Recording Artists & Songwriters Are Selling Their Catalogs. What’s the driving trend?
The list of songwriters and performing artists selling their catalogs is growing. 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? The short answer is cash.
What’s driving the trend? In this article, we discuss the flip side.
Last year, Vine Alternative Investments acquired Calvin Harris’ catalog. Terms of the deal were not disclosed, although one source said the price was “around” $100 million.
When companies acquire music rights, they can cobble up the entirety of the revenues an artist generates from brand deals, licensing, royalties, and other incomes that otherwise the artist should have received.
The Basics
A copyright is an intellectual property right, an economic right and it exists to generate money from ‘intangibles’, in this case, your music catalog.
Streaming Boom: Copyrights & Licenses: Independent Artists vs. Record Labels.
Copyright has always lagged behind technology.
But…now that we live in a streaming era… Spotify, Apple, Tidal…are few of the dominant forces in recorded music and user-generated content is becoming the biggest source of income. It’s time that the business of rights collection and allocation catches up with the tech. Yes, streaming revenue is increasing and please note that low per-stream royalty rates is another story. Here’s more information on the ‘record label vs. DSP (Spotify)’ relationship status.
Are artists, labels and the music industry in a position to play catch up is what I’ll explore here.
One thing for sure, the value of music catalogs is skyrocketing thanks to those music streaming services.
Licensing presents a particularly lucrative revenue possibility for song catalog owners.
Lack of Tools & Data Transparency:
Generating revenue as an independent artist is a big deal, a big topic.. And questions and concerns always rise up..
One of the major reasons for the headaches is independent artists are using a much more limited set of tools to manage these presences, versus the record labels, distributors and major artist management firms who have direct access into the platforms and much bigger arsenal of B2B tech to manage the artists digital music catalog and leverage all of that to drive revenues or create revenue opportunities.
Another primary reason is that independent artists have to learn the business rules and logic of each platform.
I’m planning to map out such differences in matrix which is going to take some time considering the variance in artist service features across Spotify, Apple Music, YouTube Music, Deezer, Tidal, Amazon Music, SoundCloud and the list continues. Next article? MusicPromoToday can map out the revenue algorithms per platform and features so you can better repackage the investment vehicle, your copyrights.
The Business of Music:
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 in the last decade proves 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 when selling.
Fun fact: David Bowie was among the first artists to allow his rights to be monetized, as “Bowie Bonds” in 1997.
Covid-19 Canceling Tours
The biggest revenues for an artist is from touring if not an endorsement and we all know how the global pandemic eviscerated the live music business. Unable to tour, artists are tapping their catalogs for income as music rights increasingly are seen as ‘a sound alternative asset’.
While the FDA has issued authorization for vaccines, it will take a while before things go back to normal and touring resumes.
According to a Citigroup report, U2 made less than 4% from album sales and streaming; the big chunk of their $54.4 million income in 2017 came from touring. Famous musician David Crosby of Crosby tweeted, “I am selling mine also … I can’t work … and streaming stole my record money …I have a family and a mortgage and I have to take care of them so it’s my only option .. I’m sure the others feel the same.”
Artists who once relied heavily on touring income have been hit very hard.
Fact: Did you know that Bob Dylan also sold his music publishing catalog of 600+ songs to UMPG for upwards of $300M.
Tax benefits?
The beneficial tax situation in the US is coming to an end. Newly elected president Joe Biden has introduced a tax plan for any asset sale, which exceeds $1 million. The tax plan implies that those who make over $1 million will have a tax increase from around 20% to 37%.
Let’s take a look at Stevie Nicks’ case. According to the Wall Street Journal, “Music publisher Primary Wave purchased an 80% interest in the copyrights, which are valued at about $100 million, according to people familiar with the deal.” At 20% tax, she’s due to pay $20 million to the government; at the new 37% tax plan, she’d need to turn over $17 million extra. After analyzing these metrics, it is quite understandable why artists would like to sell their copyrights.
Let’s look at this from another angle. Why would recording artists sell their music rights if they can wait out until that exact amount is driven via royalties in a few years, or who knows, perhaps decades? If they decide to pursue that path, they will have to pay the 37% tax annually. Trading that for a single multi-million deal with 20% taxation certainly sounds advantageous. This is a significant, yet frequently not appreciated, factor to consider. But getting paid top dollar right now is only one reason to sell.
Risk Management: Ca$h-strapped artists. It’s personal.
Minnesota-born star, Bob Dylan. According to BBC, the 79-year-old artist sold the rights to his entire song inventory to Universal Music Group for a staggering $400 million.
A considerable payout of that amount is a much easier alternative than a lifetime of a jumble in publishing copyrights. He has six children, is undoubtedly thinking about his retirement plans at this age, and cashing in on that generational wealth. Another example is Shakira. According to Reuters, “Shakira appeared in a Spanish court to answer to tax fraud charges, with prosecutors accusing her of failing to pay up to 14.5 million euros in tax on income earned between 2012 and 2014.” Stars also have administrative and familial headaches, and, understandably, they would like to sell their music rights for peace of mind.
For many legend artists, bands and songwriters, without active management, their “brand” slowly diminishes over time and their songs and recordings lose out on the critical opportunity to be exposed to (and enjoyed by) new generations of fans.
We all know how Gen Y and Z’ers face an onslaught of new media choices and new artists vying for their attention in this new tech and streaming-driven world of entertainment. Not only does this reality risk diminishing and marginalizing a song’s impact and artist’s legacy over time, it also risks significantly slowing down relevant IP royalty streams. The artist’s “mailbox money” becomes less significant.
It makes more sense to enjoy that monetary value today, rather than wait for an unknown tomorrow.
“We have a two-year window where we will probably get to between £2bn to £3bn invested [in catalogues] where these songs will remain at attractive prices,” said the Hipgnosis founder, Merck Mercuriadis, the former manager of acts including Elton John, Iron Maiden, Guns N’ Roses and Beyoncé. “The focus is buying while the songs available are at attractive prices.”
Conclusion:
Well-funded buyers actively and aggressively compete for music publishing, master recordings and streaming royalties right now. So-called financial multiples on these rights and royalty streams (essentially a multiplier placed on current royalty streams) have never been higher.
With demonstrable growth and a lot of risk and creative deals happening, we won’t see this market cool off for a while, unlike a gold rush. The bubble is here for a while although market conditions are unpredictable but anyone exiting should always think twice.
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