Catalog sales

Upward trend in music catalog sales as artists and investors seek revenue streams

Keller of Milk & Honey said catalogs are generally better managed by music publishers than by family heirs.

Music catalogs have become more valuable in recent years than ever before – and not just to the artists who created them.

For decades, the cardinal rule for aspiring musicians was to “keep your publication”, both to control the ownership of the work and – perhaps more importantly – to ensure that they would get the benefit of it. money. But changes to tax laws, the music industry, and the consumer landscape have created new opportunities for artists to sell their catalogs for huge financial returns, creating what many insiders are calling a “rush to sell”. ‘gold’ for potential investors who may or may not have industry ties.

In December, Stevie Nicks sold an 80% stake in his catalog to New York-based music publishing company Primary Wave for $ 100 million while Bob Dylan sold all of his more than 600 songs to Universal Music Publishing Group, based in Santa Monica, for $ 300 million. .

Three months later, Paul Simon received around $ 250 million from Culver City-based Sony Music Publishing for his catalog, which includes everything from “The Sound of Silence” with Art Garfunkel to his 1986 solo hit “You. Can Call Me Al “.

The 70-year-olds aren’t the only ones reaping big gains: In August, Ryan Tedder, OneRepublic singer and songwriter for Beyoncé, Adele, and Leona Lewis, sold his catalog to private equity firm KKR & Co. Inc. . in New York for $ 200 million.

According to Lucas Keller, managing director of Carthay-based music and sports talent firm Executioners Los Angeles, which operates as Milk & Honey, artists are selling their catalogs for several reasons. Some older acts may not want their heirs to take care of their work. Others may simply want to ensure that their beneficiaries are looked after after they leave. Or they want to sell in a way that helps them protect their inheritance. Meanwhile, their younger counterparts may have lost opportunities to generate touring income during the pandemic and need a financial stopgap, or they may have decided that they no longer want to face the pressure of supporting the pandemic. infrastructure and personnel who support the management of a catalog.

“Universal Music Publishing, Sony Music Publishing – these are probably better people to leave your catalog to,” Keller said. “All of the estates that I’ve had to deal with over the years that don’t have a good administration, it’s an absolute headache, and it totally affects the money, and it affects the opportunities.”

Stay in power

For artists of all ages, business disruptions linked to Covid have put their careers in a new perspective. But while sales of large-scale catalogs have picked up speed only in recent years, the path of this explosion began 20 years ago when CD sales began to decline.

CD sales peaked in 2000 at 942.5 million units, according to the Recording Industry Association of America. Paid downloads were still in their infancy as a revenue stream three years later, even as peer-to-peer file-sharing services Napster and LimeWire facilitated huge thefts from the vaults. industry, leading to lawsuits from rock band Metallica, rapper and producer Dr. Dre, and the record labels A&M Records, Inc. and Arista Records who initially drained money from companies through costly litigation and then shut them down completely.

Nonetheless, the rise of streaming services like Spotify since 2006 has provided industry analysts with new ways to measure not only a song’s success, but its resistance as well. In virtually real time, an artist or label could monitor a song’s success and chart what insiders call its “decline,” or the decline from its highest peak of popularity.
Boasting millions of dollars in marketing and promotion, new songs are at explosive heights, but their decline is faster and faster than old ones that have been around for decades and can maintain profitability simply by being periodically revisited or rediscovered.

“As the guy who sold a bunch of Justin Bieber songs, sorry Justin, you’re amazing, but I would bet against Justin Bieber,” Keller said. “There are some artists who are going to be huge performers in their lifetime and will probably make more money than anyone else, but I’d much rather own ‘Ventura Highway’ than a Justin Bieber single.”

“Stable” investment

Additionally, in 2006, the Songwriter’s Capital Gains Equity Act became law, allowing artists to treat their catalogs as capital gains when they sell them in order to receive a separate and lower tax rate than traditional income. . Some artists, such as Def Leppard, Aerosmith frontman Steven Tyler and, on behalf of her late husband Kurt Cobain, Courtney Love, immediately took advantage of these changes in the industry, negotiating deals with companies like Primary Wave. for some or all of their catalogs, paving the way for others to follow in the years to come.

On the other hand, music companies saw an excellent opportunity to collect all or part of the catalogs of artists who offered permanent income, especially if they controlled or received part of the income generated by sampling, granting licensing or synchronized placement in advertising and various forms. medias.

But music publishers weren’t the only ones to notice, and groups of investors from all walks of life soon began to bid against more established companies and, eventually, against major players like Sony and UMG.

“One of the things that’s appealing about it is the stability,” said Stephen Sessa, Century City-based co-chair of the entertainment and media group at law firm Reed Smith. “Look at some of the people who are in space: you talk about hedge funds that are backed by pensions. They want to put their money somewhere where it’s fairly stable.

Keller estimates that there are over 100 companies, from private equity to family offices, currently trying to buy catalogs of institutional capital and other music companies.

“People just said, ‘No one is really sure about the market capitalization of streaming,’ and that’s exciting,” he said.

This competition has driven prices up, which is why artists like Dylan and Nicks have been able to capitalize on their legacy in massive deals, and why Bruce Springsteen can confidently ask Sony for up to $ 415 million. dollars for its album catalog and combined publishing rights, as it would have done this month.

But Brian Schall, a partner at Sawtelle-based law firm Wolf Rifkin Shapiro Schulman & Rabkin and a nearly 30-year music industry veteran, acknowledges that the decision to sell can be as personal as the decision to start recording music. music in the first place. .

“There are so many factors that are involved in the decision making,” said Schall. “My clients feel like they are their children. Like, ‘It’s my life’s work, and that’s what defines me. Do I really want to give them up for someone else to maintain them, or do I just want to own them and have someone administer them where I could still maintain important control, so I don’t ‘can’t hear my song in a McDonald’s commercial?’ So it all depends on the mentality of the individual and what he wants to accomplish.

For reprint and license requests for this article, CLICK HERE.