#030: Five Reasons Why Artists are Selling Their Music Catalogs
“Get the money, always remember to get the money, and never forget to always remember to get the money”
— Shep Gordon
Bob Dylan. The Chainsmokers. Mark Ronson. What do these three artists have in common?
2020 and the start of 2021 have been full of many events that haven’t been seen in decades or even longer. From the storming of the Capital to a once in a century global pandemic, much of the news has been terrible. However, one trend in music has never been better for recording artists, producers and songwriters — there is currently a boom in the valuations for master and publishing catalogs. When a song is created, there are two primary rights that are established: the ‘master’ and the ‘publishing’. The ‘master’ is the official and original sound recording of a song or performance. The ‘publishing’ is the composition and songwriting for the song itself. Typically recording artists will own their own masters, unless they sell them in a partnership with a record label and songwriters/producers will control the publishing, unless they sell their share in a partnership with a publishing company.
The last two years have brought on a rush of major finance and music companies acquiring these rights. Some of these deals include Bob Dylan selling his publishing to Universal Music Publishing Group (UMPG) for $300 million+, Hipgnosis Songs Fund — who have raised over $1 billion for acquisitions since 2018 — purchasing the catalog publishing rights from The Chainsmokers, Neil Young and Mark Ronson & just this past week, KKR purchasing Ryan Tedder’s publishing. So what is prompting this flood of artists and creators to sell their rights? Here are the five primary reasons why:
Legislation and Mechanical Rates: The Music Modernization Act (MMA), which passed Congress and became law in 2018, will shift the balance of power and revenue sharing in favor of the publishing rights holders, who still control less of the pie than the master rights holders. Between the publishing benefits from the MMA and the projected growth in the overall music industry, many expect a golden age for music monetization in the decade ahead.
Taxes: The sale of an artist or songwriter’s catalog is subject to capital gains taxes in the United States. Under the Trump Tax Code, that tax rate is capped at 20% for acquisitions of $500,000+. It is expected that this rate will go up under the Biden administration, with some expecting the top bracket to reach as high as 40%. In the final year of the Trump administration, many business managers have advised their clients to sell now, if they are considering it.
The Pandemic and Touring: An obvious driver to push recording artists and songwriters to sell their catalogs sooner than they may have otherwise is the pandemic and the inability to tour. Cash-strapped creatives, especially the legacy acts, during the COVID era have an easy way to fix their problems by selling their master or publishing rights.
Interest Rates: The interest rates and ability to borrow money from lenders has never been lower. This has led many of the major music investment firms to borrow against their assets to grow their catalogs even more, with the presumed growth in catalog values ahead.
The Bidding War: In 2018, a buzz started with some of these early deals and the formation of Hipgnosis. By 2019, it became clear that many companies were in the running to purchase these rights and a bidding war began. This has led companies to pay up to 10-15x the current annual earnings for some of these catalogs.
With the upcoming expected change in the U.S. tax codes, a potential plateau in the buyers market for master/publishing rights and the eventual return of touring, we will see if this trend continues in the years ahead. We should also keep an eye on if the catalog values grow (or diminish) in the decade ahead. Regardless, the future of the music business and monetization of music rights is bright and there will be many ways for artists that achieve success to cash out.
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JAY’S SONGS OF THE WEEK:
slowthai - “MAZZA” (feat. A$AP Rocky)
dvsn - “Use Somebody”
Jazmine Sullivan - “Girl Like Me” (feat. H.E.R.)
Oscar DeLaughter - “Just Woke Up”
Drelli - “Ain’t Enough”
