Bob Dylan would spend the summer of 2020 on tour, opening at the Les Schwab Amphitheater in Bend, Oregon, and closing at the Bethel Woods Center for the Arts in New York. Instead, confined at home by the pandemic, he earned the highest income of his career.
For years, music industry executives had approached Dylan to purchase his catalog, which includes more than 600 songs like Blowin ‘in the Wind and Like a Rolling Stone. Dylan always turned them down, but last December the 79-year-old singer-songwriter reconsidered and landed more than $ 300 million in a deal with Universal Music Group.
The sale was the largest in a series of recent deals in which stars have monetized their old songs.
Lindsey Buckingham, Shakira, Neil Young and producer Jimmy Iovine sold all or part of the rights to their catalogs, while Stevie Nicks and songwriter Ryan Tedder (who has written for Adele, Beyoncé and Carrie Underwood, among others) sold majority stakes. in yours.
Music assets are bought and sold all the time, but there has never been a period as active as the last few months. Industry executives cite aggressive shoppers, low interest rates and COVID-19, which has prevented musicians from touring, as their main source of income. Before 2020, Dylan toured every year for a decade, earning more than $ 130 million.
Although he released five studio albums in the same period, their earnings decreased with the shift from CDs to streaming.
Another influencing factor was the US presidential election. Joe Biden has promised to raise taxes on capital gains, so the stars wanted to close deals before that happens. “These artists are in their 70s, and at that age you have to think about estate planning,” says Josh Gruss, CEO of Round Hill Music, a fund that owns the rights to the songs of artists like the Beatles.
Many investors had exited the music business after the Internet undermined CD purchases, first with piracy and then iTunes. Record sales fell more than 40 percent between 2000 and 2014. As streaming services revitalized the industry, investors returned. In 2016, Goldman Sachs Group projected that the sector (which encompasses live music, radio, recorded music and publishing) would double in size to $ 103.9 billion by 2030, and the publishing business in particular would grow from 5.4 billion to 9 thousand 300 million dollars.
“People are getting more comfortable with where music is going globally,” says Justin Kalifowitz, CEO of Downtown Music Holdings, which represents the songwriters of the film’s hit Shallow. A Star Is Born, among others. “We are seeing an avalanche of capital entering the market to acquire a specific set of rights to extremely popular songs.”
The channels that make money for songwriters are more varied than ever. In addition to radio, commercials, and television, they collect royalties from streaming services, social media companies, video games, and fitness apps. Let’s think about TikTok, YouTube, Peloton, Spotify; an average success earns income from more than 20,000 sources around the world, says Kalifowitz.
This booming market has attracted buyers including private firms, pension funds and companies that do little more than buy and sell music rights. There is no more aggressive buyer than Merck Mercuriadis, former manager of Guns N ‘Roses and Beyoncé. He has spent around $ 1.750 million to acquire the rights to more than 60,800 songs in three years through his investment firm Hipgnosis Songs Fund. In addition to his deals with Buckingham, Iovine, Young, and Shakira, he now owns songs written by Blondie, Rick James, and Barry Manilow.
Mercuriadis competes with other specialized funds such as Round Hill Music and Primary Wave Music, which has an agreement with Stevie Nicks and has just announced that it has acquired the historic Sun Records catalog with recordings by Johnny Cash, Jerry Lee Lewis and others (except Elvis Presley). .
The spending of these players has also piqued the interest of other investors. Asset managers such as BlackRock and private equity firms KKR and Providence Equity Partners have invested in catalogs and are looking for more.
Interest from Wall Street, as well as foreign billionaires, grew after a consortium led by the Emirati sovereign wealth fund Mubadala sold its stake in EMI Music Publishing, valued at $ 4.8 billion in 2018, when six years earlier it had paid for her 2 thousand 200 million. Ukrainian billionaire Len Blavatnik fared even better: After acquiring Warner Music Group for 3.3 billion in 2011, he made a profit of $ 7.5 billion when the company went public last year.
Some in the industry are seeing signs of a bubble here, with musicians taking advantage of a hot market and new buyers willing to overpay. Buyers currently pay between 14 and 17 times their share of a song’s earnings, according to independent appraiser Massarsky Consulting; Hipgnosis says it pays almost 16 times on average. Some recent deals have reached almost 25 times the earnings. “A new class of buyers has entered the market recently, offering multiples well above the norm,” says Matt Pincus, who sold his music publisher in 2017 for about $ 160 million and is now investing in the industry. .
Analysts at Stifel Financial downgraded Hipgnosis’s shares in January, arguing that Hipgnosis posted higher valuations of the catalogs shortly after purchasing them, despite “not having had enough time to add value, or for the shares to have changed. underlying market assumptions ”. Mercuriadis dismisses Stifel’s arguments as “almost hysterical”, stating that the valuations are from independent companies and that he achieves deals by taking advantage of his industry contacts and avoiding auctions; for Massarsky Stifel’s criticisms are “fundamentally wrong.” Mercuriadis was previously CEO of the record company and artist representative Sanctuary, which during his tenure lost money after expanding, ending in a restructuring and sale.
High prices may be here to stay. For one thing, new investors are used to them and are comfortable generating consistent long-term returns. After all, they say, the life of a hit song is forever and any investment will end up being profitable. However, for Larry Mestel, CEO of Primary Wave, there is a difference between the sales of recent less profitable songs and the classics of legends like Dylan: “You will see how the lower segment of the market cools, but the upper segment of the market will continue. like this for a while ”.
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This text is part of the Bloomberg Businessweek Mexico magazine special of ‘A very free market’. Check here the fast edition of this issue
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