The following MBW editorial comes from Alex Frankel (inset photo), executive director of global artist representation company, YM&U. There Frankel worked with artists such as Nick Murphy, Chet Faker, MotherMary and Thunder Jackson.
Over the past 18 months, sales of hit catalogs have dominated music headlines.
“Bruce Springsteen sells his catalog”; “Bob Dylan cashes in”; “Neil Diamond sells everything”.
A slew of legacy actors, including Shakira, Neil Young and Barry Manilow, all covered the same new investor song – “Music Is A Dependable Asset Class” – and traded catalogs for cash from funds, investors and other financial groups.
The proposition that drove this cavalcade of superstars to the bank is quite simple: streaming revenue provides cash flow investors can rely on, not just speculate on.
(If you missed it, Springsteen deposited over $500 million from Sony/Eldridge Industries in exchange for his mastering and publishing rights; Dylan reportedly pocketed around $550 million in total – $300 million and more from Universal for its publishing, and an additional $150 million from Sony for its masters.)
Now, an intriguing question—and its potentially lucrative answer—has been late to me and many others: can smaller artists cash in too? Can investors apply the same equation and get equally reliable returns from smaller players?
Backtracking a bit, the mega-rights deals really started in 2018 when the godfather of music asset purchases, Merck Mercuriadis, founded Hipgnosis Songs Fund and raised $300 million to fund the rights acquisition. copyright and began trading on the London Stock Exchange.
A true visionary, Merck – who once helmed Beyoncé, Elton John and Guns & Roses – saw what few others had seen: thanks to the transparency of streaming data, music rights had become a more predictable asset than almost ever. any product on earth.
The predictable payback on music rights has apparently become more certain than a condo on Park Avenue, Apple Stock, Treasuries or your 401K.
Once Merck identified this predictability and its value, Wall Street could not withdraw its portfolio quickly enough.
Dozens of funds emerged to capitalize on Merck’s rights exposure – and historic houses wanted to be a part of it, too.
Sony, MEP Cap, Warner Chappell, Kobalt, Blackstone… the list goes on. Everyone rushed to buy the music rights.
Artists and songwriters were also eager to engage. By agreeing to these multiple agreements, they could control their posthumous inheritances now and pay capital gains instead of regular income tax on the earnings. They could pocket money at the Bezos level, set up trusts for their children and engage in other estate planning.
Why not multiply your annual income by 10, especially if mortality is already watching you in the mirror?
“It’s a perfect storm,” said Guillermo Page, a former record label executive who worked for Sony and Universal. Yahoo finance in December. Nothing has changed since.
So. Everyone wins…at a certain level of income, that is.
You see, these agreements are complicated. And transaction costs are high.
A $100 million asset purchase agreement can cost the same as a $10,000 asset purchase agreement: lawyers charge by the hour, not by the size of the transaction. Usually.
In other words, due diligence on a big deal is the same as on a small one. This is why most investors only want to touch trades above a certain threshold.
The “dollar value” of small real estate transactions is simply not worth the time and money to look into it. Period.
And that’s why the music rights boom has been largely limited to relatively large revenues.
A race is on to figure out how to streamline the buying process. If someone can automate the process of selling rights in a way that avoids inflated due diligence bills, could small deals become as attractive as big ones? Especially if they are grouped?
Mortgage companies don’t just consider million dollar properties. Why wouldn’t funds want to grab smaller games if they produce a nice revenue stream?
Also, will the new technology allow your moderately successful musician to get the same multiple as Springsteen on a smaller basis (assuming the dollar age on the rights is satisfactory)? Is a Zillow-as the music market allows artists to check their potential value and cash in real time?
APAs (Asset Purchase Agreements) and standardized LODs (Letters Of Direction) are the first step towards the democratization of the boom. And they’re both on their way to places like Royalty exchangewhere streamlined due diligence processes meet a web-based “Know-Your-Worth”™️ feature that allows musicians to connect their assets and spit reviews in real time.
In Korea, so often ahead of global music trends, there is a platform comparable to Royalty Exchange called Musicow that now transacts tens of millions of dollars each month. He reportedly intends to expand internationally and even make public next year.
In short: yes, the windfall will trickle down once transaction costs are optimized.
The new question is simple: who is first?The music industry around the world