This is a guest editorial by Mark Tavern, an artist manager, consultant, educator, administrator, and arts advocate with more than 20 years of music business experience.
When news broke recently that Primary Wave Music, an artist management and music publishing company, had completed a deal with singer-songwriter KT Tunstall to purchase a wide-ranging set of rights to her publishing and sound recording catalogs, I worried that the marketplace for similar deals had become an “arms race.”
The number of similar deals has ramped up over the past year, with a raft of companies, including Primary Wave, Hipgnosis Songs Fund, Vine Alternative Investments, Shamrock Holdings, Kohlberg Kravis Roberts, Round Hill Music, Warner Music Group, and Universal Music Publishing Group all dropping what seems like daily press releases announcing their latest acquisitions.
The list of songwriters and performing artists selling their catalogs is growing: Primary Wave recently announced a deal with Stevie Nicks and has stakes in the catalogs of Ray Charles, Whitney Houston, and Bob Marley. Hipgnosis recently purchased 50% of Neil Young’s songs and has reportedly done deals with songwriters including Johntá Austin, The-Dream, Sean Garrett, No ID, L.A. Reid, Mark Ronson, RZA, Timbaland, the band Journey, and crooner Barry Manilow. Vine acquired Calvin Harris’ catalog. Shamrock bought Taylor Swift’s sound recordings (from Scooter Braun’s company Ithaca Holdings, which flipped them after purchasing her former label Big Machine). KKR recently purchased a stake in Ryan Tedder’s songs. Round Hill has the rights to Rob Thomas and Matchbox 20 songs and floated an IPO this past fall to raise money for further acquisitions. Warner Music Group recently announced they’d raised $250M to do the same. Even record producers are getting in the game: Jimmy Iovine and Bob Rock have recently sold stakes in their producer royalty streams to Hipgnosis.
What’s most interesting here is that these deals are being driven by a variety of entities: traditional, major music publishers and record companies (UMPG, WMG), private equity investors (Shamrock Holdings, KKR), and hybrid rights management/asset management companies (Primary Wave, Hipgnosis). They also represent a wide swath of both legacy and contemporary songwriters, performers, and producers.
While all of this points to a bubble forming as companies rush to repackage copyrights as investment vehicles, the practice is not exactly new. David Bowie was among the first artists to allow his rights to be monetized, as “Bowie Bonds” in 1997.
What’s different now—exemplified by the number and variety of companies and artists doing deals—is that this practice is no longer a music industry outlier. In an era when artists had to give up control of their copyrights, Bowie Bonds seemed strange: why would an artist do something so audacious as selling their rights, especially after working so hard to get them back in the first place? That question remains, but times have changed, and the bubble we see is proof. But what is different now? Why are artists selling their catalogs, and what do they stand to gain as a result?
The short answer is cash. These deals are all about the money, and with valuations skyrocketing, buyers are willing to find creative ways to structure them. Sellers (the artists) are willing too: despite—or perhaps because of—the global pandemic, they realize that timing is everything, and acting quickly may mean pocketing more than they might otherwise get with a traditional deal. Everything is on the table, from full copyright ownership to the resulting royalty streams from music publishing and sound recordings—even producer royalties. Songwriters are even doing what was previously unthinkable: selling their writer’s share.
So, what factors are driving this boom?
As consumers continue to shift to streaming as their primary music consumption method, streaming revenue is increasing. This is true not just with front-line, big-name artists but also with catalog tracks, as streaming has allowed old material to remain in print, introducing it to new fans and making it accessible to consumers in ways that dusty LP bins prevented in the past.
The biggest winners are DSPs, labels, performers, and songwriters whose catalogs regularly see millions or even billions of streams. (Unfortunately, whether individual artists will see any effect given low per-stream royalty rates is another story.) The bottom line, though, is that streams are trending up, and with them, there is a desire to cash in.
Mechanical royalties—the payments songwriters receive when their compositions appear on CD, vinyl, or are streamed—are set by copyright law and have historically lagged behind record royalties. But a 2019 decision by the Copyright Royalty Board increased the streaming royalty rate by 44% (from 10.5% to 15.1%). That rate was supposed to be phased in over the coming five-year period. While the streaming services are fighting the increase, it will hopefully result in more money being paid out to songwriters and music publishers, thereby increasing the value of the copyrights they own.
