The Wolves of Wall Street are buying out music catalogs
ANOUK DYUSSEMBAYEVA | MARCH, 4 / 2021
On January 11, KKR announced its investment into Ryan Tedder's and OneRepublic's music catalogs. One of the leading global investment firms, KKR will now have nearly 500 songs that the artist wrote for OneRepublic and other musicians, and control over publishing and recorded music rights. This isn't the first time the firm invests in "artist-centric businesses", and certainly not the last.
Another major player has been Hipgnosis Songs Fund, founded by Merck Mercuriadis, which has recently acquired publishing rights of Shakira's 145-song music catalog. That isn't all — the company announced purchases that include catalogs of stars like Neil Young, Jimmy Iovine, and Lindsey Buckingham, and is testing the waters and "eyeing" catalogs with a combined purchase price of over £1 billion.
Another major player has been Hipgnosis Songs Fund, founded by Merck Mercuriadis, which has recently acquired publishing rights of Shakira's 145-song music catalog. That isn't all — the company announced purchases that include catalogs of stars like Neil Young, Jimmy Iovine, and Lindsey Buckingham, and is testing the waters and "eyeing" catalogs with a combined purchase price of over £1 billion.
What is at stake for investment firms?
In its Annual Report 2020, the Mercuriadis-owned company states that "$1 of income purchased last year will now be worth $1.44 by the end of 2022," which makes buying music catalogs a very attractive investment.
Why are they investing now?
We've seen investment tycoons purchasing music catalogs before: Taylor Swift's master rights to her six albums were bought by Shamrock Capital and Universal Music Group got Bob Dylan's song catalog for an estimate of $400 million.
This year, however, offers even more promising opportunities for investment firms. With concerts being cancelled due to the pandemic, the prices on catalogs have dropped and musicians are more willing to sell their music. "Until recently, 15 years of declining revenue has resulted in attractively priced copyrights and writers who are willing to sell to the right buyer," Hipgnosis writes.
Furthermore, because the DSPs are aggregating more listeners and revenue than ever, making revenue from catalogs increase "to £64.7 million with cash receipts from royalty statements [in the year to 31 March 2020]."
This year, however, offers even more promising opportunities for investment firms. With concerts being cancelled due to the pandemic, the prices on catalogs have dropped and musicians are more willing to sell their music. "Until recently, 15 years of declining revenue has resulted in attractively priced copyrights and writers who are willing to sell to the right buyer," Hipgnosis writes.
Furthermore, because the DSPs are aggregating more listeners and revenue than ever, making revenue from catalogs increase "to £64.7 million with cash receipts from royalty statements [in the year to 31 March 2020]."
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Who was the first?
David Bowie, one of the most influential artists of the 1900s, with the New York Times dubbing him a 21st-century entrepreneur, knew that the music industry was about to experience an extremely transformative change.
Predicting that "copyright, for instance, will no longer exist in 10 years, and authorship and intellectual property is in for such a bashing," he wanted to secure his music, literally and figuratively, and "take advantage of these last few years because none of this is ever going to happen again." That's when, together with David Pullman, he came up with Bowie bonds.
It was a particularly interesting concept because it was the first asset-backed security that was backed by his future earnings potential, giving a share in his future royalties. Issued in 1997 in partnership with Prudential Insurance Company, the 10-year bonds came with a 7.9% interest rate and attracted investors since it was a "steady long term investment."
A series of other musicians, including James Brown, Rod Stewart, and the Isley brothers, with Pullman finding a new business for himself.
Bowie earned $55 million, and was able to buy out his music from a former manager. Soon after, just as the artist predicted, his album sales plummeted because of online streaming — in 2004, Moody's Investors Services had the bonds fall to almost "junk" status.
Predicting that "copyright, for instance, will no longer exist in 10 years, and authorship and intellectual property is in for such a bashing," he wanted to secure his music, literally and figuratively, and "take advantage of these last few years because none of this is ever going to happen again." That's when, together with David Pullman, he came up with Bowie bonds.
