Like many of us, HBG’s Jayme Klein noticed a trend in musicians selling their catalogs recently, and she decided to dig quite a bit deeper to help all of us understand what’s behind these massive sales. Thanks to Jayme’s article, we can see (much more) clearly now! ~Helen
Senior Consultant Jayme Klein
Stevie Nicks. Bob Dylan. Blondie. Neil Young. Bruce Springsteen. Paul Simon. Sting. Tina Turner. Many famous musicians are making headlines these days. Not for a new album or a worldwide tour, but because they’ve sold their copyrights in multi-million dollar deals. Even those without decades-long careers, such as John Legend, Shakira, Justin Bieber and Timbaland, are cashing in on their past successes to ensure their futures. It doesn’t stop with those still among us, either. The estates of the late David Bowie and Bob Marley have also signed over publishing rights. What’s the deal?
It starts with what they’re selling.
As the Washington Post so helpfully explains, for nearly every song, there are two copyrights associated with it. It makes it easier to understand the process when you think of a song as a two-step process.
First, it has to be written. Then, it has to be recorded. These steps each have their own copyright. The composition (music and lyrics) and the master (the recording) can be owned by different entities and are different revenue streams. Your favorite cover song creates different claims of ownership: first, by the original composer and anyone who records a cover. An automatic fee is due every time someone records a cover. Another hiccup in the process is if an artist re-records their music (Taylor Swift) and creates multiple masters. This is highly uncommon. If a company or individual wants to license a song, this can get really complicated, as they have to contact the composer, the owner of the master(s) and any other owner. Phew.
An artist doesn’t have to sell it all at once. Neil Young sold 50% of his copyright in 2021. The company Primary Wave purchased a 50% stake in the estate of Whitney Houston, and only publishing from before 1964 by Ray Charles. Mick Fleetwood sold only the recorded rights to BMG.
While the trend is making news right now, in 1997, David Bowie got things started by creating Bowie Bonds, the first celebrity asset-backed investment. He raised $55 million through 10-year bonds backed by his royalties, with a 7.9% return. They matured in 2007, with the income rights returning to Mr. Bowie. While the phenomenon didn’t last, it helped stir thinking about music catalogs as an investment.
Lately, it seems that investors with deep pockets want to “work smarter, not harder” and own these copyrights if the owner is willing to sell. Songs with longtime appeal (hits that continue to be popular over many years) are considered a lower risk investment, than, say, a one hit wonder from a few summers ago. The new owner of “Like a Rolling Stone” will get revenue if it is used in a film, a commercial, or even played at your local restaurant.
What’s causing these musicians to cash in? It seems like some older musicians are planning ahead for their futures, especially since touring revenue has dried up during the pandemic. While few musicians are speaking out about their decisions, some, like David Crosby, have said that streaming services have dissolved their income sources. “If we could get paid for records and play live we would not be doing it. None of us.” Some may see leaving their families a large sum of money less complicated than managing their music catalogs after they are gone. Given the multitude of estates cashing in, this may prove true.
Per Rolling Stone, tax benefits are a primary reason for the especially successful. In 2006, the Bush administration signed a law which allowed musicians use catalog sales as capital gains, rather than income (which is taxed higher). If the Biden administration changes capital gains taxes for sales over $1 million, this would raise the rate from 20% to 37%. A one-time payment on the sale would save musicians a lot of money over time. The article notes that a younger artist, Shakira, is involved in a tax evasion investigation upwards of $16 million. Selling copyrights could be a more lucrative way to make that up than, say, selling a property.
How are the deals decided? Hipgnosis, a company that has purchased several catalogs, pays artists, on average, “14.76x historical annual income.” This means an average of 14.76 years of royalties. Depending on the artist, this may be higher or lower.
Those buying the catalogs are almost as varied as the artists themselves. Often, they are going to recording companies, such as Bruce Springsteen’s $500 million sale to Sony, Bob Dylan’s $400 million deal to Universal or David Bowie’s estate’s deal with Warner Chappell Music for $250 million. Most recently, Sting sold his back catalog to Universal Music as well for $250 million. Investment firms like Hipgnosis, Vine Alternative Investments and Eldridge are looking at music catalogs as a reliable investment and making deals with artist young and old alike. Stevie Nicks sold her catalog for $100 million to Primary Wave, a New York-based talent management and publishing firm.
What does this mean for researchers? The majority of musicians that we might investigate will not be making deals like this. However, it always helps to broaden our knowledge of what people are selling and what it could be worth. Thinking creatively about the arts and how prospects become high net worth individuals is never a bad investment.