One benefit of a digital marketplace is data, and with increasing streaming comes a flood of it. The traditional recording and publishing businesses were very risky, as they required lots of upfront money to be invested in creating and marketing a product that consumers might not like. Sales (before SoundScan) were difficult to track. As a result, valuing any investment was difficult. But with increased data, it’s now easier to gauge how much revenue a given catalog has generated and easier to predict how much money it will throw off. This information is a boon to investors, making them better able to price a given investment and more willing to take a risk.
For years, a music business truism was that the label owned the master and the publisher owned the composition. No exceptions. But in today’s business, the exception is now the rule. The massive changes to distribution and marketing wrought by digital disruption over the past two decades now mean that songwriters and recording artists can now go around the traditional label and publisher relationships to create their own revenue streams, keep their copyrights, and pocket a larger share of the profit.
With songwriters and performers finally able to wrest ownership of their copyrights from labels and publishers, they are now in the position of being able to sell those rights, driving the current interest in individual catalogs. I’m reminded years ago of an artist looking to buy back their masters from the label where I worked, asking me to whom they should go to start that conversation. My answer at the time was, “don’t bother; we’re never going to sell.” The difference now is that the artist has more control. He or she doesn’t have to give up their rights in the first place, and should they ever want to, they can make that choice and pocket the cash.
The global pandemic has eviscerated the live music business, and with performers unable to go on the road until late 2021 at the earliest, artists who once relied heavily on touring income and unable to make it up through streaming (or live streams) have been hit especially hard. Famed singer-songwriter David Crosby said as much when he explained he was being forced to sell his publishing catalog to pay his mortgage.
Low interest rates
Low interest rates make money easier to obtain, and the pandemic has caused governments to direct their central banks to lower interest rates in hopes of stimulating the sluggish economy. This is good news for investors, as it means loans are cheaper, increasing their purchasing power. With investors able to buy more, sellers can then increase their prices. Catalog valuations are hitting very high multiples (15x-18x, even 23x!), creating a seller’s market that benefits songwriters and performing artists who are tempted to unload their catalogs, without the risk to the investor who might otherwise lose their shirt.
I was interviewed by NPR when news broke that Bob Dylan had sold his music publishing catalog to UMPG for upwards of $300M. Since then, I’ve been looking at his decision to sell increasingly through the lens of financial planning. With Joe Biden’s presidential election and the Democratic Party controlling both houses of Congress, it’s highly likely that taxes will go up. If you’re planning to sell a valuable asset, better to close that deal before the capital gains tax increases. Doing so means putting more money in your pocket (instead of the government’s). And with the stock market hitting record highs, it’s possible that reinvesting those gains might generate even higher returns than holding onto your copyrights.
An artist who is approaching retirement must also look at how he or she wishes to transfer wealth to their heirs. While copyrights can be bequeathed in a will, they will still require administration, saddling heirs with a responsibility, a workload, and a cost they may not anticipate or even want. Furthermore, if the estate includes a company focused on managing the deceased’s rights, there is an increased risk that a disgruntled, would-be heir might contest the will and spark a fight over control of the deceased’s assets. Liquidating that company (and converting those rights into cash) makes it easier to pass along the wealth and may prevent an ugly fight in probate court.
It’s clear that despite the global pandemic, investors are bullish on music, even with the decline in revenue resulting from a lack of live performance opportunities. While music publishing has always been viewed as a quiet, yet reliable, revenue stream—especially in comparison to its flashier sibling, recorded music—it’s also clear that it will continue to grow. As songwriters and performers take a greater role in controlling their rights, they might be encouraged (or sadly, forced) to sell them. Investors will always be attracted to these opportunities. With demonstrable growth, better risk management, transparent pricing, willing sellers, and creative deals, we won’t see this market cool off for a while.
Mark Tavern is an artist manager, consultant, educator, administrator, and arts advocate with more than twenty years of music business experience. In addition to running his own management company, he currently teaches music business at the University of New Haven and LaGuardia Community College/CUNY, and previously, at the Institute of Audio Research. Prior to 2012, Tavern worked at major record companies, including Universal Music Group, SONY Music Entertainment, and BMG Entertainment. As an A&R Administrator with such labels as Island, Def Jam, RCA, and RCA Victor, he took part in more than 200 recordings, a dozen Broadway cast albums, and numerous reissue projects, including the GRAMMY®-winning 24-CD box set The Duke Ellington Centennial Edition. Visit his website for insider tips about the music business, and subscribe to his newsletter to get a free ebook: Listen Up! A Simple Guide To Getting Heard On Spotify.