It was a particularly interesting concept because it was the first asset-backed security that was backed by his future earnings potential, giving a share in his future royalties. Issued in 1997 in partnership with Prudential Insurance Company, the 10-year bonds came with a 7.9% interest rate and attracted investors since it was a "steady long term investment."
A series of other musicians, including James Brown, Rod Stewart, and the Isley brothers, with Pullman finding a new business for himself.
Bowie earned $55 million, and was able to buy out his music from a former manager. Soon after, just as the artist predicted, his album sales plummeted because of online streaming — in 2004, Moody's Investors Services had the bonds fall to almost "junk" status.
How can it become a billion-dollar powerhouse?
Michael Jackson knew that buying music catalogs was a profitable and steady long-term investment — and it would be one that would make his income skyrocket. After talking to Paul McCartney, and the latter sharing how he earned an estimated $40 million from publishing rights in one year, Jackson was set on making an investment of his own.
The chance came up two years later. In 1981, ATV — the company that owned the entire Beatles music catalog — decided to sell to Robert Holmes à Court. McCartney declined multiple chances to buy back the rights to his band's songs, and Robert began searching for someone who would buy the 4000 songs owned by his company.
Telling his lawyer to "spend whatever it takes to acquire" the catalog, Jackson acquired the full catalog for $47.5 million and could license any song he wanted.
In 1995, Sony made an offer to create a new 50/50 publishing company, merging their music catalog with that of ATV, and pay $95 million for the deal. Now, Sony/ATV is worth more than $2 billion, and the catalog "controls more than two million songs by artists ranging from Eminem to Taylor Swift."
As Forbes mentions, it was "a lucrative investment," and also one that made Michael Jackson a billionaire.
The chance came up two years later. In 1981, ATV — the company that owned the entire Beatles music catalog — decided to sell to Robert Holmes à Court. McCartney declined multiple chances to buy back the rights to his band's songs, and Robert began searching for someone who would buy the 4000 songs owned by his company.
Telling his lawyer to "spend whatever it takes to acquire" the catalog, Jackson acquired the full catalog for $47.5 million and could license any song he wanted.
In 1995, Sony made an offer to create a new 50/50 publishing company, merging their music catalog with that of ATV, and pay $95 million for the deal. Now, Sony/ATV is worth more than $2 billion, and the catalog "controls more than two million songs by artists ranging from Eminem to Taylor Swift."
As Forbes mentions, it was "a lucrative investment," and also one that made Michael Jackson a billionaire.
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But investing in music catalogs can bite and backfire
Taylor Swift announced on February 11 on Good Morning America that she has rerecorded her most popular album, Fearless, dropping the rerecording of "Love Story."
According to Swift, the new version will have 26 songs that "made the album, but [also] the songs that almost made it." The big question: what "motivated" the singer to do so?
Let's go over the recent history. Ithaca Holdings, which is owned by Scooter Braun, got the recordings of Taylor's first six albums after striking a deal with Big Machine (her first label). In November, the manager sold those master rights to Shamrock Capital for a whopping $300 million.
Taylor's attempts to gain control over and acquire her own music have been completely ignored in both deals. If you can't buy back the rights to your music, rerecord it instead… which is exactly what Taylor is doing.
It is hard to predict the exact outcomes, but let's hope it doesn't end up like the subprime mortgage crisis.
According to Swift, the new version will have 26 songs that "made the album, but [also] the songs that almost made it." The big question: what "motivated" the singer to do so?
Let's go over the recent history. Ithaca Holdings, which is owned by Scooter Braun, got the recordings of Taylor's first six albums after striking a deal with Big Machine (her first label). In November, the manager sold those master rights to Shamrock Capital for a whopping $300 million.
Taylor's attempts to gain control over and acquire her own music have been completely ignored in both deals. If you can't buy back the rights to your music, rerecord it instead… which is exactly what Taylor is doing.
It is hard to predict the exact outcomes, but let's hope it doesn't end up like the subprime mortgage crisis.
