotify, Apple Music, and YouTube have changed the fortunes of the industry. One of the results is a spike in the prices of music rights catalogs both to the recordings and to the songs themselves.

New investors, including private equity firms, have invested billions of dollars in the market, viewing music royalties as some kind of safe product – an investment, much like real estate, with predictable rates of return. and relatively low risk.

For big music conglomerates like Sony and Universal, who bought Dylan’s songs, such deals help them consolidate their power and gain bargaining power with streaming services and other tech companies, like social media. , exercise services or gaming platforms, which often make general agreements to use. music.

Despite the popularity of young artists like Drake and Dua Lipa, older material dominates online. According to MRC Data, a tracking service that powers the Billboard charts, about 66% of all music consumption – of which streaming is by far the largest portion – is for material older than 18 months, and that number has grown rapidly. .

And for artists, the sale can provide tax benefits. Royalties are generally taxed as ordinary income, while a catalog sale can be viewed as a capital gain, which usually has lower rates.

Artists like Springsteen, 72, are part of the generation of music stars who from the 1970s took control of their work in droves, unlike previous generations.

“A lot of artists were exploited in the 1950s and 1960s,” said John Branca, longtime attorney for Michael Jackson, who is now one of Jackson’s executors. “With the emergence of better legal and managerial representation in the ’70s and’ 80s, artists were pressured to gain more power, more leverage and ultimately own their own work. “

Many of these stars are now pulling the final leverage of that control by deciding to sell, in numbers unthinkable just a decade ago, say many executives and artist advisers.

The desire for control is now reflected in younger stars like Taylor Swift, who has campaigned in public about the importance of artists owning their work and criticized the market in which song catalogs are bought and sold without the participation or approval of creators. In Swift’s case, she went so far as to re-record her own songs, in part to control the income from those songs.

“Part of the power of owning your assets is that you can decide when and how to cash out,” said Bill Werde, director of Syracuse University’s Bandier program on the music industry and former editor-in-chief of Billboard. , the publication on the music business.

In general, selling means relinquishing control, and buyers generally want to fully exploit the assets to recoup their investment.

In Springsteen’s case, negotiations for the sale of Sony included discussions of limiting how his work could be used in the future, with particular concern over commercials featuring two of Springsteen’s most iconic songs. , “Born in the USA” and “Born to Run,” according to three people briefed on the deal who declined to be named because they were not authorized to speak publicly about it.

Throughout his career, Springsteen has consistently refused to license his music for commercials, although in February he made his very first commercial appearance in a Jeep Super Bowl commercial, delivering a message about the need for ‘a “middle ground” in the United States. . (The soundtrack was not one of Springsteen’s hit songs but an atmospheric score composed by Springsteen and Ron Aniello.)

Representatives for Sony and Springsteen declined to comment on the terms of the deal.

Springsteen, one of the most successful singer-songwriters in pop history, essentially made two deals with Sony. One was for his so-called master recordings, the sounds of his music as captured on albums and singles. The other, sometimes described as music publishing, concerns his writing rights – the lyrics, melodies, and musical structure of the hundreds of songs he has written. With both sets of rights, Sony will have full control over the use and future revenue of Springsteen’s music and lyrics, except for the restrictions that were part of the deal.

According to a Billboard estimate, Springsteen’s two music catalogs – his recordings and his compositions – earn about $ 17 million per year, after fees.

Many older artists see this as a good time to sell, as their music remains popular and market conditions are favorable.

But behind the scenes, there has often been a vigorous debate between artists and their advisers about whether to sell. For many of the smartest players, a key question is not so much price but who offers it, while private equity players and other financial specialists – who sometimes buy catalogs directly and sometimes just fund specialist companies – are entering the delicate waters of protecting artists’ legacies in a world of commerce.

“What does an artist mean in a half-century career,” said Jeff Jampol, who manages the estates of Doors, Janis Joplin and other stars, “if all of a sudden those assets just disappear in the face? a huge hedge fund that has nothing to do with art, music or heritage?

While the headlines highlight those who decided to sell, there were a few dissenters.

Diane Warren, the songwriter of hits like Celine Dion’s “Because You Loved Me” and Aerosmith’s “I Don’t Want to Miss a Thing”, told Rolling Stone that selling her catalog “would be selling my soul”. When asked if the Michael Jackson estate would consider selling the Jackson rights, which could be worth well over $ 1 billion, Branca replied, “I don’t think I would ever sell.”

But as prices rise, it can become more difficult for the refractories to resist.